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Globus Medical Inc  (NYSE:GMED)
Q1 2019 Earnings Call
May. 02, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Jason, and I'll be your conference operator today. At this time, I would like to welcome everyone to Globus Medical's First Quarter 2019 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions) Thank you. I would now like to turn the call over to our host, Mr. Brian Kearns, Senior Vice President of Business Development and Investor Relations.

Sir, you may begin your call.

Brian Kearns -- Senior Vice President of Business Development and Investor Relations

Thank you, Jason, 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 the Investor Relations section of the Globus Medical website at 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 identifies 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.

David M. Demski -- Chief Executive Officer

Thank you, Brian, and good afternoon everyone. First quarter sales were $183 million, an increase of 4.9% as reported, and 5.7% in constant currency compared to the first quarter of 2018. Non-GAAP EPS was $0.36 per share versus $0.41 a year ago. Our overall growth and profitability profile remains the best in our industry.

For the quarter, the US spine business grew by over 8% adjusted for the impact of biologics disruption. The International spine business grew by almost 25% and Enabling Technologies delivered $7 million in revenue in the seasonally challenging first quarter. We also launched five new products during the quarter and shipped a record number of sets in both trauma and spine, as our supply chain issues have been largely resolved.

This year, we began reporting our sales in the categories of Musculoskeletal Solutions and Enabling Technologies to better reflect our business strategy. ExcelsiusGPS is currently the only product in the Enabling Technologies category. In the first quarter, Musculoskeletal Solutions were up 8.7%, and Enabling Technologies were off by 44%. The first quarter of the year is typically seasonally challenging for capital equipment and our comparable number from the first quarter of last year included a significant pent-up demand for ExcelsiusGPS due to the delayed launch in late 2017.

We are also experiencing an elongation of the decision cycle by hospital executives in purchasing robotic systems, due to the increased marketing initiatives by our competition. Deals are taking longer to get finalized, as accounts evaluate potential alternatives. In fact, we have already closed several deals in Q2 that we had expected to close in Q1.

We remain extremely bullish on the future of computer-assisted surgery in spine, and more importantly, Globus' ability to lead the industry in this transition. There are several reasons for our optimism. First and foremost, we are seeing consistent adoption of the technology by accounts who have purchased ExcelsiusGPS. And as a result, surgeons are able to perform less invasive techniques.

Even the most challenging surgical approaches like single-position lateral surgery are being performed routinely by surgeons with all levels of experience, something are simply inconceivable before our technology. Second, surgeon interest in robotics continues to grow, as evidenced by attendance at our MERC events, visits to our booth at Society Meetings, corporate tours, and robotic roadshow presentations and labs.

Third, we have won an overwhelming majority of head-to-head technology evaluations. While there may be a lot of noise in the market right now about various alternatives, we firmly believe that the best technology will lead the way.

Fourth, our pipeline of innovation in this space is quickly coming to fruition. We recently filed a 510(k) submission to the FDA for our ExcelsiusGPS interbody module, which we expect to launch in the third quarter. This fully integrated solution will enable surgeons to seamlessly navigate a variety of interbody spacers and utilize the Excelsius end effector to rigidly hold retractor supports. Both of these features are unmatched in the market. We also anticipate filing with the FDA on our cranial solution and our spine deformity planning solution that incorporates surgeon-map technology during the third quarter, with launches expected by year-end.

Finally, later this year, we will unveil three additional modular platform technologies that will complement and enhance the effectiveness of ExcelsiusGPS and comprise an integrated suite of Enabling Technologies that we are calling the SmarterOR (ph) , focused on improving outcomes in spine surgery by enabling surgeons to effectively and efficiently deliver better care.

While I would love to provide greater detail on these exciting developments, for competitive reasons, we cannot, at this time. We expect to provide more detailed information on these systems this fall. As you know, we have been heavily investing in our imaging, navigation and robotics business over the past several years, with much of that investment going toward these new platforms. We are excited to be on the cusp of launching a series of innovations that we believe will accelerate the transformation of spine surgery into the digital age.

Moving to Musculoskeletal Solutions, our US spine business grew by 6% over the first quarter of last year, significantly above the overall market. This result includes the negative impact we experienced in our Biologics business, due to the FDA warning letter we received late last year in our tissue processing facility in Texas.

