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Globus Medical (NYSE:GMED)
Q2 2020 Earnings Call
Aug 05, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Welcome to Globus Medical's second-quarter 2020 earnings call. [Operator instructions] I will now turn the call over to Brian Kearns, senior vice president of business development and investor relations. Mr. Kearns, please go ahead.

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

Thank you, Catherine, 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 Keith Pfeil, senior vice president and chief financial officer. This review is being made available via webcast accessible through the investor relations section of the Globus Medical website at www.globusmedical.com. Before we begin, let me remind you that some of the statements made during this review are or may be considered forward-looking statements.

Our Form 10-K for the 2019 fiscal year and our subsequent filings with the Securities and Exchange Commission identify certain factors that could cause our actual results to differ materially from those projected in any forward-looking statements made today. Our SEC filings, including the 10-K, are available on our website. We do not undertake to update any forward-looking statements as a result of new information or future events or developments. Our 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 will now turn the call over to Dave Demski, our president and CEO.

Dave Demski -- President and Chief Executive Officer

Thank you, Brian, and good afternoon, everyone. I'm very excited to report an outstanding performance by the Globus team in Q2. While it was the most challenging external environment in our 17-year history, I could not be more proud of the way our team responded to the challenge. Revenue for the quarter was $149 million, down 23% from Q2 '19.

Musculoskeletal solutions was up by 21% while enabling technologies was down by 55%. Non-GAAP EPS was $0.07 per share and adjusted EBITDA was 15% for the quarter. While the growth and earnings metrics are low compared to our typical results, in light of the circumstances and relative to our peers, they're outstanding accomplishments. Our U.S.

spinal implant business was down by 21% for the quarter, but the trends we saw within the quarter and continuing into July are encouraging. The business bottomed in mid-April and continued to steady climb upward through the quarter. April revenue was down by roughly two-thirds, May improve dramatically to finish off by 25%, and June rebounded into double-digit growth compared to June of 2019. Growth in July accelerated into the mid-teens even as certain areas began restricting elective surgeries again.

Our growth is a function of a number of factors: new product launches, competitive recruiting, and robotic pull-through. Our spine product development team built on their strong performance in 2019 by launching six new products in 2020. We have seen tremendous uptake in the HEDRON line of our 3D printed interbody spacers, as well as, SABLE, our fourth generation expandable MIS TLIF device. Adoption has been so successful that we are doubling our 3D manufacturing capacity, which should come online in Q4.

Robotic usage continues to grow, mirroring the trends we experienced in the overall business during the quarter. Competitive recruiting and onboarding remained strong during the second quarter. Our pace for the first half of this year matched that over the first half of 2019, a record recruiting year for us. Now more than ever, Globus is the destination of choice for the best in the industry.

I want to take a moment to recognize the dedication and commitment of our manufacturing and operations team members who have steadfastly supported our customers, patients, and sales reps during this difficult time. As essential workers, they have continued to deliver product in record amounts in anticipation of the bounce back and procedures we have expected and are now beginning to see. Our international spine bus -- spinal implant business was down by 30% for the quarter. Most markets are beginning to come back, but generally speaking, the bounce back and procedures began later and has not been as pronounced as the U.S.

Similar to the U.S. trends, our international spine business had a strong June and improved further in July. Our trauma business was a bright spot in Q2, nearly tripling sales over the second quarter of 2019, posting 179% growth. We are continuing to invest in this business, expanding our geographic footprint by adding sales reps, launching new products, and making improvements to systems already launched.

During the second quarter, we completed the purchase of a developmental stage Finnish company called Synoste. Synoste engineers have developed a limb lengthening system that utilizes [Inaudible] technology to facilitate incremental nail expansion that can be accomplished outside of the clinical setting. They have studied patients implant with this system in a limited clinical trial in Europe. We are exited about the potential to apply this technology to treat orthopedic trauma and deformity patients, as well as, the potential to develop growing rods for pediatrics spine deformity patients in the future.

