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Edited Transcript of GMED earnings conference call or presentation 1-Aug-19 8:30pm GMT

Q2 2019 Globus Medical Inc Earnings Call

Audubon Aug 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Globus Medical Inc earnings conference call or presentation Thursday, August 1, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian J. Kearns

Globus Medical, Inc. - SVP of Business Development & IR

* Daniel T. Scavilla

Globus Medical, Inc. - CFO, Executive VP & Chief Commercial Officer

* David M. Demski

Globus Medical, Inc. - CEO, President & Director

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Conference Call Participants

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* Craig William Bijou

Cantor Fitzgerald & Co., Research Division - Research Analyst

* David Ryan Lewis

Morgan Stanley, Research Division - MD

* Lawrence H. Biegelsen

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Matthew Stephan Miksic

Crédit Suisse AG, Research Division - Senior Research Analyst

* Michael Stephen Matson

Needham & Company, LLC, Research Division - Senior Analyst

* Richard S. Newitter

SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Research Analyst

* Ryan Benjamin Zimmerman

BTIG, LLC, Research Division - Director & Medical Technology Analyst

* Xuyang Li

UBS Investment Bank, Research Division - Equity Research Analyst of Medical Supplies & Devices

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Presentation

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Operator [1]

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Good afternoon, ladies and gentleman. My name is Jerome, and I will be your conference operator today. At this time, I would like to welcome everyone to the Globus Medical's Second Quarter 2019 Earnings Conference Call. (Operator Instructions) Now it's my pleasure to hand the call over to your host, Mr. Brian Kearns, Senior Vice President of Business Development and Investor Relations. Please go ahead.

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Brian J. Kearns, Globus Medical, Inc. - SVP of Business Development & IR [2]

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Thank you, Jerome, 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, Chief Commercial Officer and CFO; and David Paul, Executive Chairman.

This review is being made available via webcast accessible through our 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 2018 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 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.

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David M. Demski, Globus Medical, Inc. - CEO, President & Director [3]

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Thank you, Brian, and good afternoon, everyone. Second quarter sales were $194.5 million, an increase of 12.2% over the second quarter of 2018. Musculoskeletal Solutions grew by 14.3% and Enabling Technologies delivered $12 million in revenue, an increase of 67% over Q1 but down slightly from $13.7 million in Q2 '18.

Non-GAAP EPS was $0.41 per share, versus $0.44 a year ago. The decrease in EPS was attributable to a higher tax rate in 2019. Operationally, non-GAAP EPS increased by 5%. Adjusted EBITDA in Q2 '19 was 32%, compared to 34% a year ago. The drop in EBITDA and the lower growth in EPS are both the result of planned investments in INR.

We are more excited than ever about the potential of computer-assisted technology to transform the way surgery is done. We are spending heavily to bring several exciting new technology platforms to market and we are expanding our commercial teams to keep pace with growing demand. Factoring out the impact of INR investments and nonoperational matters, the core business delivered 17% EPS growth in Q2. Globus continues to achieve market-leading operating margins even as we invest in key strategic initiatives, including INR, trauma and total joint arthroplasty.

Musculoskeletal Solutions continued to perform exceptionally well in all areas. The U.S. Spine business grew by 11.7% in the quarter. Adjusting for the 1 fewer selling day in 2019, the U.S. Spine business grew by over 13% in the second quarter, continuing the acceleration we have seen over the past 4 quarters. Competitive recruiting and implant pull-through from ExcelsiusGPS installations are the primary drivers. Momentum in this part of the business is very strong. Year-to-date recruiting and onboarding performance is well ahead of the past 2 years. We continue to see strong adoption from robotic installations, and we are at the early stages of a strong product introduction cycle. All of these factors bode well for a strong finish to 2019.

The International Spine business grew by 15.8% as reported. On a constant-currency day-adjusted basis, growth was 22.7% compared to Q2 '18. Japan, Spain, Italy and the U.K. all showed impressive growth. Improved access to new technology, robotic placements, increased investments in peer-to-peer education and the impact of key management additions in 2018 all contributed to the continuing strong performance internationally. As we alluded to last quarter, we do expect some deceleration in second half growth as the year-to-date results reflect the alleviation of pent up distributor demand, now that our supply chain issues have abated.

During the quarter we launched 4 additional systems in spine, bringing the total to 8 systems launched year-to-date. In Q2 we launched SI-LOK SELECT, our next-generation system for SI joint fusions that is designed for multiple approaches and features optimal slot geometry for varying patient anatomy and our proprietary SintrOS laser surface technology. There are numerous additional spine launches slated for the second half of the year, including a complete line of 3D-printed interbody spacers and our fourth-generation expandable [Keta] spacer. We are also making steady progress on resolving all tissue-related issues by the second half of this year.

