Globus Medical, Inc. (GMED) Q4 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to Globus Medical Fourth Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Brian Kearns, Senior Vice President of Business Development and Investor Relations. Thank you. Please go ahead, sir.

Thank you. And 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 and Chief Commercial Officer; and Keith Pfeil, Senior Vice President and Chief Financial Officer. This review is being made available via webcast accessible through the Investor Relations section of the Globus Medical website at www.globusmedical.com. Before we begin, let me remind you that some of the statements made during this review are or may be considered forward-looking statements. Our Form 10-K for the 2019 fiscal year and our subsequent filings with the Securities and Exchange Commission identify certain factors that could cause our actual results to differ materially from those projected in any forward-looking statements made today. Our SEC filings, including the 10-K, are available on our website. We do not undertake to update any forward-looking statements as a result of new information or future events or developments. Our discussion today will also include certain financial measures that are not calculated in accordance with Generally Accepted Accounting Principles or GAAP. We believe these non-GAAP financial measures provide additional information pertinent to our business performance. These non-GAAP financial measures should not be considered replacements for, and should be read together with, the most directly comparable GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are available on the schedules accompanying the press release and on the Investor Relations section of the Globus Medical website. With that, I will now turn the call over to Dave Demski, our President and CEO.

Thank you, Brian. And good afternoon, everyone. Globus Medical capped off a great 2019 performance with a strong fourth quarter. Revenue for the quarter was a record $211.7 million, an increase of 8% over the fourth quarter of 2018. Full-year revenue was $785.4 million, representing a 10% increase over 2018 and our third consecutive year of double-digit growth. Non-GAAP EPS was $0.49 per share versus $0.43 a year ago, an increase of 14%. The full-year non-GAAP EPS was $1.68 versus $1.67 in 2018. Adjusted EBITDA improved to 34.3% in Q4 and we finished the full year at 32.8%, significantly higher than the 31.5% we posted for the first half of the year. The results include planned investments we made in growth initiatives, such as INR and Trauma. Factoring out the impact of these investments would have resulted in an improvement of $0.05 to non-GAAP EPS in the fourth quarter, and added approximately 550 basis points to adjusted EBITDA margin. The full-year impact was $0.24 and 580 basis points respectively. Globus continues to achieve market-leading operating margins even as we invest in key strategic initiatives. Musculoskeletal Solutions grew by almost 9% in the fourth quarter and 11% for the full year. The US Spine business continued to take significant market share during the quarter, driven by competitive rep recruiting and implant pull-through from ExcelsiusGPS installations, offset somewhat by weakness in our biologics portfolio. We finished 2019 with our third consecutive record year in competitive rep recruiting and onboarding. Our recruiting success accelerated into the back half of 2019 and has continued into 2020 with a very strong pipeline of successful seasoned sales professionals showing interest in joining our team. For the fourth quarter, our biologic sales were off by 15% compared to the fourth quarter of 2018 and 7.5% for the full year. The impact of the biologics decline on our overall growth rate in Musculoskeletal Solutions was 240 basis points in the fourth quarter and 190 basis points for the full year. The decline is primarily due to supply issues with our stem cell and amnion based products. We're encouraged to see this begin to turn around in the first quarter and expect to recover and build momentum throughout 2020. We launched 11 spine products in 2019, including three in the fourth quarter. Most notable in Q4 was the introduction of the first of our HEDRON of 3D printed interbody spacers. HEDRON IC, a cervical integrated plate and spacer system, and HEDRON IA, a lumbar integrated plate and spacer system, were both introduced in the quarter. These products have received high marks from early clinical users. HEDRON is the most comprehensive portfolio of 3D printed interbody spacers in the industry, and we plan to roll out the remainder of the HEDRON line in 2020. The International Spine business