The run rate impact to Q1 revenues was about $3 million. Stripping out Biologics would have resulted in a growth rate of 8.4% in the US Spine business, consistent with the high-single digit results we produced in the second half of 2018, and indicative of the continued strong momentum in the biggest segment of our business. Implant pull-through from ExcelsiusGPS placements and contributions from competitive recruiting were the primary growth drivers.

On the recruiting front, we are off to a tremendous start, well in excess of the pace we saw in early 2018. Looking forward, we expect to have all tissue-related issues resolved by the second half of this year, as well as launch a number of new spinal implant systems beginning in Q2, that we expect to further bolster the US Spine business.

Our international business grew by 19.7% in Q1 and 24.7% on a constant currency basis. The supply chain issues that constrained us in 2018 have been largely resolved and we were able to increase the number of sets shipped to international markets in late 2018 and into Q1.

The Japan business produced record growth in the quarter, driven by strong uptake of Globus Technology there. Spain and Italy continued to be strong performers, and the UK has begun its turnaround. The growth rate we saw in the Q1 is probably not sustainable for the full year, as it included an investment cycle by distributors who now have full access to our technology. Dan will speak in more detail about it. But it is worth noting that the operational execution was offset by currency headwinds in the quarter.

We made significant progress in our trauma business during the quarter as we shipped more sets in Q1 than we had shipped for the entire year of 2018. The pull through to sales will be somewhat delayed as we work through contracting and trial cycles. During the quarter, we launched our Tibial Nail system and the reports from the first several cases have been outstanding.

Our focus remains on completing our initial ramp of set deployments and building sales momentum. We don't expect a meaningful revenue contribution from trauma until 2020. We are fully committed to this opportunity, even though the EBITDA drag has been significant and the process has taken us longer than we had planned.

In summary, we remain confident in our ability to achieve our growth and profitability targets for the year. The momentum in our US Spine business, the uptick in our International Spine business, the growing demand for Robotic Solutions, the improvements in our supply chain, and the robust line-up of product launches untapped in spine, robotics, and trauma, all point to a strong year.

I would like to take this opportunity to announce changes in our Board of Directors. Rob Liptak stepped down from the Board effective May 1, after serving our Company for nearly 12 years. Rob joined the Board as part of our Series E financing in 2007. He has been a valuable contributor to our success since then and we will miss him. Unfortunately, Rob has assumed a role that precludes him from serving on public company boards.

We are also excited to announce the appointment of Steve Zarrilli to our Board effective May 1st. Steve is currently the President and CEO of University Science Center in Philadelphia, the oldest and largest research hub in the US. Prior to that, Steve was the President and CEO of Safeguard Scientifics, a public company that provides growth equity capital to technology and healthcare enterprises. Steve has served as a member of the Board of Directors on six other public companies over the course of his career and is a graduate of LaSalle University. We welcome Steve and look forward to working together with him to continue the success of our Company.

I will now turn the call over to Dan.

Daniel T. Scavilla -- enior Vice President and Chief Financial Officer

Thanks, Dave, and good afternoon, everyone. In Q1, Globus achieved above-market gains in the US spine business, accelerated growth in the international markets, and increased trauma sales. Profitability remained strong, reflecting continued investment in new business and included the headwinds caused by non-operational and timing items. We also redirected some of our cash flow this quarter to build spine and trauma sets as well as expand supply chain capabilities. Q1 revenue was $182.9 million, growing 4.9% as reported or 5.7% in constant currency, with the same selling days in the quarter versus prior year. GAAP net income was $33.2 million and non-GAAP net income was $36.4 million, delivering $0.36 fully diluted, non-GAAP earnings per share, and adjusted EBITDA of 31.1% and $11 million of free cash flow.

Focusing on sales, US revenue for the quarter was $147.5 million, 1.3% higher than Q1 2018. The US Spinal Implant business, excluding the negative impact from Biologics, continue to outpace the market with 8.4% growth, driven by competitive rep on-boarding and increased implant pull through from accounts with ExcelsiusGPS.

Robotics sales were lower than anticipated, even when measured against a difficult prior-year comp that included pent-up demand. We believe elongated selling cycles and seasonality are the drivers.