Revenue from Enabling Technologies was $12 million in Q2, reviving sharply from a soft Q1. We remain confident in our ability to compete in this segment for a number of reasons. First, we recently obtained FDA clearance for our interbody module and we are on track to launch that and our spine deformity solution in early Q4. As a reminder, the interbody module is a fully integrated solution that enables surgeons to seamlessly navigate a variety of interbody spacers and utilize the Excelsius end effector to rigidly hold retractors or ports. The spine deformity solution incorporates the planning technology acquired from Surgimap. These modules enhance the clinical value of the Excelsius technology, which we believe will not only provide significant competitive advantages for Excelsius but will also translate it into greater overall demand for robotic solutions.

In addition to product launches, interest in robotic technology among spine surgeons is strong and growing. We continue to win in the majority of head-to-head technology comparisons with competitive systems. We recently launched our Smarter, Faster, Stronger marketing campaign, which highlights the clinical advantages surgeons have consistently endorsed in their evaluations of Excelsius; a number of clinical studies demonstrating the advantages of ExcelsiusGPS technology are under way or being published; and most importantly, we continue to see robust adoption by accounts who have purchased systems.

Our trauma business made good progress in Q2. I am pleased to announce that Dan Scavilla assumed general management responsibility for this part of our business in the second quarter. Dan will provide more detailed information on trauma in his remarks.

Finally, I'm also excited to announce that during the second quarter we closed on the acquisition of StelKast, Inc. StelKast is a small manufacturer of total joint arthroplasty systems with a 30-plus-year history in producing and supplying high-quality artificial knee and hip systems. This acquisition is the first part of our strategy to acquire implant and metallurgical technology with a proven safety record and combine it with our robotics solution. We see an opportunity to leverage the experience and success that we have achieved with ExcelsiusGPS in spine surgery to enter other markets such as cranial surgery and total joint arthroplasty with disruptive and differentiated products. We believe there are significant opportunities to solve important clinical issues that the current systems encounter. The acquisition of StelKast is intended for us to be able to capitalize on superior robotic technology while capturing implant revenue with systems that have proven safety and reliability records.

We have been developing a robotic solution for total joints for the past several quarters, with an accelerated investment in the first half of this year. We do not plan to aggressively ramp up commercial activity on the StelKast implant business until we have clear line of sight to the robotic launch, which is targeted for late 2020. A modest amount of revenue is included in our second quarter results. As Dan will expound upon in his remarks, we are adding $5 million to our 2019 guidance to account for the incremental total joint revenue expected in the second half of this year.

In summary, we are very pleased with our second quarter execution and momentum. Our growth in Musculoskeletal Solutions is well above the market. We continue to achieve significant penetration in Enabling Technologies. We are seeing robust adoption trends in robotic accounts and we are delivering an increasing number of new product introductions. We are well positioned for a strong finish to the year, given the strength in our U.S. Spine business, the bounce back in robotics and the lineup of new product launches on tap in spine, robotics and trauma in the second half.

I will now turn the call over to Dan.

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Daniel T. Scavilla, Globus Medical, Inc. - CFO, Executive VP & Chief Commercial Officer [4]

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Thanks, Dave. Good afternoon, everyone. In Q2, Globus achieved above-market gains in the U.S. Spine business, continued strong growth in international markets and increased trauma sales. Profitability remained strong and included increased investments in INR, trauma and total joints. We deployed a portion of cash flow this quarter towards additional spine and trauma sets to fuel the ongoing business growth. We also built launch quantities for several new products in spine, trauma and robotics, and made the strategic acquisition of StelKast, Inc.

Q2 revenue was $194.5 million, growing 12.2% as reported, or 14.1% on a day-adjusted basis, with 1 less selling day in the quarter versus prior year. Currency headwinds negatively impacted sales growth rates by 50 basis points for the quarter. GAAP net income was $38.2 million and non-GAAP net income was $41.2 million, delivering $0.41 fully diluted non-GAAP earnings per share and adjusted EBITDA of 32% and $7.9 million of free cash flow.

Focusing on sales. U.S. revenue for the quarter was $160 million, growing 10% versus Q2 '18. The U.S. spinal implant business continued to outpace the market, driven by competitive rep onboarding and increased implant pull-through from accounts with ExcelsiusGPS. Robotics sales were lower than Q2 '18 but nearly double our Q1 '19 performance, with a strong pipeline as we enter into Q3.

