Q2 2020 Globus Medical Inc Earnings Call

[music].

This medicals second quarter 2020 earnings call.

This time all lines will be onemia any acuities session will be out after the prepared remarks.

Ask your question at that time. Please press Star then the number one on your telephone keypad I'll now turn the call ever to Brian Cronin Senior Vice President of business development and Investor Relations Mr. cards. Please go ahead.

Thank you Catherine Thank you everyone for being with US today, joining today's call from Globus medical will be Dave Demski, President and CEO.

Dan Scavilla Executive Vice President Chief Commercial Officer, Keith well, Senior Vice President and Chief Financial Officer.

[noise]. This review is being made available via webcast accessible through the Investor Relations section of the Globus medical website at Www Dot Globus medical Dot com.

Before we begin let me remind you that some of the statements made during this review our or maybe considered forward looking statements.

Form 10-K for the 2019 fiscal year, you know subsequent filings with the Securities Exchange Commission identifies certain factors that could cause our actual results to differ materially from those projected in any forward looking statements statements made today.

Our resi SEC filings, including the 10-K are available on our website.

We do not undertake to update any forward looking statements as 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 for gas.

We believe these non-GAAP financial measures provide additional information pertaining 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.

Conciliations 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 Demski, our president and CEO. Thank.

Thank you, Brian and good afternoon, everyone.

I'm very excited to report an outstanding performance by the globe his team in Q2.

Well it was the most challenging external environment and our 17 year history I couldn't be more proud of the way our team responded to the challenge.

Revenue for the quarter was a 149 million down 23% from Q2 19 muscular skeletal solutions was up by 21% well, enabling technologies was down by 55%.

Non-GAAP EPS was seven cents per share and adjusted EBITDA was 15% for the quarter.

Well the growth and earnings metrics are low compared to our typical results in light of the circumstances and relative to our peers their outstanding accomplishments.

Are you not spinal implant business was down by 21% for the quarter, but the trends we saw within the quarter and continuing into July are encouraging.

Business bottomed in mid April and continued a steady climb upward through the quarter.

Hey for revenue was down by roughly two thirds may improve dramatically. The finished off by 25% and June rebounded into double digit growth compared to June 20 minute team.

Growth in July accelerated into the mid teens, even a certain areas began restricting elective surgeries again.

Our growth as a function of a number of factors new product launches competitive recruiting and robotic pull through.

Our spine product development team built on her strong performance in 2019 by launching six new products and 2020.

We have seen tremendous uptake and he and the he dropped nine of our Threed printed interbody spacers as well as stable our fourth generation expandable M.I.S.T. left device.

Option has been so successful that we're doubling our three d. manufacturing capacity, which should come online in Q4.

[noise] robotic usage continues to grow mirroring the trends we experienced in the overall business during the quarter.

Competitive recruiting and Onboarding remained strong during the second quarter, our pace for the first half of this year matched that over the first half of 2019, a record recruiting year for us now more than ever Globus is the destination of choice for the best in the industry.

I wanted to take a moment to recognize the dedication that commitment of our manufacturing operations team members, who have steadfastly supported our customers patients and sales reps during this difficult time.

The central workers, they have continued to deliver product and record amounts in anticipation of the bounce back and procedures. We have expected and are now beginning to see.

Our international spine does spinal implant business was down by 30% for the quarter. Most markets are beginning to come back, but generally speaking the bounce back and procedures began later and has that been as pronounced as the U.S.

Similar to the U.S. trends, our international spine business had a strong June and improved further in July.

Our trauma business was a bright spot in Q2, nearly tripling sales over the second quarter of 29 team posted 179% growth.

We're continuing to invest in this business expanding our geographic footprint by adding sales reps launching new products and making improvements to systems already launched.

During the second quarter, we completed the purchase of a developmental stage finished company called Sonos day.

So they'll stay engineers have developed a lengthening system that utilizes national technology to facilitate incremental nail expansion there can be accomplished outside of the clinical setting.

They have study patients implanted with the system in a limited <unk> clinical trial in Europe.

We're excited about the potential to apply this technology to treat orthopedic trauma and deformity patients as well as the potential to develop growing roads for pediatric spine to for many patients in the future.

We're working to commercialize the limb lengthening system with a target market launch of 2022.

Revenue from enabling technologies was 5.4 million in the quarter.

Well the economic impact of course of 19 to hospitals has created some uncertainty around capital budgets.

Encouraged by the fact that we continued to close deals in June and July.

During the quarter, we saw continued strong surgeon interest in our robotic technology.

Hosting a number of webinars that focused on the advantages of Excelsius GPS and the capabilities of our inner body module.

Now more than ever the benefits that robotic surgery promises in terms of M.I.S. procedures shorter hospital stays less time, and youre and reduce cognizant billowed I'm busy surgeons are demonstrating value in the technology.

We are seeing the hospitals can and will invest in capital then improves patient care and benefits surgeons.

Well as time has been challenging to navigate he ever use the opportunity to critically evaluate all aspects of the business and make adjustments to position ourselves well for the future.

Our strong liquidity position and lean organization structure have enabled us to financially support all of our people. During this crisis, we have not laid off or furloughed anymore.

Since it started the year, we've made several strategic moves to strengthen our company for the future.

One we purchased the building that will double our manufacturing footprint.

Two we continue to higher competitive recruits at a record pace.

Treaty, we completed the acquisition of Sonos day, and fourth we bought back over $100 million, if our stock at depressed prices.

In addition, we have been able to donate millions of dollars to support communities in frontline workers, who have been impacted by code 90.

Well no one knows what the second half of this year will bring regarding the Corona buyers I can say with certainty that globus and stronger now than we I've ever been and looking forward to the future whatever that might be.

I'll now turn the call over to Keith.

Thanks, Dave and good afternoon, everyone.

Well the macro environment was impacted by Cobot 19, I'm extremely pleased with the Lake Little bus has weathered the storm and I'm encouraged with how we finished Q2.

The impact to fill that Nate 19 negatively affected sales and profitability, we improved upon our free cash flow compared to the prior year driven by continued working capital improvements and decreased capital expenditures. In addition, as Dave mentioned earlier, we were able to complete the acquisition of Sonos day development developmental stage finished company.

Our Q2 revenue was $148.9 million, a decrease of 23.4% as reported or down 23.3% in constant currency compared to the second quarter of 2019.

On a day adjusted basis sales were lower by 23.5% with the same number of selling date in the U.S., but one more selling day in Japan.

Our Q2 net loss was $20.8 million and includes a 24.4 million dollar pre tax charge related to the acquisition of Sonos day, which is reflected within our research and development expense.

The total consideration for snow State was 25.3 million and included 22.8 million of cash paid at closing plus a 2.5 million contractual hold back.

Non-GAAP net income was $6.9 million delivering seven cents, a fully diluted non-GAAP earnings per share.

Adjusted EBITDA was 14.7% and our free cash flow was $13.1 million.

Moving into sales, our second quarter, U.S. revenue was 125.2 million or 21.8% lower than the second quarter of 2019, driven by the impact of cobot 19 across our business.

The cobot 19 impacts were greatest any earlier part of the quarter.

As we progressed in Q2 overall sales improved sequentially led by our U.S. spine business.

As Dave noted, we concluded June with double digit growth in our U.S. spinal implant business as compared to June 2019.

International revenue for the second quarter was $23.8 million down, 31.2% as reported or lower by 30.5% in constant currency.

Again, the primary driver of lower sales was the impact of covert 19.

In addition, and as expected we did not repeat the large distributor orders placed in the first half of last year, that's driving difficult year over year comps internationally.

Our second quarter gross profit was 66% compared to 77.4% in the second quarter of 2019.

The decline in gross profit was driven by a combination of factors one that de leveraging of fixed costs due to lower revenues as a result of cobot 19 to higher inventory reserve expenses focused primarily on our trauma and spine businesses Threex higher depreciation expenses and for the write off of fixed manufacturing expenses.