International revenues for the quarter was $35.4 million, growing 23% as reported or 27.9% in constant currency. Gains were achieved through continued market penetration in Japan, Spain, Italy, and the UK, combined with ExcelsiusGPS sales. As Dave mentioned, we feel future quarter growth rates will be strong, but not as high as Q1, due to the distributor set purchases that occurred in the quarter, now that more product has become available globally.

Turning to the rest of the P&L. Q1 gross profit was 77.1%, compared to 78.2% in Q1 2018. The change is primarily due to the planned increase in depreciation for cases and instruments as we expand our sales force in spine, trauma, and robotics globally. Research and development expenses for the first quarter were $14.3 million or 7.8% of sales, compared to $12.7 million or 7.3% in Q1 2018, resulting from increased investments in the INR platforms mentioned by Dave.

SG&A expenses for the first quarter were $85.8 million or 46.9%, compared to $75.7 million or 43.4% in Q1 2018, reflecting expansion of the US spine sales force, building out the robotic and trauma commercial teams, and increasing surgeon education. Q1 also included $2.4 million of legal fees and timing-related expenses that are not anticipated to continue in future quarters.

The GAAP income tax rate for Q1 was 20.3% compared to 17.8% in Q1 '18. The rate increase is driven from prior year higher stock option exercises and manufacturing tax credits not repeated in Q1, '19.

Adjusted EBITDA margin for the quarter was 31.1%. The lower than usual margin was driven by several factors. First, Q1 includes a non-operational impact from favorable currency exchange rates, coupled with higher legal fees and timing related expenses, and lower Biologic sales that combined negatively impacted EBITDA by 210 basis points for the quarter.

And second, the elongated robotic selling cycle created a drag in the quarter. And third, we continue our investment in new business opportunities and strategic growth platforms, even in softer sales quarters. Q1 appears to be the trough in margin. The full-year EBITDA margin is projected to be in the mid-30%s.

GAAP first quarter net income was $33.2 million and non-GAAP net income was $36.4 million. GAAP diluted earnings per share were $0.33 and non-GAAP diluted earnings per share were $0.36. The aforementioned non-operational timing impacts resulted in a negative $0.04 drag to EPS. Also, the higher Q1 tax rate impacted EPS an additional $0.01 for a total of $0.05 of headwinds for the quarter. Investments in Enabling Technologies and trauma also impacted Q1 EPS by negative $0.07.

We ended the quarter with $621.5 million of cash, cash equivalents, and marketable securities. Net cash provided by operating activities was $39.2 million and free cash was $11 million. Cash flow this quarter reflects increased investment in inventory and sets for both spine and trauma, as we send a record amount of sets to our sales force.

Also, investments in manufacturing equipment to expand production capacities and a building purchase to facilitate future supply chain expansion were included in the quarter. The Company remains debt free. The Company reaffirms guidance for full year 2019 sales of $770 million and non-GAAP diluted earnings per share of $1.72.

We will now open the call for questions.

Questions and Answers:

Operator

(Operator Instructions) And our first question comes from Larry Biegleson of Wells Fargo.

Larry Biegleson -- Wells Fargo -- Analyst

Good afternoon, guys. Thanks for taking the questions. So, let me focus my question on ExcelsiusGPS and I have a few, I'll try to break it up. But the replacements were down about 50% sequentially, and in Q1, it seems like it was a little bit greater seasonality than we historically see with other analogs, and you did mention the selling cycle getting longer.

So a couple of questions; first, are you placing systems return for implant volume, so the placements aren't showing up in system sales? Second, can you talk a little bit about the order book that you've talked about before? And just two more on that, I'll throw them in now. Do you expect Emerging Technologies to be up year-over-year in 2019 or not? And just lastly, and I'll stop, can you put into context the importance of launching the interbody module in the third quarter? Thanks guys.

David M. Demski -- Chief Executive Officer

Hey Larry, this is Dave. I will try to keep up with the questions. I think when you -- when it -- regards to the placement cycle being down relative to others, I think the biggest impact there is, our Q1 last year was artificially high because of the pent-up demand. If we go to our pipeline, your pipeline question, it remains strong and robust. We are -- I don't want to get into our rev rec issues and how we -- the deals that we're doing with folks. But that's a clean number that you're seeing there. There is nothing sort of masked in it.

