Welcome to Globus Medical's Second Quarter 2020 Earnings conference call. [Operator Instructions] I'll now turn the call over to Brian Kearns, Senior Vice President of Business Development and Investor Relations. Mr. Kearns, please go ahead.

Thank you, Katherine, and thank you everyone for being with us today. Joining us for today's call from Globus Medical will be Dave Demski, President and CEO; Dan Scavilla, Executive Vice President, 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 discussions 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 Web site. With that, I will now turn the call over to Dave Demski, our President and CEO.

Thank you, Brian and good afternoon, everyone. I'm very excited to report an outstanding performance by the Globus team in Q2. While it was the most challenging external environment in our 17-year history, I could not be more proud of the way our team responded to the challenge. Revenue for the quarter was $149 million down 23% from Q2 2019. Musculoskeletal Solutions was off by 21% while enabling technologies was down by 55%.non-GAAP EPS was $0.07 per share and adjusted EBITDA was 15% for the quarter. While the growth and earnings metrics are low compared to our typical results, in light of the circumstances and relative to our peers, they are outstanding accomplishments. Our US final implant business was down by 21% for the quarter but the trends we saw within the quarter and continuing into July are encouraging. The business bottomed in mid-April and continued a steady climb upward through the quarter. April revenue was down by roughly two-thirds. May improved dramatically to finish off by 25% and June rebounded into double-digit growth compared to June of 2019. Growth in July accelerated into the mid-teens even as certain areas began restricting elective surgery again. Our growth is a function of a number of factors. New products launches, competitive recruiting and robotic pull through. Our spine product development team built on their strong performance in 2019 by launching six new products in 2020. We have seen tremendous uptake in HEDRON line of our 3D printed inner body spacers, as well as sable our fourth generation expandable MIS TLIF device. Adoption has been so successful that we are doubling our 3D manufacturing capacity which should come online in Q4. Robotic usage continues to grow mirroring the trends we experienced in the overall business during the quarter. Competitive recruiting and onboarding remained…

Thanks, Dave and good afternoon, everyone. While the macro environment was impacted by COVID-19, I am extremely pleased with the way Globus has weathered the storm and encouraged with how we finished Q2. Though the impacts of COVID-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 SYNOSTE, a developmental stage Finnish 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 days in the US but one more selling day in Japan. Our Q2 net loss was $20.8 million and includes$24.4 million pretax charges related to the acquisition of SYNOSTE which is reflected within our research and development expense. The total consideration for SYNOSTE was $25.3 million and included $22.8 million of cash paid at closing plus a $2.5 million contractual holdback. Non-GAAP net income was $6.9 million delivering $0.07 of 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 impacts of COVID-19 across our business. The COVID-19 impacts were greatest in the earlier part of the quarter. As we progressed in Q2, overall sales improved sequentially led by our US 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%…

[Operator Instructions] 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? Great. Thanks. So I wanted to follow up on a couple 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 get you -- I think Dave you mentioned interest among surgeons but in the end it seemed like closed several other companies not to compare but closed larger numbers of deals in the quarter. Can you talk a little bit about the cadence of those and what -- how you'd expect them to develop or come to fruition? And then I have 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 we noted, we were able to close some deals. An activity is opening up now just even kind of as we speak, we're seeing more and more access. There's certainly interest on the part of surgeons. And I think executives as well to get the technology. It's just a matter of grabbing their attention and making it happen in the interim.

That's helpful. Then the follow-up just was on the volumes. I think you almost right out of the gate as companies start talking about the recovery. I think you were -- you're one of the teams that were seeing maybe I hate to call it a snapback but sort of a faster rise of activity when you reported first quarter. And it seems like you're providing some color around June, July that are a bit maybe a bit above what some of your peers are talking about across or understandably different specialties maybe but same zip code orthopedic and spine and just love to understand what 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 picking up a pace again or any color would be helpful in those comments?

Yes. 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 peers in the spine space and if you recall before COVID hit in the first quarter we were on pace for about 15% growth. So we are continuing to take share even though we lost ground versus last year, but versus our competition we're growing. I think that's what it is.

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 the cadence of growth that you saw in June, July. Thank you for sharing that. Could you help us understand how much of it was backlog versus a healthy and normalized mix of new patients returning into the funnel? And then how should we think of trends in the second half of the year just given the ebbs and flows in COVID cases? Are you a 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, are you willing to share what percentage of the deferred procedures have already been performed? I think the number we heard was about 40% -50%, so it's high that we have about that much still remaining in the funnel. So any color there would be helpful. Thank you for taking the questions.