It's important to note that the de leveraging impact will affect other areas of our piano, including R&D and ask GNS.

Consistent with our first quarter and as expected for 2020, the higher depreciation expense was originally result of additional instruments handset within our spine and trauma businesses.

On revenues returned to pre coded levels, we would expect a mid seventys gross margin in line with historical results.

Research and development expenses for the quarter or $39.5 million or 26.5% of sales and includes the impact of this announced the acquisition, which I commented on earlier.

Adjusting for the acquisition research and development expenses were $15.1 million or 10.1% of sales compared to $15.7 million or 8.1% of sales in the second quarter of the prior year with a decreased spending driven primarily within our iron ore and trying to businesses.

SGN expenses for the second quarter were 80 million or 53.7% compared to 88.4 million or 45.4% in the second quarter of 2019.

The decrease X gene a spending was driven by lower sales compensation expense and lower expenses within traveling training. These were partially offset by increases to bad debt expense as well as cobot 19 related expenses, primarily donations and costs associated with P.P.E., which are approximately $2 million in the quarter.

The effective income tax rate for the quarter was 5% as compared to 19% in a second quarter of 2019.

The lower effective tax rate was driven by the since the acquisition and its discrete treatment, resulting in no GAAP tax impact for the quarter as well as additional stock comp windfalls compared to prior year.

Adjusted EBITDA margin for Q2 was 14.7%, which is reflective of my earlier comments, including a de leveraging impact driven by lower sales as a result with cobot 19.

The company has continued its review all of its business performance related cost structures to identify cost savings opportunities.

Looking ahead to 2021 and beyond assuming had more normalized noncovered environment. We would expect they returned to a mid thirtys adjusted EBITDA range.

We ended the quarter with 636.2 million of cash cash equivalents and marketable securities net cash provided by operating activities was $23.1 million and free cash flow was $13.1 million both improvements over the prior year, driven by lower capital expenditures as well as working capital improvement.

It's primarily a are as well as the timing impact of a delayed federal tax payment, resulting from the cares Act.

During the quarter the company spent $30.8 million to repurchase its class a common shares in connection with the previously authorized and announced share repurchase program. We have not purchased any additional shares since the conclusion of Q2 and currently have 95.3 million remaining on its original 200 million dollar authorization. Thus we have.

Spent $104.7 million year to date on repurchases.

As noted last quarter the company will fund the share repurchases with its operating cash flows and excess cash.

Looking back on the quarter Globus performed exceptionally well into cobot environment, a testament to our underlying business strength.

We will continue to meet the challenges faced by the market well take the prudent steps necessary to further improve our business, while maintaining focus and discipline around cash flows liquidity and profitability.

We'll now open the call for questions.

Yeah.

Gentlemen, just as a reminder, if you'd like to ask a question. Please press star and then the number one on your telephone keypad.

[noise] [noise] [noise] and your first question comes from the line of Matt Miksic with credit Suisse.

Hey, good evening, thanks for taking the questions can you give me okay.

Yes, yes, Matt.

Great.

Thanks, So wanted to follow up on a couple of things you know I think there's been a surprising amount of activity in the second quarter reported by yourself and other companies around robotic surgery and would love to.

Yeah, I think Dave you mentioned.

Interest among surgeons.

But in the end it seemed like a closed several other other companies not to compare but close to larger numbers of deals in the quarter can you talk a little bit about the cadence of those and.

No I would hate expect them to develop or come to come to fruition and then I had one follow up.

Sure well, it's been challenging to you know get in front of the executives given the environment and to get their attention given the other things on their minds, but as as we noted we were able to to close some deals and activity is opening up now just even you can kind of as we speak we're seeing more and more access the.

Certainly interest on the part of surgeons, and and I think executives as well to get the technology. It's a just a matter of grabbing their attention and then and making it happen in the in the interim.

That's that's helpful. Then the or just a follow up just was on the volumes I. Thank you.

Almost right out of the gate it as its company started talking about the recovery I think you where you're one of the gene is that was seeing maybe a I hate to call. It a snap back, but just sort of a faster rise of activity.

When you reported first quarter and it seems like you're you're providing some color around June July that are that are a bit.

Maybe a bit above what some of your fears or or talking about it if crush.

And with different different specialties Navy, but you know same zip code orthopedic and spine and.

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Loved to understand what do you think is driving that you know that's hard to imagine there's a share element to this although you do have a lot of new technology, reaching the market place it at the moment so.

What do you feel like you're relatively stronger than some of your peers in terms of you know how your how you're picking up pace again or or or any color would be helpful and those comments.

I think our results are a function of the market coming back, but we're clearly taking share in this environment. If you look at the results of our appears in the spine space.

If you recall before cope with a hit in the first quarter, we were on pace for about 15% growth. So we're continuing to take share or even though were lost ground versus last year, but versus our competition. We're growing the I think that's one of those.

Okay Super Thank you.

Your next question comes from the line Shagun Singh with Wells Fargo.

Thank you. So my thinking the question. So I wanted to touch on under cadence of go that you saw in June July. Thank you for heading back its could you help us understand how much of it wouldn't backlog, which is a heavy in normalized makes up new patient care Tony into the final and then how should we think of trends in the second half of the you just given the ABS.

Then snows in coal the cases, I, you little bit more immune to bad given your geographic mix you know how should we think about that and then the last part of my question as you know I even into shares you know what percentage of <unk> like you just have already been performed I think the number we heard was about 40, 50%. So if I.

Hi that we have about back my STENDRA, meaning in the final so any color that would be helpful. Thanks for taking the question.

Sure. So again, we don't really have insight into whether they can you sort of deferred case or a new case. That's that's really the surgeons, but I think I think I can help you a little bit in terms of a understand into the future we.

We've been talking to our swords and we did a little informal serve survey of our own throughout the country. We tried to to grab about 30 surgeons from a diverse geographic mix thing and we asked them to questions. We asked them what does the or what is your clinic flow today versus pre coated and then the second question is it.

Clinic flow that you're seeing now continues through the end of the year, where you have a full our schedule and the averaged in terms of the clinic flow versus pretty cool, but it's about 85% that range from 50% to 100% <unk> with a few outliers at 50. So it came in around 85%, which is very strong.

In my opinion, given where we are with the pandemic and then the answer to the second question a little bit will they maintain a full operating schedule. If they continue at that clinic rate was about 78% of them said, yes. They would it would be busy through the ended the year. So I find both of those data points very encouraging in terms of where we are.

Certainly if the code environment improves I think you'll see that go back to 100% in the clinic and and that does leave some room for a little bit of about dropped back as well.

I think the other thing you see there as it spine is a profitable procedure for the hospitals. So even if there is some restriction on electives.

I think spine goes to the front of the lie in terms of doing procedures done. So I think I think all those factors bode well for for our segment.

Thank you for the color.

Your next question comes from the line of Richard Newitter with S. BV I'm sorry.

Hi, Thanks, Scott Thanks for taking the questions I'm.

Just to piggyback off would be kind of June July pretty pretty strong growth.

That you're talking about there as I as we looked at the back half I mean.

Reshaping that maybe double digits in June and July reflect some backlog work down some so some of that recovery isn't isn't extrapolate will surely into the back half, but are we thinking about kind of gross.

You know in in the second half for your for your business is that.

That is that reasonable in your view based on what you see today.

I think it's definitely a possibility for since its really challenging to predict the external environment, but what the way that we're taking share and the trends we're seeing I think it's it's certainly possible.

Okay, very encouraging keys here, and then on trauma or it sounds like that launches is going pretty well I guess Dave.

Are you are you surprised by the performance.

Of that business, even during the cold period.

With that kind of inline with where you had hoped you would be [noise].

Previously and if you could just update us a little bit on the you know where you are on kind of full commercialization. There. Some limitations you had on manufacturing and <unk> and the outlook a into the back half. Thanks.