And then, finally to the interbody solution. I think that it's just one of many things that we're going to do to change and improve the offering that's going to help computer-assisted surgery, in general, just become a standard of care. I'm not sure if that answered all your questions, but...?

Larry Biegleson -- Wells Fargo -- Analyst

Yeah, I mean, Dave, thank you for that. The -- just the one on emerging technology line, do you expect that to grow year-over-year in 2019, and then I'll drop.

David M. Demski -- Chief Executive Officer

Yes, so we do -- so we do expect that to grow.

Larry Biegleson -- Wells Fargo -- Analyst

All right, thanks for taking the questions guys.

David M. Demski -- Chief Executive Officer

Su.re

Operator

And your next question comes from the line of Jonathan Demchick of Morgan Stanley.

Mason -- Morgan Stanley -- Analyst

Hi, this is Mason (ph) on for Jon. Thanks for taking the questions. I just wanted to touch on the cadence of rep hires. You mentioned previously and reiterated today that recruiting success you've been having. Can you maybe elaborate a little bit on where particularly you're seeing these reps come from? And I imagine most of them are going to the trauma business. But any sort of color you can provide on sort of the cadence we can see and expect for the rest of the year will be very helpful. Thank you.

Daniel T. Scavilla -- enior Vice President and Chief Financial Officer

Sure, Mason. When I refer to competitive rep, I was -- that has nothing to do with trauma. I was referring specifically to spine companies. And our recruiting -- I don't want to get into specific companies. But I would say, we're having a better success at companies who are may be experiencing some turmoil and some disruption in their -- in their ranks. And then, other than that, it sort of reflects market share and the presence that's out there in the market.

Mason -- Morgan Stanley -- Analyst

Great, thanks, and just one quick...

Daniel T. Scavilla -- enior Vice President and Chief Financial Officer

Did I answer that?

Mason -- Morgan Stanley -- Analyst

Yes. Yes, that was very helpful. And then just one quick follow-up on the pipeline. You mentioned several product launches planned for later this year, can you just go into a little bit more detail on kind of the ones you're most excited about, and the timing, and any guardrails of how we should expect any sort of financial contribution? Thanks very much.

Daniel T. Scavilla -- enior Vice President and Chief Financial Officer

So, typically we don't talk about the implants systems that are untapped. We are looking at it -- across the board though in terms of our portfolio. And as we've demonstrated in the past, we are looking for ways to enhance spine surgery and there is a number of opportunities we have that are coming down the pipe.

Operator

Your next question comes from Richard Newitter of Leerink.

Richard Newitter -- Leerink Partners LLC -- Analyst

Hi, thanks. I have a couple of questions here. Maybe just starting with the elongated selling cycle commentary around robotics, and within the context of you keeping your guidance unchanged. I guess my first question around that is, is the elongated selling cycle on the capital side merely something that you think gets pushed out within a 12-month timeframe of being able to recognize the deals, such that your expectations coming into the year when you issued your guidance, they're still the same between the components for robots, trauma and core spine, or is the elongated selling cycles that you're calling out potentially leading you to kind of switch the components of how you get to your guidance?

Daniel T. Scavilla -- enior Vice President and Chief Financial Officer

Hey Rich, it's Dan. So, a couple of things; as Dave mentioned, we're seeing the elongated sales cycles. It doesn't mean we're losing anything there. It's just that what we thought would close basically in Q1, several have bled over into Q2 as there is longer conversations or deeper looks at different technologies. But we still come out with these types of approaches. That said, one of the reasons with the $770 million that we've kept at top side, as we've always said, there are different levers, some up some down. We'll use those mixes as they occur. And so, we stay with this $770 million, because we know that there is strength in some areas as well. And so, as we evaluate this after Q1 and look at it, we still see several pathways to achieve the guidance we set out.

Richard Newitter -- Leerink Partners LLC -- Analyst

Okay. But I guess just thinking about it, are you at a point where you think you might need those different levers, like the way you're going to get there is different, or you feel still good about your initial targets and achieving the pipeline recognition or conversion on the capital side within a 12-month timeframe. Is this months of delay or is just kind of -- the whole thing might get -- so you might get some capital pushed into 2020?