I'm pleased to assume the general management role of our trauma business. Entering into an $8-billion worldwide market with a stagnant innovation and applying the strength of the Globus innovation engine will help to improve patient outcomes while leveraging our company's strength.

Q2 was an important quarter for our trauma business. It was the sixth consecutive quarter of growth and record sales, with Q2 increasing 40% over Q1. In addition, we placed a record amount of sets into the field and launched 2 key product platforms in the quarter, the AUTOBAHN Tibial Nail and the AUTOBAHN A/R Femoral Nail systems. The tibial nail offers 1 comprehensive instrument set for supra- and infrapatellar nailing, while the antegrade/retrograde femoral nail features innovative reconstruction screws. Both systems feature headless locking screws designed to reduce soft tissue irritation and offer streamlined instruments for better workflow. These products offer meaningful innovation and differentiation that will further build the business as we enter into the second half of 2019. The momentum is building, surgeon feedback is positive and the team continues to focus on market penetration and portfolio buildout.

International revenue for the quarter was $34.5 million, growing 23.3% as reported, or 26.7% in constant currency, versus prior year. Gains were achieved through continued market penetration in Japan, Spain, Italy, Austria and the U.K., combined with ExcelsiusGPS sales. We feel the second half will be strong, but not as high as Q2 results, due to the large distributor orders processed in the first half of the year.

Turning to the rest of the P&L. Q2 gross profit was 77.4% compared to 78.3% in Q2 '18. The change is primarily due to the planned increase and depreciation for cases and instruments as we expand our sales forces in spine, trauma and robotics.

Research and development expenses for the quarter were $15.7 million, or 8.1% of sales, compared to $13.5 million, or 7.8%, in Q2 '18, owing from increased investments in the INR platform.

SG&A expenses for the second quarter were $88.4 million, or 45.4%, compared to $77.1 million, or 44.5%, in Q2 '18, reflecting expansion in the U.S. Spine sales force and investment in robotics.

The GAAP income tax rate for Q2 is 19%, compared to 10.6% in Q2 '18. The planned rate increase is driven by prior year higher stock option exercises not repeated in Q2 '19.

Adjusted EBITDA margin for the quarter was 32%. The lower-than-usual margin was driven by 2 factors. First, Q2 includes a nonoperational impact for unfavorable currency that negatively impacted EBITDA by 60 basis points for the quarter. Second, the increased investments in INR created a 3.5-percentage-point drag to EBITDA for the quarter versus prior year as we continued to invest in the strategic growth platform.

GAAP net income was $38.2 million and non-GAAP net income was $41.2 million. GAAP diluted earnings per share were $0.38 and non-GAAP diluted earnings per share were $0.41 versus $0.44 in Q2 '18.

There are several items impacting the quarter that are worth reviewing to understand the underlying strength of our core business. First, there's a nonoperational impact of negative $0.04 this quarter, resulting from the 840-basis-point-higher tax rate. Second, there's a nonoperational headwind of negative $0.01 for unfavorable currency in the quarter, or negative $0.02 year-to-date. Adjusting for the $0.05 of nonoperational headwinds results in an operational EPS of $0.46 for the quarter.

In addition, the increased investment in robotics R&D and commercial expansion resulted in a negative $0.05 impact compared to Q2 '18. Adjusting for the combined $0.10 impact of nonoperational headwinds in increased robotic investments, the core business delivered an EPS growth of 17%.

We ended the quarter with $610.1 million of cash, cash equivalents and marketable securities. Net cash provided by operating activities was $22.6 million and free cash flow was $7.9 million. Q2 cash flow is typically lower than other quarters of the year, driven by 2 planned tax payments. We made $22.5 million of tax payments in the quarter. In addition, cash flow this quarter reflects the purchase of StelKast and the additional investments in inventory and sets for both spine and trauma. The company remains debt-free.

The company is maintaining guidance for full year 2019 sales of $770 million, but adding $5 million to account for the second half sales attributed to the StelKast acquisition, bringing the total to $775 million for the full year. Non-GAAP diluted earnings per share guidance remains unchanged at $1.72.

Finally, I want to remind the investment community that Keith Pfeil will be joining our Globus team as Senior Vice President and Chief Financial Officer effective August 19. We're psyched to have Keith come on board and help drive the next stages of Globus growth with us. Keith and I plan on attending several healthcare conferences later this year, so many of you will have the chance to meet him in person as we transition the CFO role.

We will now open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Your first question comes from the line of Matt Miksic with Credit Suisse.