Hey, rich, it's Dan I'll jump into the Alan So thanks for the question. We're certainly pleased with good progress in the inroads, we're making with sales growth I think there's a long way to go certainly covidiens impacting us while they're still trauma surgery incurring I'm getting together with pricing committees are getting those type things approved through the hospitals.

During the day right now certainly something hindering also I think there was actually most growth to be had and we could have beaten that I believe it's probably worth a pullback by coated with that so I will continue to go I would say it's on track for what we predicted for this year, but again I I think the potentials even stronger.

You asked about manufacturing we have there come those hurdles last year. We continue to have a very strong manufacturing facility is capable of putting this out without hindrance and today. We have 12 of the product family launched we have a few followed up with the F.D.A. a with the potential of getting two to three more out by the end of this year, if all works well.

Great. Thanks, they have to it.

Your next question comes from the line of cannot come with acumen Securities.

Hey, guys. Thanks for taking our questions. So can you give a little bit more in detail on on that recent acquisition just any sense for potential contribution from that area and just what prompted the timing of of that purchase now and then I get tied to those questions are you still evaluating other deal today.

Sure Kayla. Thanks, I, it's it's something we've been looking out for a while it's a bad to go to be an exciting product for our for our trauma sales force to begin carrying the in the technology itself and I know, we think there's definitely an opportunity to expand that into into the treatment of a pediatric deformity a into.

In terms of growing rods.

So.

It was going to go out before we get to the market is probably going to be till the end of 2022 before we can go to a into the U.S. market and maybe a little bit before that in Europe, but not much.

In terms of other deal yeah. It's it's we've been active we're looking at a number of things nothing nothing transformative or again, just a tuck ins and things that could improve our business.

Great. Thanks to you and I mean, the fact that you guys still generate cash. During this time is also kind of a rarity just looking across our space. So I I love to hear your approach to spending new investments at the time and just how you're thinking again about capital allocation from here. Thank you.

Thanks for the question a this is Keith a you know we continue to look at our business and run it in normal and normal course, so you know as it relates to some of the improvement we generating free cash flow. This quarter. We took a hard look at a are you know coming into the quarter. No. One knew what was going to happen with Kobe. Then we felt that the most important thing we could do is manage our balance.

Operating cash flows and there was a concerted effort to really focused on bringing cash into the business. Ah you know we've taken an approach to continue to build inventory in preparation for a bounce back but really it's just active management of trying to identify what are the things you can control within your business. That's really the approach we took for the quarter.

Thanks, guys and congrats on the quarter.

Thank you.

Your next question comes from the line of Matthew O'brien with Piper family.

Afternoon. Thanks for taking my questions I guess, you know, Dave why the kind of cautious tone on growth in the back half just given what you're seeing here in July how how are their outbreak areas that you're really worried about me why wouldn't you be growing and then this this share taking in the U.S. is pretty demonstrably I know you've.

Got a lot of reps in products and so forth but.

Can you just give us a little bit more as far as where that's coming from large companies that you get your from small companies going bankrupt. The robot I mean, what's really driving it because again, it's a clear stand out.

Yeah, Thanks, Matt well I'll tell you might tentative.

Answer is because the cove. It I mean I I, just you know seems like day to day, where have a different plan as a country and you just want to want to not get you know over our skis here, but I'm excited about our business. Our business is really strong relative to our Peter So I I don't want that the seem like I have any doubts about how we're going to perform relative to others.

But it's really it's really were clicking on a number of cylinders. It is competitive recruiting which is mainly focused on what I'd say competitive I really looking at the larger competitors, we really have a lot of respect for those competitors and that's that's become a competitive accrued at Globus you have to come from one of the bigger companies. We don't we don't even powerade if it's from the smaller.

So that's that's where it's coming from and.

I think reps are really attracted to.

Our technology our leadership in implants has been known for awhile, but the enabling technologies is still really differentiated us in their hours over the last several years and they can see that that's the future and <unk> and they want to be part of that I would add to that we've had some great launches. This year on the on this on the implant side.

So a that that's something that we've had a I think back in 18, we probably didnt have a stronger for years, we could do typically we came back last year and now we're really real really firing on multiple cylinders and then it's not just the technology when it comes to enabling technology, there's the pull through aspect of the robotic deployments that we.

But as I was that installed base grows you're going to see the pull through grow a kinda exponentially if you will.

Okay. Thank you and then as a follow up on the on the robotic side of things you talked about causing a lot of deals in in June I'm, assuming you know everything you printed here today happened in June you've done some more in July is is there a willingness among hospitals to be buying capital equipment in this environment.

Do you have to get aggressive on the economic side in terms of what you're going to give up on the front end to get more volume and the backend and then one of your competitors announced the delay to their robotic system. A yesterday is that is that then any kind of gating factor where people are kind of waiting to see that one versus versus I'm going ahead, and executing excelsius purchase and now that there.

Allayed do you think there could be yeah, maybe a little bit more push to ticket access to your your product.

Yeah, Let me, let me see if I could know.

I keep track of the questions in terms of pricing, we haven't no. We haven't done anything in a more aggressive than we normally would.

To get systems placed them to characterize hospitals as willing or not.

Are dangerous because you there's there's an entire spectrum, there's there's Ceos, who say I can't even think about this right. Now. So you know I have too many too many things going on with co would have too many too many problems to address so you'd need to come back on a quarter and there's other ones, who maybe aren't as impacted by the go with environment themselves that see an opportune.

We need to differentiate their hospitals, even more to pull more patients to them, but are there maybe not able to be treated at other places. So it's an entire spectrum generally speaking, though it's it's challenging to get their attention right now versus the way it was six months ago.

And then finally to the.

A competitor you mentioned are yeah, I think that's I don't think we've seen that yet, but I think as a result of continued or delays. The the reality is that we don't really know when that's kinda if it's coming so.

Got to be useful for our sales force in terms of addressing those folks who might be waiting.

Got it very helpful. Thank you.

Sure.

Our next question comes from the line, Matt Taylor with <unk>.

Hi, Thanks for taking my question the question Congrats.

So I want to ask more about the recruiting.

Continued to have record levels of recruiting and you mentioned some of the reasons just.

Just now I'd just.

Just curious how you're able to maintain that you know during during this time in.

This is the bigger difference you're performing is going to make that continue and make it easier for you in some ways and what are you seeing your competitors do [noise].

On the recruiting side.

Oh, yes, they do seem to have backed off a bit I I, the guts nearly anecdotal, but <unk>, but our guys are 100% focused on that and as its credit to the.

Greg Harris, our executive VP of U.S. sales and his team does the focus they've had at this period to the really accentuate the strength of our company and in terms of our financial strength or technology strength and just the culture. The weve built the bring people over one one things become uncertain.

People are looking for security and they've been able to convey that to folks and and continue to generate that interesting and we've been willing to be aggressive and and make about on ourselves. It that things are going to come back and we're going to those but they're going to pay off in the future.

Yep Yep.

I was just hoping to get an update on the robotics program in large joints and he can talk about that and the timelines that on anything on expectations for contribution from it.

Yeah, that's a that's a ways out you know, what we would probably not going to see that for for a good bit at this point, where we've been challenged or is it earlier stages of development. There. The team is fairly dispersed so it's been challenging to get into the labs and do the.

The labs, we need to have on those early stages to get the products are finalized. So I think that has been a bit of other casualty of coal bed they'll have a timeline or to tell you at this point, but we are we're further behind them than we were a phase six or six months ago.

Okay Fair enough. Thank you sure.

Your next question comes from the line of David Lewis with Morgan Stanley.

Hi, This is mason on for David say, thanks for taking the questions. So quick clarification. When you talk about June up double digits year over year. It's obviously very encouraging I just wanted to check is there any additional selling days clouding that compare ability. Some device companies have called out differing days in June specifically year over year.

Yeah, I mean, it's a good question that's a day adjusted rate I gave you.