Daniel T. Scavilla -- enior Vice President and Chief Financial Officer

Don't know if I can answer that accurately, since we are not there. What I do think is that, we feel bullish about the robotics. We're not backing off our robotics thinking for the year. And while we're seeing in Q1 some elongation, there's nothing we see that would make us rethink our categories or take a pause with us.

Richard Newitter -- Leerink Partners LLC -- Analyst

Got it. And Dan, in the past you've kind of guided or suggested that kind of the Street's modeling of trauma revenue in 2019 in that, call it $5 million to $7 million range, as the consensus estimate range, you felt comfortable with that. Do you still feel that's a good holding place for that business line?

Daniel T. Scavilla -- enior Vice President and Chief Financial Officer

Yeah, I think that's a good holding place. You know we're encouraged by the amount of sets coming out. We're seeing acceleration like we thought we would. As Dave mentioned, Tibial Nail launch is a significant move for us. So I think at this point, they're still valid guidance numbers to use.

Richard Newitter -- Leerink Partners LLC -- Analyst

Okay. And if I could, just one last one; the -- can you just run through Dan, the -- these things that were transient on the expense side or the things that kept a lid on margins below your mid-30% average debt that should alleviate as you move through the year, and what gives you confidence into those? And can we see them alleviate as soon as the 2Q? Thanks.

Daniel T. Scavilla -- enior Vice President and Chief Financial Officer

Thanks, Rich. So I called that out in the script, but I'll go through that again quickly. There is really a few drivers here. One of them is some unfavorable exchange rate that occurred that had a weigh-down. I'm not going to break out the sub components of that. We did have some higher legal expenses. So not settlements, we usually pull those out for non-GAAP, but truly, just some of the legal expenses up for recent settlements that had occurred just are coming through and tying up.

We had some carryover of travel and different company meetings as well that are out there; those kind of timing things I've talked about. None of those I really expect to carry forward. I do think the non-operational currency impact will watch. We didn't put anything in for that for the full year. If that were to continue we're not offset, then we would have a different conversation. But we need to get through the quarters before we make that assessment.

Richard Newitter -- Leerink Partners LLC -- Analyst

Thank you.

Operator

And your next question comes from Mike Matson of Needham.

Mike Matson -- Needham & Company, LLC -- Analyst

Hi, thanks for taking my questions. Just curious what you're seeing out there with regard to competition in the robotic space. Obviously, Medtronic's out there with the Mazor system, but -- Zimmer has recently gotten their product approved and the NuVasive has got one coming. So I'm sure Medtronic is pretty actively marketing their product. But what I was wondering is, is part of the issue here that Zimmer and potentially even NuVasive are getting out there and sort of pre-selling their products, and just creating more noise and uncertainty for some of the customers?

David M. Demski -- Chief Executive Officer

Sure, Mike. Thanks for the question. I think it's more of the latter, and combined with the fact that these are potential alternatives the executives are asking the surgeon champions who want to adopt the technology to do a careful evaluation of everything that's out there. So a year ago, there was only really one other choice. Now there are potentially three or four more that they have to work their way through to, to come to a conclusion. So that's what we're seeing at this point.

Mike Matson -- Needham & Company, LLC -- Analyst

Okay, and -- but just to be clear, you feel like you're still in a pretty good competitive position with the features and benefits that Excelsius offers also to these other systems?

David M. Demski -- Chief Executive Officer

Oh, absolutely. I think we're the number one opportunity on the market right now. And when we add interbody to that, it's going to extend the lead even further.

Mike Matson -- Needham & Company, LLC -- Analyst

Okay, and then, just these other, the SmarterOR (ph) modules that you mentioned. Are those something that's going to be internally developed by Globus, kind of like Excelsius was, or at least something where you'd be maybe working with a partner or like an imaging system or something?

David M. Demski -- Chief Executive Officer

They're all internally developed and they are almost to that point. We're going to be ready to show you something I think by the fall, in all cases. But we are not going into any partnerships with other companies.

Mike Matson -- Needham & Company, LLC -- Analyst

Okay. And then finally, can you just talk how many trauma products or systems you've currently got launches, and maybe just briefly walk through what they are?

David M. Demski -- Chief Executive Officer

We'll, certainly. I mean we started out, and we launched that with 12 that we have going active. We look to really cover all of the long bone extremities, really from your collar bone down through your feet. And so whether that is a small fragmentation or ankle, some distal or proximal humerus type things, we're launching out several now, so I won't bother you with every single name through that. But at the end of the day, the concept was, for us to have the ability to go through and cover over 80-some-percent of the procedures and then expand out from that afterwards.

