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Globus Medical (GMED)
Q1 2013 Earnings Call
May 2, 2013 05:30 pm ET
David Paul – Chairman & Chief Executive Officer
Dave Demski – President & Chief Operating Officer
Richard Baron – Senior Vice President & Chief Financial Operator
Bill Plovanic – Canaccord Genuity
Matthew O’Brien – William Blair & Co.
David Roman – Goldman Sachs Group
Bob Hopkins – Stifel Nicolaus
Matt Miksic – Piper Jaffray & Co.
Richard Newitter – Leerink Swann & Co.
Steven Lichtman – Oppenheimer & Company
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Thank you for being with us today. I will now read our required legal disclaimers.
During this call certain items may be discussed that are not based entirely on historical facts. These items should be considered forward-looking statements and are subject to many risks, uncertainties, and other factors that are difficult to predict and may affect our business and operations. As a result, our actual results may differ materially and adversely from those expressed or implied by our forward-looking statements.
A discussion of some of these risks, uncertainties, and other factors are set forth in our Form 10(k) filed with the Securities and Exchange Commission on March 5, 2013, and in our period reports on file with the SEC. These documents are available at www.sec.gov. We undertake no obligation and do not intend to update any forward-looking statements as a result of new information or future events or circumstances arising after the date on which it was made.
The financial information discussed in connection with this call reflects estimates based upon information available at this time and could differ materially from the amounts ultimately reported in our Q1 2013 Form 10(q). Our revenue, earnings, operating margins and similar items are sometimes expressed on a non-GAAP basis and have been adjusted to include certain items including among other things interest expense, depreciation, amortization, taxes, provision for litigation settlements and stock-based compensation. The comparable GAAP financial information and a reconciliation of non-GAAP amounts to GAAP can be found in the tables included in today’s earnings release, which is available on the Globus Medical Investor Relations webpage at www.globusmedical.com.
I will now turn the call over to Dave Demski, President and COO.
Thank you, Rick. I will provide commentary on our overall performance for the quarter, Rick will give some additional color on our financials, and David Paul will provide his insight into our product development efforts.
We’re pleased to announce record sales of $105 million for Q1 2013. Adjusted EBITDA was $35.5 million. GAAP net income was $19.9 million and fully diluted EPS was $0.21 per share. Sales in Q1 were 11% higher than Q1 2012, well above the industry as a whole and a strong performance given two fewer procedural days in the quarter and an extremely strong Q1 last year.
More significantly, our sequential sales growth in Q1 was 4.5% over Q4 2012, which in turn was 6.1% higher than Q3. This consistent, steady financial performance has been a hallmark of our company and leaves us well positioned for a great 2013.
Adjusted EBITDA was 33.8% of sales for Q1 2013 compared to 35.9% in Q1 2012, a reduction of 2.1 percentage points. 1.7 percentage points of this delta is attributable to the medical device tax which began on January 1, 2013. In addition, the net impact of Algea Therapies reduced adjusted EBITDA by 0.7%. But for these two items our adjusted EBITDA would have improved by 0.3% over Q1 of last year, which is a result of our continued steadfast focus on managing costs that has allowed us to deliver consistently superior profit margins from an increasing sales base.
Recruiting activity in the quarter was exceptionally strong and we have been able to attract several high-quality sales reps from our larger competitors. While we don’t share specific numbers in this area, those of you who are familiar with our story recognize that this is one of the key drivers of long-term growth. We’re very pleased with our ability to attract and retain successful sales professionals to the Globus team and have been very encouraged by the activity in Q1.
International performance remains strong. Our OUS sales grew by 30% in Q1 over the comparable period last year and we began doing business in three new countries in the quarter, bringing the total to 27 countries.
Performance of Algea Therapies, while modestly improving, remains challenging. Last week we launched our second VCF product, The SHIELD Vertebral Compression Fracture System which we acquired in 2012. As we indicated last quarter, we expect to see meaningful improvement in Algea Therapies during the second half of this year.
The three “P’s” that defined much of the business climate for our industry – pricing, payer pushback, and PODs – all continued to improve modestly. Pricing is still under pressure although the severity has lessened over the past year and remains in the low- to mid-single digits.
Payer pushback on procedures also seems to have reached a steady state. Patient advocacy remains the most effective way to combat this phenomenon and we have increased our efforts in this area in the last six months by investing in the support infrastructure to assist patients and physicians in obtaining approvals for necessary procedures.