Great and then higher than that anomaly.

Got it that's helpful. And then just a quick follow up on July accelerating off of the obviously encouraging to see that like what they continuing are you seeing a plateau as you look <unk> week to week as backlogs continue to be work through or the growth rates still accelerating off of this in the back half of July and into August. Thanks.

Good to another good question yeah. Its its plateaued in terms of our sequential week to week, we're kind of at least we seem to be a certain level July is typically amounts were.

Where we tail off for vacation so we're.

Sequentially, we're we're glad to going but we're up against maybe easier comps for July. So we'll we'll enjoy it was easy comps in August and September obviously that does when people would normally come back so the comps will get harder for us come September.

Understood. Thanks.

Your next question comes from the line of Jason what he's with Northland capital.

Hi, Thanks, just two questions one follow up on recruitment, which is obviously very important to the story.

Did you say that your competitors for talent are pulling back end at the same time can you describe kind of the way you see the situation forming the larger companies where your poaching talent.

I don't know for sure that pulling back they don't they don't seem to be as aggressive when we when we.

Our talking to folks, who usually ask them, they're thinking about making a move is usually behooves, then to shop around a bit and it doesn't feel like.

We're really in competition with a lot of folks that at this point there there [noise] narrowing their choice Tonight that may just be because weve differentiated ourselves enough that they know where they want to end up and not anything our competition is doing and then I apologize I didn't I think because I guess the related to that was a and I had a quick follow up with the religious that was.

What's the situation at the larger companies, where you're generally poach from is there a fair amount of uncertainty that's.

Driving a lot of moving is that something you kind of anticipate to continue or for the rest of this year and even into next I don't know if its uncertainty I think it's just a clear from the larger folks that there are buying technology, if there if there.

Moving at all and then maybe on the more pure related there, there's just seems to be.

A lack of some of the key elements.

So where the future is right.

I think it's just it's our it's our culture here and the technology that we have the implants that we have for them to sell combined with the power of the enabling technology the imaging and navigation robotics platform that we're building I think it's it's all of it's what we're doing more than what it maybe what they're not doing versus some.

Thing that they're actively doing.

Okay, and then just too quickly on trauma impressive numbers you know when I recently spoke to you guys. You kind of mentioned that you know it took a while to get things in place things are in place now, but it's kind of a bit of a waiting game for contracts to expire and is that kind of what we're seeing here that you're picking up sort of new contracts is they expire or.

Or is there other drivers of the growth that are that are kind of behind that number.

Hey, Jason It's Dan again, I'm, a truly multifaceted right, it's going to be about recruiting and bringing out a reps onboard. So you penetrated market given that were small so you're able to get into new territories I certainly about creating access whether that's at a as cesar at hospitals or through G.P.O.. It's all those things are Oh are working for us. They of course is getting more.

Our products are more sets out into the marketing the regulator fashion that allow us to continue to get more usage and more trials as we build a surgeon relationships. So all of those are really working it's not necessarily data contracts expired and we jump on and do it is part of it but it's not the sole reason.

Okay. Thank you very much.

Your next question comes from high all right.

Coin.

Great. Thank you very much for taking the questions I'm one of the follow up on one of the other questions on enabling technologies I I appreciate the comment on the timing for the robotic side, but maybe any additional insight with respect to this procedure specific indications in the spine Arena and then.

Any update on timing with respect to the imaging platform as well.

Sure. Thanks, Thanks, Kyle Yeah, we were actually just into the soft launch of our Interbody module or if that's what your reference to procedure specific was.

And it's going quite well we've done we've done a half a dozen cases, a this week at the right by all accounts will be in full commercial launch.

During this quarter if it continues at that rate.

The imaging system is also going well, we're in a into sort of the final stages of Ah testing work with the agency right now which is the last stuff before we go to the FDIC. So.

I'm, assuming that goes well, we don't see any major oh.

Pickups there.

We will be filing with the FDA within the next couple of months [noise].

Great I appreciate the update and then just a follow up on on the promise hyper Dan Dan, but when you're when you're going into accounts and I'm trying to get on contract are you taking I guess would you characterize as smaller bites of those contracts you know one to two product lines or are you able to go in and compete against.

The full line trauma players and we think about entering a level one facility in taking material Sherry.

One of those facilities, yeah, we're not in a position yet you taken displace a full large player we're working towards that as we build out the portfolio.

But most places you're going to begin with one or two products get usage, depending on the surgeon if he said upper extremity or lower obviously, and then kind of expand through there. So again with 12 product families launched we can do quite a bit.

But we still need to continue to put more out on the market before really [noise].

Ken a disruptor displaced the bigger competitors [noise].

Great. Thank you for taking the questions.

Your next question comes from the line of Ryan Zimmerman with BTI G.

Hi, guys. This is actually Max on for Brian I, just wanted to go back that he joined in Sable I know you mentioned that you're really encouraged by the rollout both products during the quarter, but just wondering if you could talk a little bit more about how that's products contributed to the topline and whether there was anything different he did but those rollouts given the cobot environment that might be able to take for it to that addition.

No product launches here in the back half of the yeah.

Yeah. Thanks, Matt.

Nothing we really we did any any differently than our norm.

I will say that I I blew it on a the the projection or how much we sell and I understand that so we are we've kind of exhausted ours are set capacity at this point those are producing a lot, but we need to make more and for that we needed to expand our manufacturing capacity. So we've got the orders in hand.

Those those are those machines that capacities coming onboard we should we should see the impact of that in Q4.

And again nothing different than the normal and we typically don't give me the granularity in terms of what what's what the components of our growth. Our I will tell you that new products are contributing significantly this year.

Got it. Thank you that's very helpful. And then switching over to the emerging technology segment, you know given that the cranial models now approved can you just provides more detail around here commercial strategy in the model itself isn't a software upgrade and some hardware or is it a separate unit entirely just kind of help us think through that police you guys rights on the.

Excelsius platform. It does require some different hardware, but the core units the same.

And then if obviously different software there, they're they're putting the final touches on the the roll out of the software, we're probably going to roll it out into the fourth quarter I don't expect any meaningful revenue from it this year and we're we're probably going to go initially to customers who have a unit.

Two.

Expand their capacity and by the cranium module.

We will also be addressing neurosurgeon through just focus on bringing procedures, but that's that's a new area new call point for our for our folks so.

I I don't anticipate meaningful revenue from that segment until we really get out there and get some good clinical data on system.

Got it thank you.

Sure.

Your next question comes from might not need on.

Yeah, Hi, this is David taxing on for Mike. Thanks for taking my question.

I just had a follow up on the imaging a system. Just wondering can you give a timeline to commercialization and then also how how are you thinking about the risks or opportunities in launching in the current environment.

Thanks, David Yeah, we'll be out in the first quarter with that and along with them the navigation that goes with that.

Yeah I was there are other risks launch in capital in the current environment I think there are but at the same time I think the.

This is going to end at some point and we're we're excited about what this technology can do.

It's it's been a it's been an issue for us competitively not having this is this system as we go up against our number one competitor. So this is going to put us on a.

Equal or greater footing once it gets to the market. So were really we can't wait to get it out there.

Great. Thank you and then as a follow up just on gross margins you know as as revenue starts to recovery or how should we think about the ramp back to kind of normal gross margins. Thanks. So much for taking my questions as Keith. Thanks. The question I know I think.

Normalized basis again, we have no reason to believe that were not a mid seventys business, but by air all I'm, saying how quickly we returned there given that we still don't know what the second asking to bring it yes, we do see some optimism with sales so far in July but looking ahead I air on on providing out specific target.

For the back half of the year I think what I would say is on a on a go forward based [laughter] coping environment, we should be Amy.

[laughter].

Your last question comes from line as Steve like men with Oppenheimer and company.

Hey, Thanks for taking questions actually aided on for Steve.

Just maybe one for me or any color you can provide on Japan odd during the second quarter or have you begun selling excelsius units and if so how many shouldn't impact she'll be stuck for that rollout and the second half. Thank you.