We are working to commercialize the limb lengthening system with a targeted market launch of 2022. Revenue from enabling technologies was $5.4 million in the quarter. While the economic impact of COVID-19 to hospitals has created some uncertainty around the capital budgets, we are encouraged by the fact that we continue to close deals in June and July. During the quarter, we saw continued strong certain surgeon interest in our robotic technology, hosting a number of webinars that focused on the advantages of ExcelsiusGPS and the capabilities of our interbody module.

Now more than ever, the benefits that robotic surgery promises in terms of MIS procedures, shorter hospital stays, less time in the OR, and reduce cognitive load on busy surgeons are demonstrating value in the technology. We are seeing the hospitals can and will invest in capital that improves patient care and benefit surgeons. While this time has been challenging to navigate, we have used the opportunity to critically evaluate all aspects of the business and make adjustments to position ourselves well for the future. Our strong liquidity position and lean organization structure have enabled us to financially support all of our people during this crisis.

We have not laid off or furloughed anyone. Since the start of the year, we have made several strategic moves to strengthen our company for the future. One, we purchased a building that will double our manufacturing footprint. Two, we continue to hire competitive recruits at a record pace.

Three, we completed the acquisition of Synoste. And four, we bought back over $100 million of our stock at depressed prices. In addition, we have been able to donate millions of dollars to support communities and frontline workers who have been impacted by COVID-19. While no one knows what the second half of this year will bring regarding the coronavirus, I can say with certainty that Globus is stronger now than we have ever been and looking forward to the future, whatever that might be.

I will now turn the call over to Keith.

Keith Pfeil -- Senior Vice President and Chief Financial Officer

Thanks, Dave, and good afternoon, everyone. While the macro environment was impacted by COVID-19, I am extremely pleased with the way Globus has weathered the storm and I'm encouraged with how we finished Q2. Though the impact of COVID-19 negatively affected sales and profitability, we improved upon our free cash flow compared to the prior year, driven by continued working capital improvements and decreased capital expenditures. In addition, as Dave mentioned earlier, we were able to complete the acquisition of Synoste, a development -- a developmental stage Finnish company.

Our Q2 revenue was $148.9 million, a decrease of 23.4% as reported or down 23.3% in constant currency compared to the second quarter of 2019. On a day-adjusted basis, sales were lower by 23.5% with the same number of selling days in the U.S., but one more selling day in Japan. Our Q2 net loss was $20.8 million and includes a $24.4 million pre-tax charge related to the acquisition of Synoste, which is reflected within our research and development expense. The total consideration for Synoste was $25.3 million and included $22.8 million of cash paid at closing plus a $2.5 million contractual hold back.

Non-GAAP net income was $6.9 million, delivering $0.07 of fully diluted non-GAAP earnings per share. Adjusted EBITDA was 14.7% and our free cash flow was $13.1 million. Moving into sales. Our second-quarter U.S.

revenue was $125.2 million or 21.8% lower than the second quarter of 2019, driven by the impacts of COVID-19 across our business. The COVID-19 impacts were greatest in the earlier part of the quarter. As we progressed in Q2, overall sales improved sequentially led by our U.S. spine business.

As Dave noted, we concluded June with double-digit growth in our U.S. spinal implant business as compared to June 2019. International revenue for the second quarter was $23.8 million, down 31.2% as reported or lower by 30.5% in constant currency. Again, the primary driver of lower sales was the impact of COVID-19.

In addition and as expected, we did not repeat the large distributor orders placed in the first half of last year, thus, driving difficult year-over-year comps internationally. Our second-quarter gross profit was 66% compared to 77.4% in the second quarter of 2019. The decline in gross profit was driven by a combination of factors. One, the deleveraging of fixed costs due to lower revenue as a result of COVID-19.

Two, higher inventory reserve expenses, focused primarily on our trauma and spine businesses. Three, higher depreciation expenses. And four, the write-off of fixed manufacturing expenses. It is important to note that the deleveraging impact will affect other areas of our P&L, including R&D and SG&A.

Consistent with our first quarter and as expected for 2020, the higher depreciation expense was a result -- result of additional instruments and sets within our spine and trauma businesses. When revenues return to pre-COVID levels, we would expect a mid-70s gross margin in line with historical results. Research and development expenses for the quarter were $39.5 million or 26.5% of sales and includes the impact of the Synoste acquisition, which I commented on earlier. Adjusting for the acquisition, research and development expenses were $15.1 million or 10.1% of sales compared to $15.7 million or 8.1% of sales in the second quarter of the prior year, with the decreased spending driven primarily within our INR and trauma businesses.