Sure, Shagun. We don't really have insight into whether the case was a deferred case or a new case that's really the surgeons, but I think I can help you a little bit in terms of understanding the future. We've been talking to our surgeon; we did a little informal survey of our own throughout the country. We tried to grab about 30 surgeons from a diverse geographic mix and we asked them two questions. We asked them what is your clinic flow today versus pre-COVID 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 OR schedule? And the average in terms of the clinic flow versus pre-COVID, it is about 85% that ranged from 50% to 100% 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 will they maintain a full operating schedule if they continue at that clinic rate was about 78% of them said, yes, they would be busy through the end of the year. So I find both of those data points very encouraging in terms of where we are. Certainly, if the COVID environment improves I think you'll see that go back to 100% in the clinic and it does leave some room for a little bit of a drop back as well. I think the other thing you see there is spine is a profitable procedure for the hospital. So even if there is some restriction on electives, I think spine goes to the front of the line in terms of getting procedures done. So I think all of those factors bode well for our segment.

Your next question comes from the line of Richard Newitter with SVB Leerink.

Hi. Thanks guys. Thanks for taking the questions. Just to piggyback off of the kind of June, July, it's a pretty strong growth that you're talking about there. As we look to the back half, I mean appreciating that maybe double digits in June and July reflects some backlog work down, some of that recovery isn't extrapolatable purely into the back half but are we thinking about kind of growth in the second half for your business? 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 the external environment, Rich, but with the way that we're taking share and the trends we're seeing I think it's certainly possible.

Okay, very encouraging to hear and then on trauma it sounds like that launch is going pretty well. I guess Dave are you surprised by the performance of that business even during the COVID period? Was that kind of in line with where you had hoped you would be previously? And if you could just update us a little bit on the where you are on kind of the full commercialization there. Several limitations you have on manufacturing and the outlook into the back half? Thanks.

Hey, Rich. It's Dan. I'll jump in for that one. So thanks for the question. We're certainly pleased with the progress and the inroads we're making with sales growth. I think there's a long way to go. Certainly, COVID is impacting us while there are still trauma surgeries occurring. Getting together with pricing committees or getting those type things approved through the hospitals that are inundated right now certainly something hindering us. So I think there's actually more growth we had and we could have beaten that I believe if we weren't pulled back by COVID with that. So we'll continue to go. I would say it's on track for what we predicted for this year but again I think the potential is even stronger. You had asked about manufacturing. We had overcome those hurdles last year. We continue to have a very strong manufacturing facility that's capable of putting this out without hindrance. And to date, 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, if all works well.

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

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

Sure, Kaila. Thanks. It's something we've been looking at for a while. It's -- I think going to be an exciting product for our trauma sales force to begin carrying the technology itself tonight now we think there's definitely an opportunity to expand that into the treatment of pediatric, deformity in terms of growing rods. So it is going to be a while before we get to the market. It's 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 transformative again just tuck-ins and things that could improve our business.

Great. Thank you. And I mean the fact that you guys still generated 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. This is Keith. We continue to look at our business and run it in normal in normal course. So as it relates to some of the improvements that we generated in free cash flow this quarter, we took a hard look at AR coming into the quarter, no one knew what was going to happen with COVID and we felt that the most important thing we could do is manage our balance sheet and cash flows. And there was a concerted effort to really focus 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.

Your next question comes from the line of Matt O'Brien with Piper Sandler

Good afternoon. Thanks for taking the 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 -- are there outbreak areas that you're really worried about? I mean why wouldn't you be growing and then this share taking in the U.S is pretty demonstrable. I know you've 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?

Yes. Thanks Matt. Well, I'll tell you my tentative answer is because of COVID. I mean I just seems like day-to-day we have a different plan as a country and you just want to not get over our skis here but I'm excited about our business. Our business is really strong relative to our peers. So I don't want that to seem like I have any doubts about how we're going to perform relative to others. But it's really, we're clicking on a number of cylinders. It is competitive recruiting which is mainly focused on; when I say competitive, I'm really looking at the larger competitors. We really have a lot of respect for those competitors and that's to become a competitive recruit at Globus you have to come from one of the bigger companies. We don't even count if it's from the smaller one. So that's where it's coming from. And I think reps are really attracted to our technology, our leadership and implants has been known for a while, but the enabling technologies has really differentiated us in their eyes over the last several years. And they can see that that's the future and they want to be part of that. I would add to that we've had some great launches this year on the implant side. So that's something that we had I think back in 2018 we probably didn't have as strong of a year as we did typically. We came back last year and now we're 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. And as that install base grows, you're going to see that pull through grow kind of exponentially, if you will.