Yeah. Thanks, David we are marketing it there we have not sold a unit a yet in Japan, but we have a a pretty pretty nice pipeline of potential leads and we're optimistic about the future with it there.

Did you have a follow up question.

Thank you.

Okay. Good thank you.

And ladies and gentlemen, there no further questions and this does conclude todays Globus medicals second quarter earnings call. Thank you for your participation and you may now disconnect.

[noise] [noise].

[noise].

[music].

[music].

[music].

Welcome to Globus Medicals second quarter 2020 earnings call.

At this time all lines will be only me any queuing <unk> session will be out after the prepared remarks.

Ask a question at that time. Please press Star then the number one on your telephone keypad.

I'll turn the call over to Brian Cronin Senior Vice President of business development and Investor Relations Mr. card. Please go ahead.

Thank you Catherine Thank you everyone for being with US today, joining today's call from Globus medical well be Dave Demski, President and CEO, Dan Scavilla Executive Vice President Chief Commercial officer, acute Wow, 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, Www Dot Globus medical Dot com.

Before we begin let me remind you that some of the statements made during this review our or maybe considered forward looking statements.

Form 10-K 2019 fiscal year.

<unk> filings with the Securities Exchange Commission identifies certain factors that could cause our actual results to differ materially from those projected in any forward looking statements statements made today [laughter].

Our 60 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 forgot.

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 Demski, our president and CEO.

Thank you, Brian and good afternoon, everyone.

Very excited to report an outstanding performance by the Globus team in Q2.

Well it was the most challenging external environment and our 17 year history I couldn't be more proud of the way our team responded to the challenge.

Revenue for the quarter was a 149 million down 23% from Q2 19 muscular skeletal solutions was up by 21% well, enabling technologies was down by 55%.

Non-GAAP EPS was seven cents per share an adjusted EBITDA was 15% for the quarter.

Well the growth in earnings metrics are low compared to our typical results in light of the circumstances and relative to our peers their outstanding accomplishments.

Are you not spinal implant business was down by 21% for the quarter, but the trends we saw within the quarter and continuing into July are encouraging.

Business bottoms in mid April and continued a steady climb upward through the quarter.

Revenue was down by roughly two thirds may improve dramatically the finished off by 25% and June rebound it into double digit growth compared to June of 2019.

Growth in July accelerated into the mid teens, even a certain areas began restricting elective surgeries again.

Our growth as a function of a number of factors new product launches competitive recruiting and robotic pull through.

Our spine product development team built on our strong performance in 2019 by launching six new products and 2020.

We have seen tremendous uptake and he and the he draw a line of our Threed printed interbody spacers as well as stable our fourth generation expandable M.I.S.T. left device.

Option has been so successful that we're doubling that's really manufacturing capacity, which should come online in Q4.

[noise] robotic uses continues to grow marrying the trends, we experienced going that overall business during the quarter.

Embedded recruiting and Onboarding remained strong during the second quarter, our pace for the first half of this year match that over the first half of 2019, a record recruiting year for us.

Now more than ever Globus is the destination of choice for the best in the industry.

I wanted to take a moment to recognize the dedication that commitment of our manufacturing operations team members, who have steadfastly supported our customers patients and sales reps during this difficult time.

And he central workers, they have continued to deliver product and record amounts in anticipation of the bounce back and procedures. We have expected and are now beginning to see.

Our international spine does spinal implant business was down by 30% for the quarter. Most markets are beginning to come back, but generally speaking the bounce back and procedures began later and has that been as pronounced as the U.S.

Similar to the U.S. trends, our international spine business had a strong June and improved further in July.

Our trauma business was a bright spot in Q2, nearly tripling sales over the second quarter, putting 19, posting 179% growth.

We're continuing to invest in this business expanding our geographic footprint by adding sales reps launching new products and making improvements to systems already launched.

During the second quarter, we completed the purchase of a developmental stage finished company called Sonos day.

So those to engineers have developed a lengthening system that utilizes magnitude technology to facilitate incremental mail expansion there can be accomplished outside of the clinical setting.

They have study patients implantable system in a limited common clinical trial in Europe.

I did about the potential to apply this technology to treat orthopedic trauma and for many patients as well as the potential to develop growing roads for pediatric spine to formerly patients in the future.

We're working to commercialize the limb lengthening system with a target market launch of 2022.

Revenue from enabling technologies was 5.4 million in the quarter.

Well the economic impact of quoted 19 to hospitals has created some uncertainty around capital budgets.

We are encouraged by the fact that we continued to close deals in June and July.

During the quarter, we saw continued strong surgeon interest in our robotic technology.

Posting a number of webinars that focused on the advantages of Excelsius GPS and the capabilities of our Interbody module.

Now more than ever the benefits that robotic surgery promises in terms of M&A as procedures shorter hospital stays less time any O R and reduced cognizant below a busy surgeons are demonstrating value in the technology.

We're seeing the hospitals can and will investing capital then improve patient care and benefit surgeons.

Well as time has been challenging to navigate have you ever use the opportunity to critically evaluate all aspects of the business and make adjustments to position ourselves well for the future.

Our strong liquidity position and lean organization structure have enabled us to financially support all of our people. During this crisis, we've not laid off or furloughed anymore.

Since the start of the year, we have made several strategic moves to strengthen our company for the future.

One we purchased the building that will double our manufacturing footprint.

Two we continue to higher competitive recruit at a record pace.

Three we completed the acquisition of Sonos day, and fourth we bought back over $100 million of our stock at depressed prices.

In addition, we've been able to donate millions of dollars and support communities in frontline workers, who have been impacted by code 90.

Well no one knows what the second half of this year will bring regarding the Corona buyers I can say with certainty that globus a stronger now than we have ever been and looking forward to the future whatever that might be.

I'll now turn the call over to Keith.

Thanks, Dave and good afternoon, everyone.

Well the macro environment was impacted by Cobot 19, I'm extremely pleased with the Lake Love US has weathered the storm and encouraged with how we finished Q2.

No. The impassive coordinate 19 negatively affected sales and profitability, we improved upon our free cash flow compared to the prior year driven by continued working capital improvements and decreased capital expenditures. In addition, as Dave mentioned earlier, we're able to complete the acquisition of snow stake development developmental stage finished company.

[music].

Our Q2 revenue was $148.9 million, a decrease of 23.4% as reported or down 23.3% in constant currency compared to the second quarter of 2019.

On a day adjusted basis sales were lower by 23.5% with the same number of sailing days in the U.S., but one more selling day in Japan.

Our Q2 net loss was $20.8 million and includes a $24.4 million pretax charge related to the acquisition of Sonos day, which is reflected within our research and development expense.

The total consideration for snow State was 25.3 million and included 22.8 million of cash paid at closing plus a 2.5 million contractual hold back.

Non-GAAP net income was $6.9 million delivering seven cents, a fully diluted non-GAAP earnings per share.

Adjusted EBITDA was 14.7% and our free cash flow was $13.1 million.

Moving in the sales our second quarter U.S. revenue was 125.2 million or 21.8% lower than the second quarter of 2019, driven by the impact of cobot 19 across our business.

The cobot 19 impacts were greatest earlier part of the quarter.

As we progressed in Q2 overall sales improved sequentially led by our U.S. spine business.

As Dave noted, we concluded June with double digit growth in our us spinal implant business as compared to June 2019.

International revenue for the second quarter was $23.8 million down, 31.2% as reported or lower by 30.5% in constant currency.

Again, the primary driver of lower sales, what the impact that covered 19.

In addition, and as expected we did not repeat the large distributor orders placed in the first half of last year, thus driving difficult year over year comps internationally.

Our second quarter gross profit was 56% compared to 77.4% in the second quarter of 2019.

The decline in gross profit was driven by a combination of factors one the de leveraging of fixed costs due to lower revenues as a result of cobot 19.