grew by 5% in Q4. The Q4 deceleration was expected as the first quarter of 2019 included significant revenue associated with the alleviation of pent-up demand caused by supply chain issues, which have been largely resolved. As you may recall, growth in the first quarter of 2019 was nearly 25% in constant currency. These challenging comps will likely result in muted growth numbers for the first quarter of 2020 as well. Growth in Japan in the fourth quarter was lower than our performance over the past couple of years as we transition to the new management team there. We're highly confident in the new leadership, but 2020 maybe a year of slower growth in that market, which is reflected in our overall guidance. We're very pleased to have recently received regulatory approval to market ExcelsiusGPS in Japan. There's strong interest in the system from surgeons in Japan, and we expect to begin selling units in the second half of 2020. For the full year of 2019, our international Spine business grew by almost $16 million, or 16% in constant currency, the highest level of organic growth dollars in our company's history. Fundamentally, our international organization has never been stronger. Our management teams have been upgraded in several important markets. Our innovative technologies have gained traction as a result of increased investments in surgeon education. And we are seeing strong implant pull-through from ExcelsiusGPS installations. We are well positioned for continued strong growth internationally. Our Trauma business made good progress in 2019. We launched six new systems and have received great feedback on the quality and innovation we are bringing to the market. We built hundreds of sets and saw sales grow by over 150% in the fourth quarter and 400% for the full year. Building upon our initial success, we plan to increase our investment level in 2020 by expanding our sales footprint, building more sets and launching several exciting new products. Revenue from Enabling Technologies was $13.9 million in Q4, down slightly from a very strong Q4 in 2018, but continuing the positive trend we have seen over the past several quarters. We are fully recovered from a soft Q1 and are very bullish about the potential of our INR division as we move into 2020. We continue to see robust adoption trends by surgeons who are experiencing the benefits of ExcelsiusGPS technology as they incorporate it into their practice of medicine. We will begin rolling out the FDA cleared interbody module late in Q1 and we have submitted the cranial module 510(k) to the FDA. We also anticipate submitting an imaging system 510(k) in Q2. We have invested heavily into expanding and training our clinical support team as well as our sales team in 2019 and we are well positioned for strong growth in 2020 and beyond. In summary, we're excited by our exceptional performance in 2019. Our organic growth rate in Spine far exceeded the market and was the highest among the top six spinal implant competitors. We sustained a strong finish in Enabling Technologies, demonstrating our ability to compete effectively against much larger players. We showed significant improvement in adjusted EBITDA and got back to our mid-30s EBITDA commitment level in the second half of the year despite heavy investments in Trauma and INR. We launched 17 new products across Spine and Trauma. We completed significant work and are in the final stages of development of several exciting enhancements to our INR portfolio, including a cranial robotic application and an imaging system. In short, we have tremendous momentum across all parts of the business and look forward to a great 2020. Before I turn the call over to Keith, I want to welcome Rob Douglas to our Board of Directors and thank Kurt Wheeler for his service to our company. Rob Douglas comes to Globus with over 30 years of experience in medical device technology and currently serves as the president and chief operating officer in the office of the CEO for ResMed, Inc., a medical device and software applications company specializing in cloud connected devices that diagnose, treat and manage respiratory disorders and improve care in out-of-hospital settings. Rob's knowledge of the digital health industry and global markets is well suited to support our continued expansion in medical device technology. Welcome aboard, Rob. Kurt Wheeler served on our Board of Directors since 2007. He was our lead director and an invaluable member of our board for over 12 years. His leadership, industry knowledge and the trusted advice have contributed to the success of Globus for many years. And we wish him well in his endeavors. Thank you, Kurt. I will now turn the call over to Keith.