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Matthew Stephan Miksic, Crédit Suisse AG, Research Division - Senior Research Analyst [2]

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So I'd love to ask you if you could elaborate a little bit on the news around StelKast, just how that fits in. Maybe also -- it wasn't quite clear what it contributed in the quarter. I think you said there was some minor contribution, but more importantly, the strategy, the opportunity that you see and maybe the part of the market that you see as accessible or vulnerable to that strategy, and just love some additional color. And then I have one follow-up.

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David M. Demski, Globus Medical, Inc. - CEO, President & Director [3]

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Sure, Matt. Thank you. This is Dave. Yes, just to elaborate on the strategy, I think we've seen the impact that robotics can have on the implant business, and we're very happy with the success we've had in spine. We think we've developed a real strong core competency there. We've got a great team. So we were looking for other ways to leverage that technology, and looking at the success that some of the other companies have had in total joints, we thought that was a logical place to go. We wanted to buy an implant manufacturer with a strong track record of safety and reliability, so we weren't really looking for revenue. And at this point we're really not going to invest in growing that revenue. We're really focused on completing the development of our robotics solution and entering into the market.

You talked about the opening in the market; we're not going to be too specific on that right now, for competitive reasons, but we do have something very specific in spine -- or in mind that we think is a big opportunity. And then to your other question about the amount that was included, we're not planning on disclosing, breaking out all of the details of our revenue, so we're not sharing that with you at this point.

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Matthew Stephan Miksic, Crédit Suisse AG, Research Division - Senior Research Analyst [4]

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Okay. Just on that last point, the $5 million, then, should we -- wherever the contribution is and whatever it was in the second quarter, was that in Enabling Tech, or was that spine, or where would we put that?

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David M. Demski, Globus Medical, Inc. - CEO, President & Director [5]

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Yes, it's in Musculoskeletal Solutions. So those are implants.

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Matthew Stephan Miksic, Crédit Suisse AG, Research Division - Senior Research Analyst [6]

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Got you. Okay. And then the follow-up, if I could, just on -- there is this view that you're going up against a behemoth in Medtronic, and a behemoth you've gone up against for 10 years in the core spine business, but in this case, perhaps challenged in selling robots against this very, very large global company. So maybe if you could highlight where you're having success, maybe what is next in the series of steps that you think are important in executing on the spinal robotic surgeries part of the business.

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David M. Demski, Globus Medical, Inc. - CEO, President & Director [7]

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Sure. Thank you. Well, just to correct you a little bit, we've been competing with them for 16 years. We were 0 at that point, and our guidance is almost $800 million for this year, so we feel like we can compete in that market, and we have done so in the robotics side as well. And for me, the main thing is in the OR. It's what we're seeing in terms of the way surgeons are utilizing the technology. And we're consistently seeing value added there. And we know our technology's better today. We're working on some stuff that is really pretty amazing; we're not -- we haven't shared the details with you, but you can see that we're certainly spending a lot of money developing it. We believe in it strongly. So we're going to continue to win in terms of the way the technology works. And we have the capacity to compete at this point. We're financially strong, we know the spine business very well, we know how this incorporates into surgical practices, so I'm not sure what else to add to that. We feel really good about our position. At this point, it's a two-horse race, because the other guys who have talked about systems have kind of indefinitely delayed them, so it's us and them for a little while, and we had a great second quarter, I thought. I'm really happy with what I'm seeing in the third quarter. And I feel really good about the long term.

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Operator [8]

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Your next question comes from the line of Larry Biegelsen with Wells Fargo.

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Lawrence H. Biegelsen, Wells Fargo Securities, LLC, Research Division - Senior Analyst [9]

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Hey, Dan, just wanted to start out on the margins. Top line was obviously very strong this quarter, but the margins were a little weaker than we expected. What -- how should we think about the margins for the second half of this year? And then just taking a step back on margins, with the StelKast investment into the hip and knee market, what's the message? One concern people might come away from this call is that entering that market might put additional pressure on your margins. And I had a follow-up.

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Daniel T. Scavilla, Globus Medical, Inc. - CFO, Executive VP & Chief Commercial Officer [10]

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Thanks, Larry. It's Dan. I'll start with the last one. So again, we just acquired the company, as Dave said. We plan on a larger, little bit longer-term robotics solution with this. And so I don't think we would see noticeable margin pressure, if any at all, carrying in the short term with this. So I don't think that's a 2019 point, and if we come out as a target late in 2020, I don't know if it's necessarily there. We'll have to get to that point with our full package and address that issue with more data at the right time.

As far as the margins, again, I feel like I went through that in the script, but glad to touch on it again. We're at that 32%. What I'm saying is, 0.5 points is currency impact, and 3.5 points is related to our decision to increase our investments in robotics because it's such a good opportunity. So the core is extremely healthy, the way I look at it. I don't feel it's any different. What we're seeing right now is a little bit of nonoperational headwinds on the one and a decision to take advantage of this opportunity now.