To higher inventory reserve expenses focused primarily on our trauma and spine businesses.

Three higher depreciation expenses and for the write off of fixed manufacturing expenses.

It's important to note that the deleveraging impact will affect other areas of our piano, including R&D and SGN.

Consistent with our first quarter and as expected for 2020, the higher depreciation expense was the result result of additional instruments and set within our spine and trauma businesses.

When revenues returned to pre covered levels, we would expect a mid seventys gross margin in line with historical results.

Research and development expenses for the quarter or $39.5 million or 26.5% of sales and includes the impact of this announced the acquisition, which I commented on earlier.

Adjusting for the acquisition research and development expenses were $15.1 million or 10.1% of sales compared to $15.7 million or 8.1% of sales in the second quarter of the prior year with the decrease spending driven primarily within our iron ore and trauma businesses.

Yes gene expenses for the second quarter were 80 million or 53.7% compared to 88.4 million or 45.4% in the second quarter of 2019.

The decrease SGN eight spending was driven by lower sales compensation expense and lower expenses within travel and training. These were partially offset by increases to bad debt expense as well as covered 19 related expenses, primarily donations and costs associated with BP, which are approximately $2 million in the quarter.

The effective income tax rate for the quarter was 5% as compared to 19% in a second quarter of 2019.

The lower effective tax rate was driven by the since the acquisition and its discrete treatment, resulting in no GAAP tax impact for the quarter as well as additional stock comp windfalls compared to the prior year.

Adjusted EBITDA margin for Q2 was 14.7%, which is reflective of my earlier comments, including a deleveraging impact driven by lower sales as a result discovered 19.

The company has continued its review all of its business performance and related cost structures to identify cost savings opportunities.

Looking ahead to 2021 and beyond assuming a more normalized noncovered environment, we would expect the returns by mid Thirtys adjusted EBITDA range.

We ended the quarter was 636.2 million of cash cash equivalents and marketable securities.

Net cash provided by operating activities was $23.1 million and free cash flow was $13.1 million both improvements over the prior year driven by lower capital expenditures as was working capital improvements primarily a are as well as the timing impact of a delayed federal tax payment, resulting from the cares Act.

During the quarter the company spent $30.8 million to repurchases class a common shares in connection with the previously authorized and announced share repurchase program. We have not purchased any additional shares since the conclusion of Q2 and currently have 95.3 million remaining on its original 200 million dollar authorization. Thus we have so.

$104.7 million year to date on repurchases.

As noted last quarter the company will fund the share repurchases with operating cash flows and excess cash.

Looking back on the quarter Globus performed exceptionally well in the cobot environment.

Estimate to our underlying business strength.

We'll continue to meet the challenges faced by the market I'll take the prudent steps necessary to further improve our business, while maintaining focus and discipline around cash flows liquidity and profitability.

We'll now open the call for questions.

Ladies and gentlemen, just as a reminder, if you'd like to ask a question. Please press Star then the number one on your telephone keypad.

Okay.

And your first question comes from the line of Matt Miksic with credit Suisse.

Hey, good evening, thanks for taking the questions can you hear me okay.

Yes, yes.

Great.

Thanks, So wanted to follow up on a couple of things.

I think there's been a surprising amount of activity in the second quarter reported by yourself and other companies around robotic surgery and would love to.

I think Dave you mentioned.

Interest among surgeons.

But in the end it seemed like closed several.

The other companies not to compare but enclosed larger numbers as deals in the quarter can you talk a little bit about the cadence of those and.

No I would hate expect them to develop or come to come to fruition than I had one follow up.

Sure well, it's been challenging to get in front of the executives given the environment and to get their attention given the other things on their minds, but as as we noted we were able to to close some deals.

Activity is opening up now.

As we speak we're seeing more and more access the there's certainly an interest on the part of surgeons and I think executives as well to get the technology. So just a matter of grabbing their attention.

Making that happen.

In the interim.

Thats helpful. Then the.

A follow up just was on the volumes I. Thank you you.

Almost right out of the jaded as company so talking about the recovery I think you where you're one of the James that was seeing maybe I hate to call. It a snap back sort of a faster rise of activity.

When you reported first quarter and it seems like you're providing some color on June July there that are a bit.

Maybe a bit above some of your peers or.

Talking about crush.

And with different different specialties Navy, but same zip code orthopedic and spine and.

[music].

Love to understand what do you think is driving that.

It's hard to imagine there's a share element to this although you do have a lot of new technology, reaching the marketplace at the moment so.

What do you feel like you're relatively stronger than some of your peers in terms of.

How you're thinking of a base again or.

Any color would be helpful in those comments.

I think our results are a function of the market coming back, but we are clearly taking share in this environment. If you look at the results of our peers inspired space.

And if you recall before covert hit in the first quarter, we were on pace for about 15% growth. So we're continuing to take share.

Even though were lost ground versus last year, but versus our competition. We're growing I think that's one of those.

Okay Super Thank you.

Your next question comes from the line of Shagun Singh with Wells Fargo.

Thank you so much for taking the questions.

So I wanted to touch on on the cadence of growth that you saw in June July Thank you for sharing that.

Could you help us understand how much of a quick backlog, which is a heavy in normalized mix of new patients are turning into the final and then how should we think of trends in the second half of the year just given the ebbs and flows in coal the cases, you little bit more immune to that given your geographic mix. How should we think about that and then the last part of my question is.

I am willing to share what percentage of the but we see didnt have already been platform I think the number we heard was about 40, 50%. So.

Hi that we have about back Mike, meaning in the final so any color that would be helpful. Thanks for taking the question.

Sure.

We don't really have insight into whether the case was a deferred case or a new case. That's that's really the surgeons, but I think I think I can't help you a little bit in terms of understand into the future we.

We've been talking to our stores and we did a little informal serve survey of our own.

Throughout the country, we tried to grab about 30 surgeons from a diverse geographic mix and we asked them to questions. We asked them what does the or what is your clinic flow today versus pre co bid and then the second question is if the clinic flow that you're seeing now continues through the end of the year will you have a full our schedule.

And.

Average in terms of the clinic flow versus pretty cobot, it's about 85%.

Ranged from 50% to 100%.

Few outliers that 50, so it came in around 85%, which is very strong.

In my opinion, given where we are with the pandemic and then the answer to the second question a little bit will they maintain a full operating schedule. If they continue at that clinic rate was about 78% of them said, yes. They would it would be busy through the end of the year. So.

I think both of those data points very encouraging in terms of where we are.

Certainly if the code environment improves I think you'll see that go back to 100% in the clinic and that does leave some room for a little bit of about.

Back as well.

Thank the other thing you see there as spine as a profitable procedure for the hospitals. So even if there is some restriction on electives.

Thanks buying goes to the front of the line in terms of getting procedures done. So I think I think all those factors bode well for for our segment.

Thank you for the color.

Your next question comes from the line of Richard Newitter with BV Lorraine.

Hi, Thanks, Scott Thanks for taking the questions.

Just to piggyback off would be kind of June July.

Strong growth.

That you're talking about there as I as we looked at the back half I mean.

Appreciating that maybe double digits in June and July reflect some backlog worked down some so some of that recovery is.

Extrapolatable surely into the back half, but are we thinking about kind of gross.

In in the second half rare for your business is that.

That is that reasonable in your view based on what you see today.

I think it's definitely a possibility for us, it's really challenging to predict external environment, but.

But the way that we're taking share in the trends, we're seeing I think it's certainly possible.

Okay, very encouraging to hear and then on trauma.

It sounds like that launches is going pretty well I guess Dave.

Are you are you surprised by the performance.

Of that business, even during the cold period.

With that kind of inline with where you had hoped you would be.

Previously and if you could just update us a little bit on the you know where you are on kind of full commercialization. There several limitations you had on manufacturing and and the outlook into the back half. Thanks.

Hey, Rick just stand I'll jump into the Alan So thanks for the question.