SG&A expenses for the second quarter were $80 million or 53.7% compared to $88.4 million or 45.4% in the second quarter of 2019. The decreased SG&A spending was driven by lower sales compensation expense and lower expenses within travel and training. These were partially offset by increases to bad debt expense, as well as, COVID-19-related expenses, primarily donations and costs associated with PPE, which were approximately $2 million in the quarter. The effective income tax rate for the quarter was 5%, as compared to 19% in the second quarter of 2019.

The lower effective tax rate was driven by the Synoste acquisition and its discrete treatment resulting in no GAAP tax impact for the quarter, as well as, additional stock comp windfalls compared to the prior year. Adjusted EBITDA margin for Q2 was 14.7%, which is reflective of my earlier comments, including the deleveraging impact driven by lower sales as a result of COVID-19. The company has continued its review on -- of its business performance and related cost structures to identify cost savings opportunities. Looking ahead to 2021 and beyond, assuming a more normalized non-COVID environment, we would expect a return to a mid-30s adjusted EBITDA range.

We ended the quarter with $636.2 million of cash, cash equivalents, and marketable securities. Net cash provided by operating activities was $23.1 million and free cash flow was $13.1 million, both improvements over the prior year, driven by lower capital expenditures, as well as, working capital improvements, primarily AR, as well as, the timing impact of a delayed federal tax payment resulting from the CARES Act. During the quarter, the company spent $30.8 million to repurchase its Class A common shares in connection with the previously authorized and announced share repurchase program. We have not purchased any additional shares since the conclusion of Q2 and currently have 95.3 million remaining on its original $200 million authorization.

Thus, we have spent $104.7 million year-to-date on repurchases. As noted last quarter, the company will fund the share repurchase with its operating cash flows and excess cash. Looking back on the quarter, Globus performed exceptionally well in the COVID environment, a testament to our underlying business strength. We will continue to meet the challenges faced by the market and will take the prudent steps necessary to further improve our business while maintaining focus and discipline around cash flows, liquidity, and profitability.

We will now open the call for questions.

Questions & Answers:


Operator

[Operator instructions] And your first question comes from the line of Matt Miksic with Credit Suisse.

Matt Miksic -- Credit Suisse -- Analyst

Hey, good evening. Thanks for taking the questions. Can you hear me OK?

Dave Demski -- President and Chief Executive Officer

Yes, Matt.

Matt Miksic -- Credit Suisse -- Analyst

Good evening. Thanks. So I wanted to follow-up on a couple of things. I think there's been a surprising amount of activity in the second quarter reported by yourself and other companies around robotic surgery and would love to -- I think, Dave, you mentioned interest among surgeons, but in the end, it seemed like closed several other companies, not to compare, but closed larger numbers of deals in the quarter.

Can you tell us a little bit about the cadence of those? And what -- how you expect them to develop or come to fruition? And then I have one follow-up.

Dave Demski -- President and Chief Executive Officer

Sure. Well, it's been challenging to get in front of the executives given the environment and to get their attention, given the other things on their minds. But as we noted, we were able to close some deals and activity is opening up now just even kind of as we speak, we're seeing more and more access. There's certainly interest on the part of surgeons, and I think, executives as well to get the technology.

It's just a matter of grabbing their attention and making it happen in the interim.

Matt Miksic -- Credit Suisse -- Analyst

That's helpful. And the follow-up just was on the volumes. I think you almost right out of the gate -- as companies started talking about the recovery. I think you were one of the teams that were seeing maybe -- I hate to call it a snapback, but sort of a faster rise of activity when you reported first quarter.

And it seems like you're providing some color around June, July that are a bit -- maybe a bit above what some of your peers are talking about across -- you know, understandably different -- different specialties maybe, but same ZIP code, orthopedics and spine. And just love to understand what you think is driving that? It's hard to imagine there is a share element to this, although, you do have a lot of new technology reaching the marketplace at the moment. So what -- do you feel like you're relatively stronger than some of your peers in terms of how you're picking up the pace again? Or any color would be helpful on those comments.