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Lawrence H. Biegelsen, Wells Fargo Securities, LLC, Research Division - Senior Analyst [11]

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No, that's helpful. I was asking about the second half. So I'll just ask one follow-up on that, and then my second question. Just on the second half, the original guidance, I think, was mid-30% EBITDA margin. Just the -- how we should think about the second half on the margins. And then just second for you as well, Dan, on trauma, what were trauma sales in the second quarter, and how do you feel about kind of your ability -- in the past you've talked about capturing 100 basis points of share in the U.S. addressable market annually, and you're still kind of targeting about $5 million to $7 million in trauma sales in 2019. Thanks for taking the questions.

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Daniel T. Scavilla, Globus Medical, Inc. - CFO, Executive VP & Chief Commercial Officer [12]

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Yes, Larry. So yes, so the first thing is, again, I think we're right at the cusp of this. I'm pleased with Q2 trauma sales. We don't really disclose those, but as I've told most of the investment community, really relatively small right now, some minor numbers. We'll notice them more in Q3. And that's why I'm talking about building inventory and having more sets put out there, a lot of activity. I think we're starting to see some activity in Q3, and then that will be more meaningful in Q4. I think that placeholder, that rough range of around $5 million, is correct. That's what we're aiming towards. Of course, that means getting the systems launched and getting them placed, but that's why we're here, to do that. So I think that's probably the first answer to that one.

I didn't really touch on your thing, but I think this year we end as a company in the mid-30%s EBITDA. As you remember, I've always said that investment range between 33% to 37%. I would look a little bit towards that lower end, but I think somewhere in that range is where we're headed even with this level of investment. And we have a pathway to make sure that's where we land for the year.

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Operator [13]

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Your next question comes from the line of Craig Bijou with Cantor Fitzgerald.

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Craig William Bijou, Cantor Fitzgerald & Co., Research Division - Research Analyst [14]

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I want to start with robotics. You guys talked about the lengthening selling cycle in Q1. So wanted to see what you're seeing there, especially given the comments, Dave, that you talked about with one of the competitors pushing out the full launch. So just wanted to see if you've seen any impact or any changes in that since Q1. And then on that as well, just wanted to see if you're getting any feedback from hospitals that -- you guys have been talking about the enhancements that you're making to the robot that are coming out later this year, so if there is any sort of maybe a delay or hesitancy in purchasing until some of the new enhancements come out.

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David M. Demski, Globus Medical, Inc. - CEO, President & Director [15]

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Sure. Thanks, Craig. I would say, to your first question on the competitive dynamics, no, it's still very competitive. It seems like each deal is being hard fought. We have adjusted in that we're now -- the longer cycle just means that once you get a flow going you can kind of ramp up our overall pace. And we've hired some more folks to just account for that and expand our sales force.

And on the second question about delays from hospitals, not at all. We haven't really talked in a lot of specifics with accounts at this point, and we -- so it hasn't been a factor in terms of them delaying to wait and see what it is.

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Craig William Bijou, Cantor Fitzgerald & Co., Research Division - Research Analyst [16]

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Okay. That's helpful. And then on the total joint opportunity, it sounds like late 2020 is when we would first -- or we can see the robot. So just kind of want to understand revenue contribution. And I also want to ask, when you guys launched trauma or got into trauma, there was a little bit of some delay. So from that perspective, just wanted to get your thoughts on how you'll manage the robotic launch for spine, your core spine, trauma, and then now adding on total joint.

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Daniel T. Scavilla, Globus Medical, Inc. - CFO, Executive VP & Chief Commercial Officer [17]

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Okay. Craig, it's Dan. So I'll certainly take the first piece of it. We made this acquisition to get a product with a safety profile and history from which we can build and modify and build into the robotic platform. So the acquisition is obviously more about the product and the foundation of a larger platform versus anything related to sales. That said, given the activity that's out there currently, by increasing the second half year by $5 million, you can obviously figure out the annual run rate that we see with this. So we're just passing that one right through that way, and that's really what we think the whole contribution for 2019 will be.

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David M. Demski, Globus Medical, Inc. - CEO, President & Director [18]

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And maybe -- if I understand your question, it's how are we going to manage all the multiple projects that are going on in INR and the launches. We've greatly built out our own team up in the Boston area. We've also acquired a couple of companies with some very strong technical talent -- KB Medical, you may recall, in Switzerland, and the team that we have there. We're also increasing that team. And then we bought Surgimap, who has a lot of software expertise, in particular in spine. And all that's combining, so that -- and that's where you're seeing the spend, is on our development and, if you will, the management of all those products.