Thanks, Dave. And good afternoon, everyone. The fourth quarter results for Globus demonstrate the underlying strength of our business. Our sales growth continues to outpace the market, while delivering on key metrics of profit and cash flow generation. Full-year revenue was $785.4 million, growing 10.2% as reported or 10.5% on a constant currency basis. Day-adjusted, full-year revenue grew 10.4% with seven fewer selling days in Japan during 2019 as compared to 2018. Net income was $155.2 million and non-GAAP net income was $171.3 million. Our fully diluted earnings per share were $1.52, while our fully diluted non-GAAP earnings per share were $1.68. Adjusted EBITDA was 32.8% for the year and we delivered $101.2 million of free cash flow. Q4 revenue was $211.7 million, growing 8% as reported and 8.2% on a day adjusted basis, with few fewer selling days in Japan versus the prior-year quarter. Currency impacts are immaterial to the quarter. Net income was $45.5 million and non-GAAP net income was $50.2 million, driving $0.49 of fully diluted non-GAAP earnings per share. Adjusted EBITDA was 34.3% and we generated $38.5 million of free cash flow during the quarter. Focusing on sales, US revenue for the quarter was $177.5 million, 8.3% higher than Q4 of 2018. The growth was driven by the continued strength of our Musculoskeletal business, led by US Spine, which continues to benefit from our record recruiting of competitive reps as well as the implant pull-through from accounts utilizing our ExcelsiusGPS systems. International revenue for the quarter was $34.2 million, growing 6.4% as reported. Constant currency impacts are immaterial, as previously noted. Our growth is driven by continued penetration of our Musculoskeletal business as well as Enabling Technologies, driven by ExcelsiusGPS placements. Our second half growth rate slowed and is in line with our expectations and previous comments related to large distributor orders placed in the first half that did not repeat in the second half. Moving into the rest of our P&L, Q4 gross profit was 77% compared to 76.5% in the prior-year quarter. The 50 basis point improvement was driven by lower inventory reserves, partially offset by the mix of sales. Full-year gross profit finished at 77.1% and includes approximately $4.4 million of one-time benefits, driven by lower inventory reserves. Adjusting for these one-time benefits, full-year gross profit would have been 76.5% compared to 77.6% in the prior year. The decreasing gross profit is driven by sales mix and higher depreciation expenses has resulted in investments in sets across our Spine and Trauma portfolios. Looking ahead, we project a mid-70s gross profit rate in 2020. Research and development expenses for the quarter were $15.5 million or 7.3% of sales compared to $13.8 million or 7% of sales in the prior-year fourth quarter. The increased level of spending for the quarter is attributed primarily to our Enabling Technologies business SG&A expenses in the fourth quarter were $92.1 million or 43.5% of sales compared to $83.6 million or 42.7% of sales as a result of continued investment in our business, primarily the expansion in our INR sales and clinical support teams, upgrade and expansion of our international Spine team, as well as increased investments in surgeon education. The income tax rate for the quarter was 16.4% compared to 22.8% in Q4 of 2018. The Q4 tax rate is inclusive of tax benefits related to stock option exercises worth approximately 320 basis points. The full-year income tax rate was 18.3% and includes benefits related to stock option exercises worth approximately 250 basis points. For 2020, we project an effective tax rate of approximately 21%. Fourth quarter net income was $45.5 million and non-GAAP net income was $50.2 million. Diluted earnings per share were $0.44 and non-GAAP diluted earnings per share were $0.49, reflecting a 12.3% increase over Q4 2018 of $0.43. Full-year non-GAAP earnings per share was $1.68 compared to $1.67 in the prior year. The improvement in non-GAAP EPS was achieved despite non-operational impacts, which include a higher tax rate, resulting in a $0.02 drag, currency headwinds of $0.02, and a $0.03 headwind due to higher stock compensation expense. In addition, our investments in INR and Trauma resulted in an incremental $0.12 impact to 2019 as compared to the prior year. Adjusting for those non-operational headwinds and our investment in INR, our non-GAAP EPS would have been $0.19 higher in 2019 and reflected a year-over-year growth rate of 12%, resulting in an earnings growth rate that is slightly higher than our overall sales growth rate of 10.2%. We continue to believe that INR and Trauma represent long-term profitable growth opportunities for the company and we will continue to support the investment levels required to realize that growth, even though it somewhat masks outstanding growth and profitability in other parts of our business. Adjusted EBITDA for the quarter was 34.3%, reflecting a 20 basis point improvement over the prior-year quarter. Our full-year adjusted EBITDA was 32.8% compared to 34.5% in 2018. The decrease in adjusted EBITDA is driven primarily by the increased investments in our Enabling Technologies and Trauma businesses. Looking ahead to 2020, we are planning for a mid-30s adjusted EBITDA margin percentage. We ended the quarter with $721 million of cash, cash equivalents and marketable securities. Fourth quarter net cash provided by operating activities was $54.3 million and free cash flow was $38.5 million. The company reaffirms full-year 2020 sales and non-GAAP EPS guidance of $815 million and $1.82 respectively. The growth in sales and non-GAAP EPS is expected to occur at approximately the same rate, which is driven by an expanding EBITDA margin, offset by higher non-cash expenses related to stock compensation and depreciation. We'll now open the call for questions.

[Operator Instructions]. Your first question will come from Matthew Miksic with Credit Suisse. Please go ahead with your question.