Okay. Thank you. And then as the follow-up on the robotic side of things, you talked about closing a lot of deals in June. I'm 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 back end? And then one of your competitors announced the delay to their robotic system yesterday. Is that has been any kind of gating factor where people are kind of waiting to see that one versus going ahead and executing Excelsius purchase and now that they're delayed, do you think there could be maybe a little bit more push to get access to your product?

Yes. Let me see if I can keep track of the questions. In terms of pricing, we haven't done anything more aggressive than we normally would to get systems placed. And to characterize hospitals as willing or not it's --that's dangerous because there's an entire spectrum. There's CEOs who say I can't even think about this right now. So I have too many things going on with COVID, with too many problems to address. So you need to come back in a quarter. And there are other ones who maybe aren't as impacted by the COVID environment themselves that see an opportunity to differentiate their hospitals even more to pull more patients to them that are they're maybe not able to be treated at other places. So it's an entire 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 you mentioned, yes, I think that's -- I don't think we've seen that yet, but I think as a result of continued delays, the reality is that we don't really know when that's coming if it's coming. So that'll be useful for our sales force in terms of addressing those folks who might be waiting.

Your next question comes from the line of Matt Taylor with UBS.

Hi. Thanks for taking the question and congrats. So I wanted to ask more about the recruiting. You continue to have record levels of recruiting and you mentioned some of the reasons just now. I just was curious how you're able to maintain that during this time and is the bigger difference in your performance 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?

They do seem to have backed off a bit. That's nearly anecdotal but our guys are 100% focused on that. And it's a credit to Greg Harris, our Executive VP of U.S sales and his team just the focus they've had at this period to really accentuate the strength of our company in terms of our financial strengths, our technology strengths and just the culture that we built to bring people over when things become uncertain people are looking for security. And they've been able to convey that to folks and continue to generate that interest. And we've been willing to be aggressive and make a bet on ourselves that things are going to come back. And we're going to those bets are going to pay off in the future.

Yes and then I was just hoping to get an update on the robotics program in large joints, if you can talk about that and the timelines at all. Anything on expectations for contribution from it.

Yes. That's a way out. We're probably not going to see that for a good bit at this point where we've been challenged in earlier stages of development there. The team is fairly dispersed, so it's been challenging to get into the labs and do the labs that we need to on those early stages to get the products finalized. So I think that has been a bit of a casualty of COVID. I don't have a timeline to tell you at this point, but we are further behind than we were say six months ago.

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

Hi. This is Mason on for David today. Thanks for taking the questions. Just a quick clarification. When you talk about June up double digits year-over-year that's 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.

Yes. It's a good question. That's a day adjusted rate I gave you. Even higher than that normally.

Got it. That's helpful. And then just as a quick follow-up July accelerating off of this obviously encouraging to see that growth rate continuing. Are you seeing a plateau as you look week to week as backlogs continue to be worked through or the growth rates still accelerating off of this in the back half of July and into August? Thanks so much.

Yes, another good question, yes, it's plateaued in terms of our sequential week-to-week. We're kind of we seem to be at a certain level. July is typically a month where we tail off for vacation, so we're sequentially we're plateauing but we're up against maybe easier comps for July. So we'll enjoy those easy comps in August and then September obviously that's when people would normally come back. So the comps will get harder for us come September.

Our next question comes from the line of Jason Wittes 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 at the larger companies where you're poaching talent?

I don't know for sure I said pulling back. They don't seem to be as aggressive when we are talking to folks, you usually ask them if they're thinking about making a move; it usually behooves them to shop around a bit and it doesn't feel like we're really in competition with a lot of folks at this point. They're narrowing their choice and I -- that may just be because we've differentiated ourselves enough that they know where they want to end up and not anything our competition is doing. and then I apologize but I didn't catch that --

I guess related to that was and I had a quick follow-up really 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 movement? Is that something you kind of anticipate to continue for the rest of this year and even into next?

I don't know if it's uncertainty. I think it's just clear from the larger folks that they're buying technology. If they're moving at all and then maybe on the more peer related there is just seems to be a lack of some of the key elements in terms of where the future is. So I think it's just -- 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, the navigation, robotics platform that we're building. I think it's all -- it's what we're doing more than what and maybe what they're not doing versus something that they're actively doing.