Dave Demski -- President and Chief Executive Officer

Yeah. I think our -- our results are a function of the market coming back, but we are clearly taking share in this environment if you look at the results of our peers in the spine space. And if you recall, before COVID hit in the first quarter, we were on pace for about 15% growth. So we are continuing to take share even though we're -- we lost ground versus last year, but versus our competition, we're growing.

I think that's what it is.

Matt Miksic -- Credit Suisse -- Analyst

OK, super. Thank you, Dave.

Operator

Your next question comes from the line of Shagun Singh with Wells Fargo.

Shagun Singh -- Wells Fargo Securities -- Analyst

Thank you so much for taking the questions. So I wanted to touch on the cadence of growth that you saw in June, July. Thank you for sharing that. Could you help us understand how much of it was backlog versus a healthy and normalized mix of new patients returning into the funnel? And then, how should we think of trends in the second half of the year just given the ebb and flows in COVID cases? Are you a little bit more immune to that given your geographic mix? How should we think about that? And then the last part of my question is, are you willing to share what percentage of the deferred procedures have already been performed? I think the number we heard was about 40%, 50%.

So if we [Inaudible] we have about that much still remaining in the funnel. So any color there would be helpful. Thanks for taking the questions.

Dave Demski -- President and Chief Executive Officer

Sure, Shagun. We don't really have insight into whether the case was a deferred case or a new case. That's really the surgeons. But I think I can help you a little bit in terms of understanding the future.

We've been talking to our surgeon and we did a little informal survey of our own throughout the country. We tried to grab about 30 surgeons from a diverse geographic mix and we asked them two questions. We asked them, what is your clinic flow today versus pre-COVID? And then the second question is, if the clinic flow that you're seeing now continues through the end of the year, will you have a full OR schedule? And the average in terms of the clinic flow versus pre-COVID is about 85%, that range from 50% to 100% with a few outliers at 50%. So it came in around 85%, which is very strong in my opinion given where we are with the pandemic.

And then the answer to the second question, will they maintain a full operating schedule if they continue at that clinic rate was about -- 78% of them said, yes, they would -- they would be busy through the end of the year. So I find both of those data points very encouraging in terms of where we are. Certainly, if the COVID environment improves, I think you'll see that go back to 100% in the clinic and it does leave some room for a little bit of a drop back as well. I think the other thing you see there is, spine is a profitable procedure for the hospital.

So even if there is some restriction on electives, I think spine goes to the front of the line in terms of getting procedures done. So I think -- I think all of those factors bode well for our segment.

Shagun Singh -- Wells Fargo Securities -- Analyst

Thank you for the color.

Operator

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

Richard Newitter -- SVB Leerink -- Analyst

Hi, thanks, guys. Thank you for taking the questions. Just to piggyback off of the kind of June, July. Some pretty strong growth that you're talking about there.

As we look to the back half, I mean, appreciating that maybe double digits in June and July reflect some backlog work down, some of that recovery isn't extrapolable purely into the back half. But are we thinking about kind of growth in the second half for your business? Is that reasonable in your view, based on what you see today?

Dave Demski -- President and Chief Executive Officer

I think it's definitely a possibility for us. It's really challenging to predict the external environment, Rich. But with the way that we're taking share and the trends we're seeing, I think it's certainly possible.

Richard Newitter -- SVB Leerink -- Analyst

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

Dan Scavilla -- Executive Vice President, Chief Commercial Officer

Hey, Rich, it's Dan. I'll jump in for that one. So thanks for the question. We're certainly pleased with the progress and the inroads we're making with sales growth.

I think there is a long way to go. Certainly, COVID is impacting us. While there is still trauma surgeries occurring, getting together with pricing committees or getting those type of things approved through the hospitals that are in a date right now, certainly something hindering us. So I think there is actually more growth to be had and we could have beaten that, I believe, if we weren't pulled back by COVID with that.

So we'll continue to go. I would say it's on track for what we predicted for this year, but again, I think the potential is even stronger. You know, you had asked about manufacturing. We hadn't come those hurdles last year.

