Globus Medical, Inc. (GMED)

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Globus Medical Inc (GMED)

Q2 2013 Results Earnings Call

August 1, 2013 5:30 PM ET

Executives

David Paul - Chairman and CEO

Dave Demski - President and COO

Richard Baron - Senior Vice President, Finance and CFO

Ed Joyce - Investor Relations, Director

Analysts

Bob Hopkins - Bank of America

Matt Miksic - Piper Jaffray

Bill Plovanic - Canaccord Genuity

David Roman - Goldman Sachs

Richard Newitter - Leerink Swann

Steven Lichtman - Oppenheimer

Presentation

Operator

Welcome to Globus Medical’s Second Quarter Earnings Call. At this time, all lines will be on mute and a Q&A session will be held after the prepared remarks. Joining today’s call from Globus Medical will be David Paul, Chairman and CEO; Dave Demski, President and COO; and Richard Baron, Senior Vice President of Finance and CFO; and Ed Joyce, Investor Relations, Director.

I will now turn the call over to Ed.

Ed Joyce

Thank you and thanks for being with us today. I will now read our required legal disclaimers.

During this call, 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.

As discussed -- a discussion of some of these risks, uncertainties, and other factors are set forth in our Form’s 10-Q and 10-K on filed with the SEC. These documents are available at www.sec.com.

We take no obligation and do not intend to update any forward-looking statements as a result of new information, 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 on information available at this time and could differ materially from the amounts ultimately reported in our second quarter 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 loss or income, and stock-based compensation.

The comparable GAAP financial information and a reconciliation of non-GAAP amounts to GAAP amount can be find -- found in the tables included in today’s earnings release, which is available on the Globus Medical Investor Relations website at www.globusmedical.com.

I will now turn the call over to Dave Demski, President and COO.

Dave Demski

Thanks, Ed, and welcome to everyone on the call. I will provide a commentary on our overall performance for the quarter, Rick will give some additional color on our financials, and then David Paul will provide some insight into our product development efforts.

We had record breaking sales in the second quarter and the first half of 2013. We continue to execute on our three-prong strategy of technology innovation, expanding our sales force footprint both domestically and OUS, and maintaining financial discipline and operating efficiency.

Second quarter sales were record $107 million, 11.5% higher than Q2 2012. Not only this growth rate outstanding in comparison to our peers it is compared to a very strong Q2 in 2012 in which we grew 18.6%.

Adjusted EBITDA of 34% compares to 36.1% in Q2 2012. A reduction of 2.1 percentage points, in line with expectation as 1.6 percentage points of this delta is attributable to the medical device excise tax.

As previously announced, the jury trial with DePuy Synthes concerning our plate spacer technology concluded on June 14th with the decision in favor of DePuy Synthes. We had reserved a total of $19.5 million in the second quarter to cover potential damages and cost associate with lawsuit.

While we are not happy with the result and intend to appeal, we do have clarity on the magnitude of the liability and result does not impact future revenues as improved versions of all three products were launched in late 2012.

We continue to launch a steady stream of new technology. In Q2 we launched six new products including LATIS, a unique laterally expanding interbody device that David will discuss in his remarks. Our pipeline of future products is significant with some exciting second half launches anticipated.

Sales force recruiting continued to have robust pace in the second quarter. While we don’t really specific headcount numbers our net U.S. additions in the first half of 2013 surpassed the full year net additions in the U.S. for every year since 2007. Not only has the quantity of recruits been excellent, the quality of experienced sales professional has been exceptional.

As we have discussed in the past, the impact of recruiting on sales tends to be modest in the first 12 months after hire. With a more pronounced ramp in the second year due to non-compete restrictions.

The large uptick in the first half hiring could result in slight drag on EBITDA percentage over the last half of this year, but it should not be a material. We are excited about the potential impact of our first half efforts in this area and expect to see positive sale momentum over the next 18 to 24 months.

Revenue from international operations grew 20.3% in Q2 over the comparable period last year. Between 2010 and 2011, we grew our OUS footprint from five to 24 countries. Much of our efforts during the first half of 2013 were focused on improving the efficiency of our OUS operations and getting that segment of the business EBITDA positive.

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