Thanks so much for taking the questions. So, I had just two, if I could. One on EBITDA margins. Just understanding the investments that you're making, it seemed like last year – as we look forward to this year, last year, there was a bit maybe a bit more variability than usual in the margin line, margin trends. I just wondered if you could take a minute to chat about what you expect in the coming year, how we should think about margin trends given the timing and magnitude of the investments you continue to make?

I think I'm going to answer that in two parts. The first thing I would say is, when you look at 2019, Q4 from an EBITDA perspective really fell outside the range that Globus historically talked about of 33% or 37%. As we got further along in the year, you saw really sequential improvement. And as we get to Q4, I think an important call-out is our EBITDA, our adjusted EBITDA margin finished 20 basis points higher than the prior year. So, when you think about kind of where we were and where we're going, we feel good, as we even cited on the call, in spite of some of the – in spite of some of the investments that we've made. When you think about going into 2020, we still see ourselves investing, but we do also expect the growth of our Musculoskeletal business to continue as well as Enabling, which had helped drive some leverage to help expand some of those EBITDA margins.

That's great. Thank you for the color. And then, just on some of the implant growth that you've been putting up, this has been significantly above market for a while now. And I guess based on your comments, Dave, it sounded like the overall case revenue, if you want to call it that, consumable revenue, implantable revenue would have been higher, with more stable biologic supply potentially in the fourth quarter. So, given those very high rates, maybe can you talk about what you expect the impact from the additional applications from Excelsius and your imaging system and maybe what other factors need to come together to support these, call it, high single, low-double digit sort of implant growth?

Thanks, Matt. No, we're very encouraged by what we're seeing in terms of competitive reps coming over. The end of last year was really strong. We've actually started out really strong this year. I think the message in the market is clear that we're a technology leader, both from an implant standpoint, as well as the enabling technology. So, that's brought a lot of great reps to our team. The spine products that we launched this year, we launched 11. I think those are going to give us some traction next year and growth as well. And then, the continuing strong base that we're building in Enabling Technologies as a platform for future growth. So, I think all of those things will drive continued success in terms of spinal implants into next year and beyond.

That's great. I'll leave it there and let other folks ask questions from here.

Thank you, Matt.

Your next question will come from Matthew O'Brien with Piper Sandler. Please proceed with your question.

Thanks so much for taking the questions. Just if we can think a little bit about Enabling Technologies, the performance there has been a little bit stagnant over the last three quarters sequentially. So, what should we anticipate for that business here in 2020? How are things going on the competitive front as you kind of place systems and any other dynamics to kind of call out from a pricing perspective, service perspective on the system?

Thanks, Matt. Well, it's become very competitive. I think we're demonstrating that we are holding our own for sure in terms of sales. I think we're performing better clinically. And right now, I just have anecdotal evidence to that effect. But I think that, from a long-term basis, that's going to give us additional traction going forward. The systems are just getting utilized where we've had installations and I think that's going to drive future growth. We are working, as we've talked about, to enhance our current offering, particularly the cranial module and then the interbody module. I think that can help in incremental sales. I think coupling with an imaging system later in the year is going to add some more efficiencies to the OR. So, all of those things, I think, point to a good runway for us and certainly expect to grow that part of our business this year. From a pricing standpoint, ASPs are holding up really well. We weren't really sure what to make of it. And certainly, given the competitive environment, it's a threat. But at this point, we're still providing a lot of value to our hospital customers and they've been willing to pay for it.

Okay, thanks. And then, for Dan, just on the Trauma side of things, I know it's an area that you guys have talked a lot about over the last couple of years. 400% growth is definitely great last year, but off of a small base. So, is this the year with those hundreds of sets that are out there where we see a meaningful, meaningful step up and big tailwind on the top line to overall corporate growth from the Trauma business or is that more of a 2021 event?

Hey, Matt. Thanks for the question. I think what we've always said is this is a longer journey with Trauma. It's about growth year on year, quarter on quarter, not an explosion like we saw with robots. So, I wouldn't call 2020 the pivotal year of significant change, but rather one step along that journey as we grow this to be something equal to the size of Spine over time, right? Remember, it's such a big market that we play in with that. You're right, we have the sets in place to do it. We have a sales force in place and we've been focused on market access. And what you'll see is just improvements each quarter as we go through and penetrate the market.