Mike Matson -- Needham & Company, LLC -- Analyst

Great, thank you.

Operator

Your next question comes from a Craig Bijou of Cantor Fitzgerald.

Craig Bijou -- Cantor Fitzgerald -- Analyst

Hi, guys. Thanks for taking the questions. Wanted to start with the international growth that you saw; obviously, very strong in the quarter. I know you called out some early orders of instrument sets. But just wanted to see if there was -- if you could provide a little bit more color on, maybe regions that you're seeing particular strength in? And then, I guess how you see that business going forward in terms of growth and contribution to that $770 million?

Daniel T. Scavilla -- enior Vice President and Chief Financial Officer

Hey, Craig, thanks, it's Dan. So, a couple of things, we're pleased with this. And if you remember, this has been a long journey. We've looked at different markets to focus on or divest from. We've changed management structures. As we mentioned last year, we increased surgeon education and awareness and continue to do that. And now, as we continue to put more sets out, we're seeing not only a penetration in the market and conversion to business. But also even in places like Japan, who are looking and switching out of the Alphatec products that we had purchased in, are coming out significantly stronger in Globus products and penetration than are offsetting. So there is a lot of pleasing areas like that.

Italy has been really a very attractive market for us and continues to have strong solid double-digit growth, all with Globus products; so those two are pleasing. You know I can really rattle up a lot of countries, right now, that are going through this. Spain is a strong country for us and the main focus in Europe, and we continue to see, as Dave said, the UK recover and gets stronger. And, even if you move into Australia as well, a lot of activity is really promising with that.

Craig Bijou -- Cantor Fitzgerald -- Analyst

Great, that's helpful. I know you guys have mentioned the cranial application a number of times on these calls. And I'm not sure that there has been much time spend on kind of the opportunity or what do you see the strategy there? So just wanted to see if maybe you guys can provide a little bit of color there, how much it could contribute? I'm assuming it's not going to be a contributor to 2019 revenue, but how could it contribute to 2020 or how -- I guess, just overall, how you monetize that application?

David M. Demski -- Chief Executive Officer

Sure, Craig. I think it's a true advancement in the way cranial surgeons can care for their patients. Today, I think standard of care is Navigation. But I think the robotic opportunity really provides them a leap forward. In terms of predicting what the impact will be and it's really difficult for us to say at this point, it's -- until we get into the market and really began selling it, I think we won't have a great idea of that.

The other thing it allows us to do is, that's the same platform as spine. So it's a better argument, if you will, to the executives that they can leverage that investment over a couple of different specialties. And it is possible that we will see some impact in 2019. It won't be much, because we'll be launching it toward the end of the year. But there could be some impact before end of the year.

Craig Bijou -- Cantor Fitzgerald -- Analyst

And if I could, just a follow up on that, is there any investment in sales force or any other kind of investment from that perspective that you guys need to make to, to actually bring that to market or once it hits the market?

David M. Demski -- Chief Executive Officer

No, we'll be marketing that through our same capital sales force. The Excelsius sales force will be -- just adding that to their bag.

Craig Bijou -- Cantor Fitzgerald -- Analyst

Great, thanks for taking the questions.

David M. Demski -- Chief Executive Officer

Sure.

Operator

Your next question comes from Matthew O'Brien of Piper Jaffray.

Matthew O'Brien -- Piper Jaffray -- Analyst

Good afternoon. Thanks for taking the question. So, as we look at, I'm sure investors are really going focused on the Enabling Technology revenue in the quarter. It looks like you are about four systems shy of what most people were expecting. And then Dave, you mentioned that you've already closed a bunch of those deals here in Q2. So is it fair to say that -- the four that you came up a little shy on versus what we were expecting have already closed.

And then, if that's true, if that number is about right, did you have to do anything on the pricing side, as you were going head-to-head with the other big competitor in the market to get those deals closed outside of what you've been doing, because I think that -- I think people are trying to figure out is obviously the system opportunities here is huge, but you know are you going to recognize that revenue upfront or is this going to be something where you're going to really see more of the benefit over a multi-year period?