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Operator [19]

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

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Richard S. Newitter, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Research Analyst [20]

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Just wanted to start off with the StelKast. I was wondering, is that mostly an international revenue contribution? And should we be thinking of that contribution in 2Q as all OUS?

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David M. Demski, Globus Medical, Inc. - CEO, President & Director [21]

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Rich, it's all domestic. It's a small company, but it's all in the U.S. And then I didn't catch the last part of your question.

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Richard S. Newitter, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Research Analyst [22]

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No, that answers that part right there, thank you. And I guess just going on the last question a little bit, you're still barely into your trauma launch, and that's a big initiative, and I guess, why is now the right time to be taking on another tangential but relatively new orthopedic adjacency, especially before we've kind of seen the degree to which you could be successful in trauma? I guess I just -- the timing could use a little more color there. Thanks.

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David M. Demski, Globus Medical, Inc. - CEO, President & Director [23]

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Sure. Well, I think the motivating factor for going into total joints is really the robotic technology. In that, we're well down the curve in terms of developing that, so it was time to acquire the -- I wouldn't want to enter that with only robotics technology. We certainly could, but you're leaving a lot of the potential economics on the table if you do that, so. The difference with trauma is just, we're buying an existing company with an existing product line. We're going to expand that and improve it in some ways, but there's some underlying momentum there that we're going to hopefully capitalize on, which we didn't have in trauma. We started from scratch with all the products. So we hope that speed will make it a faster launch for us. But the reason that we're doing joints is really what we can bring to the table from a robotics standpoint.

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Daniel T. Scavilla, Globus Medical, Inc. - CFO, Executive VP & Chief Commercial Officer [24]

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Rich, I would add a little to that as well. Just with your question of why now, so any company's going to have multiple projects at different stages of maturity along the curve, and that we're at the point with trauma where we're commercializing, getting out the door, getting into market penetration, and now we come in and invest, and this is the next wave of opportunities. They do have different resources, as Dave is saying, with engineering groups and different teams that can do this, and so I think we're capable of putting this out. I think it's right now a good time because of where trauma is along the curve, how strong robotics are. It makes sense to look at what we think the growth will be beyond those items and start investing to make that happen.

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Richard S. Newitter, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Research Analyst [25]

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Okay. And just one follow-up on that, Dan. So if -- appreciate this year you're going to see a rebound on some level in the back half on EBITDA margin, but it sounds like the robotic total joint initiative is really longer term, so should we be thinking -- you've always said historically, you reinvest about 300 basis points in any given year of margin for the future growth initiatives. Should we be thinking of you into the out years as a kind of a mid-30% EBITDA margin? Is that still intact?

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Daniel T. Scavilla, Globus Medical, Inc. - CFO, Executive VP & Chief Commercial Officer [26]

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Yes. That's the way to look and model going forward. We're shooting for the mid-30%s. We think there's a clear pathway to get there. We're simply putting a light on the fact that we've increased investment for opportunistic reasons now, and that's why we're on the lower end of the curve with where our spend is. It's the right spend because it's an investment to help realize those mid-30%s in the outer years.

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Operator [27]

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

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David Ryan Lewis, Morgan Stanley, Research Division - MD [28]

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Just a few quick ones from me. Dave, I think when you discussed recon robotic initiatives in the past, you said the strategy was going to be unique. So I guess, kind of looking at the announcement today, you acquired a me-too implant maker, which leads me to believe the uniqueness has to come from the robot or the market segment that you're going to service. Which one is it?

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David M. Demski, Globus Medical, Inc. - CEO, President & Director [29]

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It could be both. It's certainly going to be robotics, but we are looking at the segment as -- and our entry as a potential competitive advantage. I don't want to be more specific at this point because we're too far away from launch, and from a competitive standpoint, don't want to talk too much about it.

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David Ryan Lewis, Morgan Stanley, Research Division - MD [30]

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Okay, understood. And on those topics of launch, I mean, you've kind of hinted to back half 2020. I wasn't clear; is that a commercial timeline, back half 2020, or that is a clin/reg/submission timeline, back half 2020?

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David M. Demski, Globus Medical, Inc. - CEO, President & Director [31]

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Yes, very late 2020. So even the end of 2020 is probably the way to think about that. But we're talking about commercial launch.

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David Ryan Lewis, Morgan Stanley, Research Division - MD [32]

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Okay, commercial launch in late '20. Thank you. Very clear. And then just thinking about Enabling Technology now, you've been comfortable growing that business year-on-year. Can you kind of give us any sense of how quickly you think Enabling Technologies can grow year-over-year? Do you think double-digit growth for Enabling Tech this year is possible?