Again, sorry to push you a little bit on this. I think it's been something you've talked about for a while. There's been a lot of investment and it's a humongous market. Is there something that you've encountered along this journey that's kind of surprised you as you're trying to penetrate this market? And do you have any less confidence in your ability to take some meaningful share here over the next several years?

No. No less confidence whatsoever. The only thing that we disclosed earlier on in the year was some of the sets were delayed because of all of the growth throughout the entire company, we had to prioritize differently. So, we rolled those sets out, but announced that through 2019. They're in place. So, other than the fact that we're a little bit behind because of set delays, there really is nothing that pulls back on this at all. We're all in and we're driving forward like we plan to.

Okay, appreciate that. Thank you.

Your next question will come from Kaila Krum with SunTrust. Please proceed with your question.

Hi, guys. Thanks so much for taking our questions. So, congrats on putting up a great US core Spine growth number in the quarter. But I did want to touch on the biologics supply issue. Can you just give a little bit more detail there? Is there any way to quantify that headwind? And just, any sort of specific commentary just to shape up that issue?

Sure, Kaila. There's a couple of couple of things in the spine area. One is our stem cell based product. We're in the process of getting that back up and online, and we hope to be back in the first quarter. We still have a couple more tests to get past before we're able to do that. When it comes to amnion, that is just pure market supply and we've now engaged with some additional sources of tissue there. Those are in in the building, being processed and working their way through the system, so that we're starting to see even some of that already in the first quarter. So, that'll be a gradual thing through the year as we build that up, restore those customer relationships and build that back up. We did try to quantify – the headwind for the year was about 190 basis points, I think, overall. And then, it's gotten worse. Fourth quarter was about 240 basis points. And that's all reflected in the Musculoskeletal Solutions numbers that we put up.

Got it. Okay. No, that's helpful. And then, second, you guys have been a first mover in spine robotics and it feels like you'll have that first mover advantage for some time. But I know you'll be consistently innovating your robot without a million press releases alerting us of updates. So, I'm curious if there are any sort of updates to your spine robotic system that you have planned that you think are meaningful enough to press release in 2020.

Nothing other than what we've already discussed. The interbody module is – we're basically building sets for it right now and getting ready to roll it out this quarter. We have a deformity module that's going to enhance the planning aspect of the overall system, particularly with more complex cases. The cranium module is with the FDA right now and we hope to get a clearance on that in the near future, although it's hard to predict. And then, the ability to combine it with our imaging, which we hope to launch in the second half of the year is going to help efficiency and workflow in the OR, as well as just providing better image quality and more – we'll be able to address more levels, do more complex cases without having to do multiple spins. So, I think all of those things are coming out in the next year.

Perfect. Great. Thank you, guys, so much for all the questions.

Your next question will come from Craig Bijou with Cantor. Please proceed you’re your question.

Hey, guys. Thanks. Thanks for taking the questions. Just wanted to start with – obviously, you have your revenue guidance number that's out there. But I know in the past, you've given some color on the components, whether it's US Spine or International, and then Trauma and Enabling Technologies. So, just wanted to see if you could help us think about where that – I guess the components of that 850.

I think I would say – well, first off, thanks for the question. The 850, we're really not moving forward with breaking out, splitting between Musculoskeletal/Enabling, and US/International. What I will say is that, coming out of this year and going into next year, some of the comments we discussed on the call, I think we're very excited. We feel like we're very well positioned next year to grow in Musculoskeletal as well as Enabling. I think some of Dave's comments about things that are coming with Enabling will help drive growth. So, we think that, as we look into 2020, we think we're positioned to drive solid growth across the business.

Great. That's helpful. And then, if I could ask on the robotic program for ortho, beyond spine, so just, I guess, wanted to see if there's any update there and when we can expect to hear more about your plans in that space.

No official update, Craig. But we'll be talking about towards the end of this year, is probably the best time to think about. We're making good progress on it. We're happy with it. We think we have some advantages we can bring to the technology as it exists in the market today and we're just working towards that.

Just to follow-up there, contribution to the revenue line, is that a 2021 event? Should we think about it that way?

Yes.

All right. Thanks for taking the questions, guys.

Thank you.

Your next question will come from David Lewis with Morgan Stanley. Please proceed with your question.