David M. Demski -- Chief Executive Officer

Thanks, Matt. Well, we've never managed the business on a quarterly basis. So the question about whether we had to do anything special to close them, I think it's a little bit reverse. I think had we been willing to really do something extraordinary, we could have got them into the quarter. We don't think that's the right thing to do for our business. So we just kind of held our line and we closed them a little bit late, if that helps your question?

Matthew O'Brien -- Piper Jaffray -- Analyst

It does it's -- that's very helpful. And then the other question was just on the interbody feature. As well as other features, you know you don't have a ton of systems in the field yet. But hopefully by the time the interbody feature launches, you'll be getting close to triple digits as far as systems in the field. So how do we think about that upgrade cycle from a revenue perspective? And then, are the interbody products that you sell specifically designed for that feature? And is it going to be all approaches TLIF, PLIF, ALIF, lateral, et cetera?

David M. Demski -- Chief Executive Officer

Yes. It's -- so it's all approaches. If you look at it, the upgrade cycle, I think it will be modest in terms of the impact for that module alone. I think what it does is, it enhances the value of the overall systems. So I think it's going to enable us to sell more systems in the future.

Matthew O'Brien -- Piper Jaffray -- Analyst

Got it, thank you.

Operator

And your next question comes from Matt Taylor of UBS.

Young Li -- UBS -- Analyst

Hey, guys, this is Young Li in for Matt. Thanks for taking the question, maybe just one. So, understanding that capital (ph) is a pretty lumpy business on a quarterly basis, and just looking forward, and I guess looking also back at last year. Q3 was also a seasonally slow quarter and can be a seasonally slow quarter. I guess, I'm just wondering, do you see the Q1 number for robot the low watermark of the year or what's your view on that?

Daniel T. Scavilla -- enior Vice President and Chief Financial Officer

Young, I think it's a great comparison to Q3. I feel like we're in the same position we were at the end of Q3. And going into Q4, where we had a great Q4. So -- and I do anticipate that this would be the low watermark for us for the year.

David M. Demski -- Chief Executive Officer

I would add to that as well that, we're here to drive the change in spinal surgeries and we're looking at this over the long term. I recognize that we're focused on the clinical results, but we are not driven by the quarter. And as we've said, and you said, there is lumpiness, there will be ups and downs. But in a nascent market, we'll continue to place and drive and we'll do that as best we can. There will be times when some things bleed over because of elongated cycles and that's OK, because we're talking about three to five years, not just one quarter.

Young Li -- UBS -- Analyst

Okay. Really appreciate the color, guys. Thank you.

Operator

And your next question comes from Steven Lichtman of Oppenheimer.

Steven Lichtman -- Oppenheimer -- Analyst

Thank you. Hi guys. Can you talk about what steps you need to take to clear the Biologics issue? I think you mentioned your confidence in getting those complete in the second half. Just curious, if you can provide more color on what it will take to, to get that behind you?

David M. Demski -- Chief Executive Officer

It's just going through the validation process of our process for those products that were affected by the warning letter. I'm not going to get into a lot of specifics. But we have it well in hand. It requires us to make some changes and then validate those changes through testing, and that's really what the delay, if you will is or what the cycle is to get it back on the market, as we've made some changes now, we need to see if those changes were effective. And with tissue, there is a waiting period as they culture or samples and those kinds of things.

Steven Lichtman -- Oppenheimer -- Analyst

Got it. Thanks, Dave. And then secondly, maybe if you could give us update on how you're feeling overall about the state of the spine market, any changes, one way or the other, on price or volume that you'd call out?

David M. Demski -- Chief Executive Officer

As we've commented in the past, it's hard for us to get a feel for the overall market given the share that we have. So, from our perspective, I mean it looks great. We're growing in the high single-digits. So our business is robust. And I don't know if that means the whole market is growing, but certainly from our perspective, it looks really good.

Steven Lichtman -- Oppenheimer -- Analyst

Okay, great. Thanks, Dave.

David M. Demski -- Chief Executive Officer

Sure.

Operator

And your next question comes from Bob Hopkins from Bank of America.

David M. Demski -- Chief Executive Officer

You want to jump in there?

Operator

Mr. Hopkins, your line is open.