We're certainly pleased with good progress and the inroads, we're making with sales growth.

I think there's a long way to go certainly covidiens impacting us while they're still trauma surgery is carrying.

Getting together with pricing committees are getting those type things approved through the hospitals that are any data right. Now certainly something enduring also I think there is actually more growth, we had and we could have beaten that I believe it's probably worth.

Backed by coated with that so I will continue to go I would say it's on track for what we predicted for this year, but again I think in potentials even stronger.

Thats about manufacturing we have ever come those hurdles last year. We continue to have a very strong manufacturing facility is capable of putting us out of that hindrance.

And today, we have 12 of the product family launched we have a few followed up with the FDA with the potential of getting two to three more out by the end of this year fall works well.

Great. Thanks any update.

Your next question comes from the line of Kaila Krum with Qs Securities.

Hey, guys. Thanks for taking our question. So can you give a little bit more in detail on on that recent acquisition just any sense for potential contribution from that area and just what prompted the timing of of that purchase now.

And then I get tied to those question are you still evaluating other deal today.

Sure Kayla thanks.

It's something we've been looking out for a while it's.

Going to be an exciting product for our for our trauma salesforce to begin carrying the and the technology itself and I know, we think there's definitely an opportunity to expand that into into the treatment of pediatric deformity in terms of growing rods.

So.

It is going to be awhile before we get to the market is probably going to be till the end of 2022 before we can get it into the U.S market.

And maybe a little bit before that in Europe, but not much.

In terms of other deals yes, it's we've been active we're looking at a number of things nothing nothing transformative again, just a tuck ins and things that could improve our business.

Great. Thank you and I mean, the fact that you guys still generate cash. During this time is also kind of a rarity just looking across our space. So I love to hear your approach to spending new investments at this time and just how you're thinking again about capital allocation from here. Thank you.

Thanks for the question.

Keith we continue to look at our business and run it in normal and normal course so.

As it relates to some of the improvement we generating free cash flow. This quarter. We took a hard look at a are coming into the quarter. No. One knew what was going to happen with Covidien. We felt that the most important thing. We can do is manage our balance sheet and cash flows and there was a concerted effort, it's really focused on bringing cash into the business.

We've taken an approach to continue to build inventory in preparation for a bounce back but really it's just active management of trying to identify what are the things you can control within your business. That's really the approach we took for the quarter.

Thanks, guys and congrats on the corner.

Thank you.

Your next question comes from the line as Matthew O'brien with Piper Stanley.

Afternoon. Thanks for taking my questions I guess, Dave why the kind of cautious tone on growth in the back half just given what you're seeing here in July how how are their outbreak areas that you're really worried about me why wouldn't should be growing and then this this share taking in the U.S. is pretty demonstrable I know youve.

Got a lot of reps and products and so forth but.

Can you just give us a little bit more as far as where that's coming from large companies that you're getting share from small companies going bankrupt. The robot I mean, what's really driving it because again, it's a clear standout.

Thanks, Matt well I'll tell you might tentative.

Answers because it cove it I mean, I just seems like day to day, where have a different plan the country and.

Just want to water.

Over our skis here, but I'm excited about our business our business is really strong relative to our Peter So I I don't want that the seem like I have any doubts about how we're going to perform relative to others.

It's really it's really were clicking on a number of cylinders. It is competitive recruiting which is mainly focused on what I'd say competitive I really looking at the larger competitors.

We really have a lot of respect for those competitors and that's that's become a competitive accrued at globe as you have to come from one of the bigger companies we don't.

Tyler difference from the smaller ones. So that's that's where it's coming from.

I think reps are really attracted to our technology. Our leadership in implants has been known for awhile, but the enabling technologies is a really differentiated us in their hours over the last several years and they can see that that's the future and they want to be part of that.

I'd add to that we've had some great launches this year.

On the implant side.

So that's something that we've had.

I think back in 18, we probably didnt have a stronger year as we did typically we came back last year and now we're really really firing on.

Multiple cylinders.

And then it's not just the technology when it comes to enabling technology, there's the pull through aspect of the robotic deployments that we have an as that installed base grows you're going to see the pull through grow.

Exponentially if you will.

Okay. Thank you and then as a follow up on the on the robotic side of things you talked about closing on a deal then Jim assuming everything you printed here today happened in June you've done some more in July is there a willingness among hospitals to be buying capital equipment in this environment.

Do you have to get aggressive on the economic side in terms of what you're going to give up on the front end to get more volume on the backend and then one of your competitors announced the delay to their robotic system yesterday is that has that been any kind of gating factor where people are kind of waiting to see that one versus versus going ahead, and executing excelsius purchase and now that there.

Delayed do you think there could be maybe a little bit more push to get access to your your product.

Yeah, Let me, let me see if I can though.

Thank you track on the questions in terms of pricing, we havent no we haven't done anything and a more aggressive than we normally would.

To get systems placed him to characterize hospitals as willing or not.

Are dangerous because.

There's there's an entire spectrum, there's there's ceos and say I can't even think about this right now so.

To me too many things going on with co would have too many too many problems to address so you need to come back on a quarter and there's other ones, who maybe aren't as impacted by the go with environment themselves. The see an opportunity to differentiate their hospitals, even more to pull more patients to them that are there maybe not able to be treated at other places. So it's.

The tire spectrum generally speaking, though it's challenging to get their attention right now versus the way it was six months ago.

And then finally to the.

Competitor that you mentioned I think that's I don't think we've seen that yet, but I think as a result of continued.

Ladies the.

The reality is that we don't really know when that's come as if it's coming so.

That'll that'll be useful for our sales force in terms of addressing those folks who might be waiting.

Got it very helpful. Thank you sure.

Our next question comes from the line of Matt Taylor with caveat.

Hi, Thanks for taking my question the question Congrats.

So I want to ask more about the recruiting.

Continued to have record levels of recruiting and you mentioned some of the reasons just now I just.

Just curious how you're able to maintain that during during this time.

The bigger difference you are performing is going to make that continue and make it easier for you in some ways and what are you seeing your competitors do.

On the recruiting side.

Yes, they do seem to have.

Backed off a bit either.

Nearly anecdotal, but but our guys are 100% focused on that and that's a credit to the.

Greg Harris, our executive VP of sales and his team does the focus they've had at this period to really accentuate the strength of our company in terms of our financial strength.

Our technology strength and just the culture that we built.

The bring people over one one things become uncertain people are looking for security and they've been able to convey that to folks and and continue to generate that interest and and we've been willing to be aggressive in.

I think about on ourselves that the things are going to come back and we're going to.

It was but they're going to pay off in the future.

Yep Yep.

I was just hoping to get an update on the robotics program in large joints. If you can talk about that and the timelines that on anything on expectations for contribution from it.

Yeah that's.

That's a ways out.

We would probably not going to see that.

For for a good bit at this point, we're we've been challenged.

Earlier stages of development there.

Team is fairly dispersed so it's been challenging to get into the labs and do the.

The labs that we need to on those early stages to get the products finalized. So I think that has been a bit of other casualty of co bid they'll have a timeline.

To tell you at this point, but we are we're further behind the than we were a phase six or six months ago.

Okay Fair enough. Thank you sure.

Your next question comes from the line of it David Lewis with Morgan Stanley.

Hi, This is mason on for David say, thanks for taking the questions. So quick clarification. When you talk about June up double digits year over year is obviously very encouraging I just wanted to check is there any additional selling days clouding that comparability. Some device companies have called out differing days in June specifically year over year.

Yeah, I mean, it's a good question that's a day adjusted rate I gave you.

Great.

Other than that anomaly.

Got it that's helpful. And then just as a quick follow up July accelerating off of the obviously encouraging to see that like what they continuing are you seeing a plateau as you look last week to week as backlogs continue to be work through or the growth rates still accelerating off of this in the back half of July and August. Thanks.