Hi. This is Marisa on for David. Thanks for taking the question today. I've had two quick questions. The first one, just can you give us any update on the timing of additional indication expansions for Excelsius or anything we should be thinking about coming in 2020? And then, I'll have a quick follow-up.

Sure, Marissa. There's a couple that – we have the interbody module now. We haven't launched it yet. And then, as we mentioned in the prepared remarks, the cranial module is with the FDA at this moment. And then, the imaging system, we'll be filing on that – we hope to file that in the second quarter and then it will be up to the FDA when we can begin selling it.

Okay, understood. Thank you. And then, core Spine growth is coming off its strongest year since 2015. To the extent that you can give us any more detail, how sustainable do you think the high-single digit to low-double digit growth rate is that you posted in 2019? And is it fair to assume that this decelerates year-over-year or do you think Excelsius pull-through can continue to drive share gains? Thanks again.

Sure. Everything I'm seeing indicates that we're gaining momentum. Business is really strong. Competitive recruiting has never been stronger. The installed base of Excelsius continues to grow, even though our revenue in Enabling was flat this year. That's just added to our install base. And then, the Spine product development engine is back up and producing at a pretty high clip. We've got 11 products out in 2019 and there's several more that are coming out this year. So, all of those point to very bullish look at our spinal implant business.

Great, thanks.

Your next question will come from Matt Taylor with UBS. Please proceed with your question.

Hi, guys. Thanks for taking the question. So, I wanted to follow-up on your biologics comments because it seems like things are turning around there. I was hoping you could give us more color on what you're liking about the trends that you're seeing in Q1, and I think you're also launching some products there. How could that improve the growth rate for biologics in 2020 versus what we saw last year?

Well, we definitely hope to grow this year versus being a drag. It's hard to predict. Because the supply issues have caused customers to seek those products elsewhere, we're going to have to restore those relationships. Those initial conversations are going well. As I mentioned earlier, the amnion products, we've got the supply, the commitments and we're starting to process that tissue. The stem cell is a little more at risk at this point. We still have to pass some of our internal quality metrics to get those products back up and launched. But it's hard to predict what the impact is going to be this year, but we're encouraged by the early signs.

Okay, thanks. And I just wanted to see if you could comment on the opportunity for your robotic system outside of the US, especially now that you have the Japan approval. Can you talk about how much have you been able to make outside the US to date and what kind of an opportunity you think Japan can be?

Sure. I've actually been very pleasantly surprised about our growth internationally. I think we're in nine countries now outside the US. ASPs are good, and I wasn't sure that that was going to be the case when we got into the business. And Japan is a very big market from a spine surgery standpoint. And we were just over there a couple of weeks ago talking to some of the key opinion leaders in the market. And they're very – it's a very technologically savvy country, very, very much interested in efficiency in everything they do. They're very excited about the opportunity to utilize the technology. And we're very bullish about what that could mean to us in terms of our growth over the next few years.

Got it. Thank you.

Your next question will come from Richard Newitter with SVB Leerink. Please proceed with your question.

Hi. This is Jaime on for Rich. Thanks for taking my questions. I guess, just on the international business, first, a housekeeping. Did you guys happen to mention what the actual growth rate was for the core international Spine business? So, that would be number one. And then, second, appreciate that this is a strong year, growing 16%. So, just looking into 2020, is it reasonable to assume that a mid-teens growth rate is still the right place to be for this business or how else should we potentially be thinking about that business in 2020?

Thanks for the question. We did not break out the components of international between Spine and everything else. So, we came in at 6.4% for the quarter and about 15.6% for the year. When you go into 2020, Dave alluded to earlier and I made a comment as well, we go into the first quarter and second quarter, we're going to be coming up on tough comps when you comp to last year because of the large distributor orders that were placed in the first half of the year. When you think about 2019, we grew roughly 23% in Q1 than Q2. So, going into the first half of the year, we would expect growth to be a little bit more muted. In the back half, we would expect growth to accelerate, to drive overall growth into 2020.

And, Jaime, I'll just add to that. The only caution on that, which I mentioned, is that we've got a new leadership team in Japan and it's heavy experience from Medtronic. So, their access to some of the large KOLs is something we've never had before. So, that's a big opportunity. But how long it's going to take us to break into that is the question. So, internally, in terms of how we've broken out the business, we've been a little more conservative about our growth in Japan in 2020 as we set the table for long-term expansion there.