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David M. Demski, Globus Medical, Inc. - CEO, President & Director [33]

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It's really hard to say. It's possible. It's certainly possible given what we see. But with the first half that we've had, it's a big challenge.

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David Ryan Lewis, Morgan Stanley, Research Division - MD [34]

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Okay. And then just the last thing from me, SI bone -- the enhanced product, this -- the announcement you made on this call, just talk about how you see the opportunity for SI joint fusion. That hasn't been a huge focus for you in the past. Does this enhanced product signify that you're -- that you see the market opportunity as more interesting and you're going to make a more concerted effort to drive share and traction there? Thanks so much.

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David M. Demski, Globus Medical, Inc. - CEO, President & Director [35]

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Sure. I would not call that a huge strategy shift. That's just along the line of our philosophy in terms of implants, that we want to really be all things to all surgeons. And SI joint fusion is certainly an attractive segment. We've had a product in the market and we've had some marginal success with that to date. We think this product just is an enhancement. It adjusted some of the feedback we've heard on our current system, and we think it'll add to sales. But it'll be an incremental kind of add.

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Operator [36]

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

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Ryan Benjamin Zimmerman, BTIG, LLC, Research Division - Director & Medical Technology Analyst [37]

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Just one housekeeping -- I may have missed this. Did you say, or would you disclose, when you closed on the StelKast acquisition? And then I want to ask about robotics.

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Daniel T. Scavilla, Globus Medical, Inc. - CFO, Executive VP & Chief Commercial Officer [38]

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Hey, Ryan, it's Dan. We had done it, I think, as I recall, sort of late in May. And so it's not a whole lot floating in there for the quarter, if that's kind of where you're going with it. I don't know if we have the date or not. It was just kind of mid-quarter, is really where it was.

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Ryan Benjamin Zimmerman, BTIG, LLC, Research Division - Director & Medical Technology Analyst [39]

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Okay, that's helpful. And then on the new indication for the interbody on the robot, do you have to go out and retrain or sell additional components to your existing install base for the interbody indication?

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David M. Demski, Globus Medical, Inc. - CEO, President & Director [40]

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Yes, yes. So we'll be going back to our install base with that opportunity, and I think really the bigger potential economic impact for us is just the attractiveness of a robotics solution overall. It just adds to the value proposition to a new customer. But there is an opportunity to go back and sell and add on to our existing accounts.

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Ryan Benjamin Zimmerman, BTIG, LLC, Research Division - Director & Medical Technology Analyst [41]

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All right, helpful, Dave. And then just lastly from me, if you look at the U.S. Spine business relative to the overall U.S. business, I'm wondering if you could just comment on what you're seeing in the robotic market, because it would imply a much stronger, I guess, opportunity for you, or at least from the sales we saw in the quarter, outside the U.S. And so maybe -- I'd just love some color around how you see the split in robotics between U.S. and OUS and how we should be thinking about it going forward.

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Daniel T. Scavilla, Globus Medical, Inc. - CFO, Executive VP & Chief Commercial Officer [42]

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Ryan, I guess I would answer that. I think right now it's going to be the majority in the U.S. I think we've been successful with international placements, but certainly not a driver, so I think as you, if you're looking to split things out in the model, I would certainly go heavier into the U.S. more than anything else with that, because I think that I still look at international while it's a developing strategy as a little more opportunistic, and certainly lower volumes than anything that we see in this market.

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Operator [43]

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Your next question comes from the line of Mike Matson with Needham & Company.

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Michael Stephen Matson, Needham & Company, LLC, Research Division - Senior Analyst [44]

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I just want to start with the really strong spine implant growth that you're seeing, and I guess I understand that that's partially [overlap], partially sales expansion, but as far as the robotic component of that growth goes, you had really strong robot placements last year, and now the growth is -- the implant growth is kind of lagging and accelerating, but your robot placements did sort of slow down in the first half of this year, so does that sort of imply that the spine growth could slow down some as we start to -- that lag effect starts to kick in?

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David M. Demski, Globus Medical, Inc. - CEO, President & Director [45]

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Yes, Mike, I don't see any reason to think the spine growth is slowing down. I mean, I feel like we're -- remember, it's 2 components that we've alluded to in the past, is our competitive recruiting as well as robotic placements. And our competitive recruiting is sort of at all-time highs.