Bob Hopkins -- Bank of America -- Analyst

Sorry about that. Just curious -- thanks for taking the question. Just a quick follow-up on the robot and your expectations for kind of looking forward, the percentage of sales that will be upfront versus some sort of flexible financing situation like a lease or something like that. What's your latest thinking on where that's going to end up? Obviously, we've been watching Intuitive Surgical, their robot. Now, a third of their placements are operating leases. What's the outlook for your perspective on that topic?

Daniel T. Scavilla -- enior Vice President and Chief Financial Officer

Hey Bob, it's Dan. You know, I would tell you that it depends. We already offer an array of options that work with the customer in order to get a robot placed. And we're not going to disclose each one of those. Currently, we've been using them, but we see there's more of a willingness to actually purchase outright than anything else with that. So, the options are out there. They've been blended in. I've not yet seen or we're not anticipating to bring in-house a large leasing ability, although we do have that capability in-house now. And we're using a third-party to do the leases that we do, which actually allows us to grab revenue upon shipments and that works out for us right now.

Bob Hopkins -- Bank of America -- Analyst

Okay. So, did I hear in there that at least today the majority of them are upfront, at this point?

Daniel T. Scavilla -- enior Vice President and Chief Financial Officer

Yeah. Today the majority has been that. And we do offer several options, but there's been, I would think, a willingness to just do an outright purchase versus any other options.

Bob Hopkins -- Bank of America -- Analyst

Okay. Okay. And then just to be clear, and sorry if I missed this. But longer selling cycle you guys are referring to, is primarily a function of just more choice in the marketplace and therefore centers being a little more careful about the evaluation process now that there is a couple of competitors to consider. Is that the right way to read it?

David M. Demski -- Chief Executive Officer

That is the right way to read it, Bob. I think there is not only competitors, there is potential competitors, and the executives at the hospital are forcing their surgeons to go back and kind of make sure they're making the right decision. So they need to evaluate and go through the process of evaluation of what's there now and as well as what might be on the market.

Bob Hopkins -- Bank of America -- Analyst

And then, when you are in those situations where you're -- where it's a little more of a head-to-head situation or you're compare and contrast situation. What are the one or two things that you guys really highlight as a company, as a reason to go with Globus. Like, what you highlight as a key differentiating part of either the package or the robot itself, when you're in those situations?

Daniel T. Scavilla -- enior Vice President and Chief Financial Officer

I think the primary advantage is just the workflow and the way it's enabled to be incorporated into the practice of the surgeons. And we see that consistently. And I think you see that borne out in our adoption statistics. So that would be the main thing. You would add to that the fact that ours works with three different imaging modalities, so Preop CT, Intraop CT, as well Fluoro. It's also a fully integrated system. So it -- whereas the competition really has two systems in the room. There's two monitors, two boxes and two different registration processes, if you want to use it. So it just -- it adds a lot of steps, it's harder to use.

David M. Demski -- Chief Executive Officer

I would also add to that, that the arm of our robot is superior to anything that's out there. It was designed -- the strength of it, the lack of flexibility that allows you to really do a lot of heavy things in there makes it superior to anything that's there. And also the fact that it's a mobile unit, it can move in and out as needed. It can move at different parts of the surgery, so that it can be used around the surgeon versus requiring the workflow like Dave said, or it could be pulled out when finished and redeployed in another surgery versus waiting for the entire completion.

Bob Hopkins -- Bank of America -- Analyst

Great, super helpful guys, thank you.

Operator

With no further question, this ends the Globus Medical First Quarter Earnings Call. Thank you for participating. You may now disconnect.

Duration: 42 minutes

Call participants:

Brian Kearns -- Senior Vice President of Business Development and Investor Relations

David M. Demski -- Chief Executive Officer

Daniel T. Scavilla -- Senior Vice President and Chief Financial Officer

Larry Biegleson -- Wells Fargo -- Analyst

Mason -- Morgan Stanley -- Analyst

Richard Newitter -- Leerink Partners LLC -- Analyst

Mike Matson -- Needham & Company, LLC -- Analyst

Craig Bijou -- Cantor Fitzgerald -- Analyst

Matthew O'Brien -- Piper Jaffray -- Analyst

Young Li -- UBS -- Analyst

Steven Lichtman -- Oppenheimer -- Analyst

Bob Hopkins -- Bank of America -- Analyst

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