Got it. Okay. And then, just the mid-70s gross margin profile in 2020, could you just give us a sense of how we should be thinking about that from a cadence perspective quarter-over-quarter? Thanks.

I would just say overall, it's sort of the mid-70s the whole year. I think we're going to continue to provide very strong gross profit margins. And I think quarter-to-quarter, I think a mid-70s assumption throughout the year, I think you're good.

Thanks.

Thank you.

Your next question will come from Mike Matson with Needham & Company. Pleas proceed with your question.

Hi. Thanks for taking my questions. I guess I just wanted to start with these new robotics modules. So, just curious how you could monetize those. Is there a software that you charge for? Or are there additional disposables? Or is it just simply giving the customers the ability to do more with the existing robot? Hopefully, you get more implant sales.

Yeah, it's really both, Mike. The cranial module has its own hardware and software. The interbody module, same thing. Incremental hardware and software opportunities. The other thing that comes along for us with the interbody module is we hope that will pull through interbody implants with it. So, it's really those two items. But, overall, it just enhances the value package that we can bring to an account, particularly cranial. So, you've got – both disciplines can utilize the same platform technology to address their clinical needs. That just makes it a little bit easier buying decision for the hospital. They can layer on those additional applications.

Okay, thanks. And then, just on the – apologize if you said this earlier, but just on the biologics issues, has that been fully resolved? So, in other words, is that going to – has that headwind gone in 2020?

The amnion one is the stem cell one. It's just a matter of timing. We need to get through the process of – we're reevaluating our process, which we are in the middle of and are encouraged by where we are. But, again, that's subject to risk that can take us longer than we think it will.

Okay, great. Thanks a lot.

Sure.

Your next question will come from Steven Lichtman with Oppenheimer. Please proceed with your question.

Thank you. Hi, guys. So, obviously, you guys continuing to grow well ahead of the underlying market. Wondering where you're thinking the market growth is overall. Any color on the state of the market from your perspective heading into the year around volumes or price would be very helpful.

Sure, Steve. It's hard to tell from our size. But generally speaking, it seems strong to me, as strong as it's been in the last four or five years. I saw the Medtronic results the other day. For the market leader to grow like they did, that's encouraging for the entire market. I think the larger companies, but for one, are putting up some decent growth. So, it looks good from our perspective where we are on the ladder. But also, as I look around, I think there's some good growth going on.

Got it. Thanks, Dave. And then, just secondly, obviously, you mentioned the investments remain elevated. Just relative to 2019, will the investments be higher in 2020 versus 2019 as they were in 2019 versus 2018 in terms of the EPS impact or will it actually be less, but still elevated? Just directionally, any color there would be helpful.

This is Keith. Thanks for the question. As we head into 2020, really the plan is to hold the level of investment spending relatively flat, but I would call out that some of our earlier comments talked about really investing and looking at the long term. If things come up that we see are advantageous for us to invest, we will make a move and invest. But going into the year based on what I see right now, it's really more flattish looking investment.

Okay, got it. Thanks, Keith.

Your final question will come from Ryan Zimmerman with BTIG. Please proceed with your question.

Hi. This is Sam on for Ryan. Thanks for taking the question. I just wanted to first see if there's any incremental color you have on the length of the selling cycle for Excelsius. I'm not seeing any delays with some of the newer competitive options coming out within the next few quarters.

Thanks, Sam. The selling cycle has been about where it has been for the last six to nine months. So, it's longer than when we first entered the market. But at this point, there's really only one competitor, but they're a big, important competitor and we're going at it for almost every deal. So, that does take longer for hospitals to make a full evaluation of both technologies and work their way through the contracting process. So, no further extension of it, but it is longer than when we started in the business a couple of years ago.

Great, thanks. And then, just a more modeling question. On R&D expense, with the cadence of investments for the year, is there any way we should be thinking about where in a year that that may or may not be lumpy? Thanks.

We finished this year at roughly 7.6%. And I think that, going into the next year, I would assume that's pretty straight-lined across the year.

Okay, appreciate it.

And at this time, there are no further questions in queue. At this time, ladies and gentlemen, this will conclude today's Globus Medical fourth quarter 2019 earnings conference call. Thank you for participating. You may now disconnect.