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Daniel T. Scavilla, Globus Medical, Inc. - CFO, Executive VP & Chief Commercial Officer [46]

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And also one thing I'd add to that, Mike, is also one of the strengths we have is that new product launch and that rapid innovation. And as Dave said, we're into a strong launch year, and we have in front of us many launches, and that in itself helps create market penetration and interest. So it's really factoring that in as well as strong competitive recruiting, record year and robotics. I don't think any of us would look to have any significant change in spine given what we've seen the first half of robots this year.

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Michael Stephen Matson, Needham & Company, LLC, Research Division - Senior Analyst [47]

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Okay. That's helpful. And then just with regard to the robotics platform kind of and the fact that you're going to be entering the recon market eventually with something, I mean, when you launch it initially, is this going to enable you to sort of do this all with a single sort of platform with maybe some minor hardware changes in between the different procedures? It just seems like the first company that can kind of offer that would have an advantage, like one robot that can do multiple procedures.

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David M. Demski, Globus Medical, Inc. - CEO, President & Director [48]

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Yes, it's probably not going to be that. I think we're going to focus specifically on the total joint application. And I'm not sure that -- I understand that value proposition that you're espousing there, but I think when you get into the actual dynamics of the accounts and the surgeons and the different specialties, getting them to share technology like that is a challenge, and getting them to all -- the other thing you have is they all have to agree on which one at that point, and that can be a very big challenge. So I think there's a little more benefit to keeping it specifically tailored in to each specialty.

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Operator [49]

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Your next question comes from the line of Xuyang Li with UBS.

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Xuyang Li, UBS Investment Bank, Research Division - Equity Research Analyst of Medical Supplies & Devices [50]

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The first on robotics. Was wondering, you made a comment about the marketing campaign for Excelsius. So I'm just wondering, how big is that campaign? And what's the early feedback on it?

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David M. Demski, Globus Medical, Inc. - CEO, President & Director [51]

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Well, Xuyang, thanks for the question. It's social media, as well as it's being incorporated into other forms of media. We're selling it in a -- sort of a piece at a time of it. You'll see it, I think, peak at [mass], is our strategy. Initial feedback's been really good. A lot of the things that we're talking about in there are things that surgeons have told us, so we're just articulating them for everyone to kind of understand in terms of why our technology is better than what else is offered out there in the market today.

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Xuyang Li, UBS Investment Bank, Research Division - Equity Research Analyst of Medical Supplies & Devices [52]

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Okay, thanks. And then I guess maybe a follow-up on robotics. So as the performance rebounded pretty nicely in Q2 compared to Q1, I'm just curious, were there any changes or impact from price for the robots to help you deliver that number?

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Daniel T. Scavilla, Globus Medical, Inc. - CFO, Executive VP & Chief Commercial Officer [53]

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Hey, Xuyang, it's Dan. No, no change or impacts in pricing or any type of approach. It was just really more about going through the portfolio of leads and probably certainly some seasonality from a Q1 to a Q2 playing into there as well. It's really those 2 factors.

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Operator [54]

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Your next question comes from the line of Steven Lichtman with Oppenheimer.

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Unidentified Analyst, [55]

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Hi, this is [David] on for Steve Lichtman. Thanks for taking my questions. You mentioned the ability to leverage StelKast implants with Excelsius, but besides robotics, are there any other synergy opportunities you're seeing between your current businesses and joint recon products? Thanks, and I just have one follow-up.

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David M. Demski, Globus Medical, Inc. - CEO, President & Director [56]

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Not in any particular products, [David], but I think one of the things Globus has been built on and the fundamental reason for our success to date is our ability to listen to surgeons, understand what works for them with the current products today, and really to dive into what the challenges are today and help solve those. Initially it was sort of mechanically engineered solutions, but over the last several years, with the robotics solutions as well. So I think we can bring clinical value to this space as well through our -- just the core competency we have as a company. But at this moment, there aren't real synergies between the product lines.

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Unidentified Analyst, [57]

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Okay. That's helpful. And then I was just wondering, could you update us on where you are in the buildout of your trauma sales force? Are you looking to add any additional feet on the street in the near term?

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Daniel T. Scavilla, Globus Medical, Inc. - CFO, Executive VP & Chief Commercial Officer [58]

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This is Dan, [David]. So we have a core group right now, and we're supplying them with product and helping gain access, and again seeing, as I've said, sequential growth each quarter, record times kind, which is, again, very promising. We'll certainly always look for other opportunities to expand that sales force. We'll do it in, obviously, an appropriate way. And so there's plans out there. We continue to look and hire where it makes sense, and I think that will be the story for a couple of years to come, because we'll do it in increments that can be supported by the business.

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Operator [59]

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Thank you, everyone. At this time, there are no further questions. This concludes the Globus Medical second quarter conference call. Thank you for joining our call. You may now disconnect, and have a great day.