Okay and then just quickly on trauma, impressive numbers. When I originally spoke to you guys you kind of mentioned that 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 else or is there other drivers of the growth that are kind of behind that number?

Hey, Jason. It's Dan again. It's really multifaceted, right. It's going to be about recruiting and bringing reps on board, so you penetrate a market given that we're small. So you're able to get into new territories. It's certainly about creating access whether that's at ASCs or in hospitals or through GPOs, all those things are working for us. And of course it's getting more products and more sets out into the market in a regulated fashion that allow us to continue to get more usage and more trials as we build surgeon relationships. So all of those are really working. It's not necessarily that a contract's expired and we jump on and do it. It is part of it but it's not the sole reason.

Your next question comes from Kyle Rose with Canaccord.

Great. Thank you very much for taking the questions. I wanted to follow up on one of the earlier questions on enabling technologies. I appreciate the comments on the timing for the robotic side, but maybe any additional insight with respect to these procedure specific indications in the spine arena? And then any update on timing with respect to the imaging platform as well.

Sure. Thanks Kyle. Yes, we're actually just in the soft launch of our inner body module if that's what your reference to procedure specific was. And it's going quite well. We've a half a dozen cases this week and but 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 in the sort of the final stages of testing with the agency right now, which is the last step before we go to the FDA. So assuming that goes well we don't see any major 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 the trauma side for Dan. Dan, when you're going into accounts and trying to get on contract are you taking, I guess, what you 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 when we think about entering a level one facility and taking material share in one of those facilities?

Yes. We're not in a position yet to take and displace a full large player. We're working towards that 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 if he's in upper, some lower obviously and then kind of expand through there. So again with 12 product families launched we knew do quite a bit. But we still need to continue to put more out on the market before we really can disrupt or displace the bigger competitors.

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

Hey, guys. This is actually Max on for Ryan. I just wanted to go back to HEDRON and 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 the top line. And whether there was anything different you did with those rollouts given the COVID environment that might be able to take forward to additional product launches here in the back half of the year?

Thanks Matt. Nothing we really, we did any differently than our norm. I will say that I blew it on the projection of how much we'd sell and I undershot that. So we've kind of exhausted our 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 and those machines and that capacity is coming on board. We should see the impact of that in Q4. And again nothing different than the normal. And we typically don't give you the granularity in terms of what the components of our growth are. 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 module is now approved, can you just provide some more detail around your commercial strategy in the model itself? Is it a software upgrade and some hardware or is it a separate unit entirely just kind of helps us think through that please?

Yes, it rides on the Excelsius platform. It does require some different hardware but the core unit's the same and it's obviously different software. They're putting the final touches on 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 probably kind of going go initially to customers who have a unit to expand their capacity and buy the cranial module, but we will also be addressing neurosurgeons who just focus on bringing procedures. But that's a new area, a new call point 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.

Your next question comes from Mike Matson with Needham.

Hi. This is David Saxon 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 are you thinking about the risks or opportunities and launching in the current environment?

Thanks David. Yes, we'll be out in the first quarter with that and along with the navigation that goes with that. Yes, is there other risks launching capital in the current environment? I think there are, but at the same time I think that this is going to end at some point and we're excited about what this technology can do. It's been an issue for us competitively not having 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 can't wait to get it out there.

Great. Thank you and then as a follow-up just on gross margins, as revenue starts to recover how should we think about the ramp back to kind of normal gross margins. Thanks so much for taking the questions.

It's Keith. Thanks for the question. I think on a normalized basis, again we have no reason to believe that we're not a mid 70s business. But I err on saying how quickly we return there given that we still don't know what the second half's going to bring. Yes, we do see some optimism with sales so far in July, but looking ahead I err on providing a specific target for the back half of the year. I think what I would say is on a go forward basis non-COVID environment we should be at mid-70s business.

Your last question comes from line of Steve Lichtman with Oppenheimer and Company.

Hey. Thanks for taking questions. It's actually David on for Steve. Just maybe one for me, any color you can provide on Japan during the second quarter have you begun selling Excelsius units, and if so, how much of an impact should we expect for that rollout in the second half? Thank you.

Yes. Thanks David. We are marketing it there. We have not sold the unit yet in Japan. But we have a pretty nice pipeline of potential leads and are optimistic about the future with it there. Did you have a follow-up question? Okay, great, thank you.

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