Gives another good question, yes, it's plateaued in terms of our sequential week to week, we're kind of at least we seem to be a certain level.

July is typically amounts were.

Where we tail off for vacation so we're.

Sequentially, we're we're glad towing, but we're up against maybe easier comps for July. So, we'll we'll enjoy those easy comps in August and September obviously that does when people would normally come back so the comps will get harder for us come September.

Understood. Thanks.

Our next question comes from the line of Jason Ladies with Northland capital.

Hi, Thanks, just two questions one follow up on recruitment, which is obviously very important to the story.

Did you say that your competitors for talent are pulling back and at the same time can you describe kind of the way you see the situation forming the larger companies where your poaching talent.

I don't know for sure that pulling back they don't they don't seem to be as aggressive when we when we are.

Our talking to folks who usually ask them so thinking about making a move is usually behooves them to shop around a bit and doesn't feel like.

We're really in competition with a lot of folks at this point there. They are narrowing their choice and I may just be because weve differentiated ourselves enough that they know where they want to end up and not anything our competition is doing and then I apologize I didn't I think tests I guess the related to that was and I had a quick follow up with that relate to that was.

What's the situation at the larger companies, where you generally poach from is there a fair amount of uncertainty that's.

Driving a lot of moving is that something you kind of anticipate to continue.

For the rest of this year and even into next.

Don't know if it's on certainly I think it's just a clear from the larger folks that they're buying technology, if there if there.

Moving at all and then maybe on the more pure related there is just seems to be.

A lack of some of the key elements in terms of where the future is so high.

I think it's just it's our it's our culture here and the technology that we have implants that we have for them to sell combined with the power of the enabling technology the imaging and navigation robotics platform that we're building I think it's it's all of it's what we're doing more than what it maybe what they're not doing versus.

The thing that they're actively doing.

Okay, and then just quickly on trauma impressive numbers when I regionally spoke to you guys. You kind of mentioned that you know it took a while to get things in place things are in place now, but it's kind of a bit of a waiting game for contracts to expire and is that kind of what we're seeing here that you're picking up sort of new contracts as they expire or.

Charles or are there other drivers of the growth that are that are kind of behind that number.

Jason as Dan again, it's really multifaceted right, it's going to be about recruiting and bringing out a reps onboard. So you penetrated market given that were small so you're able to get into new territories I certainly about trading access whether that's at a cesar at hospitals or through Gpos. All those things are are working for us of course is getting more.

Thats, a more sets out into marketing the regulated fashion that allow us to continue to get more usage in more trials as we build a surgeon relationships. So all of those are really working it's not necessarily data contracts expired and we jump on and do it. It is part of it but it's not the sole reason.

Okay. Thank you very much.

Your next question comes from Kyle Rose with Canaccord.

Great. Thank you very much for taking the questions.

One of the follow up on one of their other questions on enabling technologies I appreciate.

The comments on the timing for the robotic side, but maybe any additional insight with respect to.

Procedure specific indications in the spine arena and then any update on timing with respect to the imaging platform as well.

Sure. Thanks, Thanks Kyle.

Yes, we are actually just into soft launch of our Interbody module or if that's what your reference to procedure specific was and it's going quite well we've done we've done a half a dozen cases of this week and.

By all accounts will be in full commercial launch.

During this quarter if it continues at that rate.

The imaging system is also going well, we're in the into sort of the final stages of testing where with the agency right now which is the last step before we go to the FDIC. So I'm, assuming that goes well, we don't see any major.

Of.

Pickups there.

We will be filing with the FDA within the next couple of months.

Great I appreciate the update and then just a follow up on on the Thomas I bring Dan Dan, but when you're when you're going into accounts in trying to get on contract.

Are you, taking I guess, where you'd characterize as smaller bites of those contracts one to two product lines or are you able to go in and compete against the full line trauma players and we think about entering a level one facility in it and take a material share in one of those facilities.

Not in a position yet to take in displace a full large player we're working towards as we build out the portfolio.

But at most places you're going to begin with one or two products get usage, depending on the surgeon at these in upper extremity or lower obviously, and then kind of expand through there. So again with 12 product families launched we can do quite a bit.

But we still need to continue to put more out on the market before Rodney.

And now disruptor displaced the bigger competitors.

Great. Thank you for taking the questions.

Your next question comes from the line of Ryan Zimmerman with BT.

Hey, guys. This is actually Max on for Brian I, just wanted to go back to Aegion in Sable I know you mentioned that you're really encouraged by the rollout of both products during the quarter, but just wondering if you could talk a little bit more about how those products contributed to topline and whether there was anything different he did that those rollouts given the cobot environment that might be able to take for it to that.

You know product launches here in the back half of the.

Thanks, Matt.

Nothing we really.

Did any any differently than our norm.

I will say that I I blew it on the the projection unless we sell and I understand that so we are we've kind of exhausted ours are set capacity at this point those are producing a lot, but we need to make more and for that we needed to expand our manufacturing capacity. So we've got the orders.

And in those those are those machines that capacities coming onboard we should we should see the impact of that in Q4.

And again nothing different than the normal and we typically don't give me the granularity in terms of what.

What's what the components of our growth our I will tell you that new products are contributing significantly this year.

Got it. Thank you that's very helpful and then switching over to the emerging technology segment.

Given that the cranial models now groups can you just provides more detail around your commercial strategy and the model itself.

The software upgrade and some hardware.

As a separate unit entirely just kind of help us think that please.

It's on the Excelsius platform. It does require some different hardware, but the core units the same.

And then it was obviously different software there, they're they're putting the final touches on the rollout of the software, we're probably going to roll it out into the fourth quarter.

I don't expect any meaningful revenue from it this year and.

We're probably going to go initially to customers who have a unit.

Two.

Expand their capacity and by the cranial module.

We will also be addressing neurosurgeon through just focused on bringing procedures, but that's that's a new area new call point for our for our folks so.

I don't anticipate meaningful revenue from that segment until we really get out there and get some good clinical data on the system.

Got it thank you.

Your next question comes from might not need him.

Yes, Hi, this is David taxing on for Mike Thanks for taking the questions.

I just had a follow up on the imaging system. Just wondering can you give a timeline to commercialization and then also how how are you thinking about the risks or opportunities and launching in the current environment.

Thanks, David Yeah, we'll be out in the first quarter with that and along with them the navigation that goes with that.

Yeah I was there are other risk lodging capital and the current environment I think there are.

But at the same time I think the.

This is going to end at some point and we.

We are we're excited about what this technology can do.

It's been a it's been an issue for us competitively not having this if this system as we go up against our number one competitor. So this is going to put us on.

Equal or greater footing once it gets to the market. So we're we're we can't wait.

To get it out there.

Great. Thank you.

And then as a follow up just on gross margins.

You know as as revenue starts to recovery or how should we think about.

The the ramp back to kind of normal gross margins. Thanks, so much for taking the questions.

Keith Thanks for the question I know I think on a normalized basis again, we have no reason to believe that were not a mid seventys business, but by air on saying how quickly. We returned there given that we still have now with the second asking to bring it yes, we do see some optimism with sales so far in July but looking ahead I era.

On providing specific target for the back half of the air I think what I would say is on a on a go forward basis.

Hopefully environment, we should be Amy.

[laughter].

And your last question comes from line as Steve Lignin with Oppenheimer and company.

Hey, Thanks for taking questions actually added on for Steve.

Just maybe one for me or any color you can provide on Japan during the second quarter.

Have you begun selling accelerated units and if so how many shouldn't impact should we expect for that rollout and the second half. Thank you.

Yeah. Thanks, David we are marketing it there we have not sold the unit.

In Japan, but we have a pretty pretty nice pipeline of potential leads and are optimistic about the future with it there.

Oh.

Did you have a follow up question.

Thank you.

Okay. Good thank you.

And ladies and gentlemen, there are no further questions and this does conclude todays Globus medicals second quarter earnings call. Thank you for your participation and you may now disconnect.