We continue to have a very strong manufacturing facility that's capable of putting this out -- that hindrance. And to date, we have 12 of the product family launched. We have a few filed up with the FDA with the potential of getting two to three more out by the end of this year, if all works well.

Richard Newitter -- SVB Leerink -- Analyst

Great. Thanks for the update.

Operator

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

Kaila Krum -- Truist Securities -- Analyst

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

Dave Demski -- President and Chief Executive Officer

Sure, Kaila, thanks. I -- it's something we've been looking at for a while. It's uh -- I think, going to be an exciting product for our trauma sales force to begin carrying the -- and the technology itself [Inaudible]. We think there is definitely an opportunity to expand that into -- into the treatment of pediatric deformity in terms of growing rods.

So it is going to be a while before we get to the market. It's probably going to be until the end of 2022 before we can get it into the U.S. market or and maybe a little bit before that in Europe, but not much. In terms of other deals, yeah, it's -- we've been active.

We're looking at a number of things, nothing transformative. Again, just tuck-ins and things that could improve our business.

Kaila Krum -- Truist Securities -- Analyst

Great. Thank you. And I mean, the fact that you guys still generated cash during this time is also kind of a rarity just looking across our space. So I'd love to hear your approach to spending new investments at this time.

And just how you're thinking again about capital allocation from here? Thank you.

Keith Pfeil -- Senior Vice President and Chief Financial Officer

Thanks for the question. This is Keith. You know, we continue to look at our business and run it in normal -- in normal course. So as it relates to some of the improvements that we generate in free cash flow this quarter, we took a hard look at AR.

You know, coming into the quarter, no one knew what was going to happen with COVID, and we felt that the most important thing we could do is manage our balance sheet and cash flows. And there was a concerted effort to really focus on bringing cash into the business. You know, we've taken an approach to continue to build inventory in preparation for a bounce back. But really, it's just active management of trying to identify what are the things you can control within your business.

That's really the approach we took for the quarter.

Kaila Krum -- Truist Securities -- Analyst

Hey, thanks, guys and congrats on the quarter.

Keith Pfeil -- Senior Vice President and Chief Financial Officer

Thank you.

Operator

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

Matthew O'Brien -- Piper Sandler -- Analyst

Afternoon. Thanks for taking my question. I guess, you know, Dave, why the kind of cautious tone on growth in the back half, just given what you're seeing here in July? How -- are there outbreak areas that you're really worried about? I mean, why wouldn't you be growing? And then, this -- this share taking in the U.S. is pretty demonstrable.

I know you've got a lot of reps and products and so forth. But can you just give us a little bit more as far as where that's coming from, large companies that you're getting share from, small companies going bankrupt, the robot? I mean, what's really driving it because, again, it's a clear standout.

Dave Demski -- President and Chief Executive Officer

Yeah. Thanks, Matt. Well, I'll tell you my tentative answer is because of COVID. I mean, I just -- you know, it seems like day-to-day we have a different plan as a country.

And you just want to -- want to not get over our skis here, but I'm excited about our business. Our business is really strong relative to our peers. So I don't want that to seem like I have any doubts about how we're going to perform relative to others. But it's really -- it's really -- we're clicking on a number of cylinders.

It is competitive recruiting, which is mainly focused on -- when I say competitive, I'm really looking at the larger competitors. We really have a lot of respect for those competitors and that's -- that's -- to become a competitive accrued at Globus, you have to come from one of the bigger companies. We don't even count it if it's from the smaller ones. So that's where it's coming from and I think reps are really attracted to our technology.

Our leadership in implants has been known for a while, but the enabling technologies has really differentiated us in their eyes over the last several years. And they can see that that's the future and they want to be part of that. I would add to that we've had some great launches this year on the implant side. So that's something that we had, uh -- I think back in '18 we probably didn't have as stronger year as we did typically.

We came back last year and now we're really firing on multiple cylinders. And then, it's not just the technology when it comes to enabling technologies there is the pull-through aspect of the robotic deployments that we have. And as that installed base grows, you're going to see that pull-through grow kind of exponentially, if you will.

Matthew O'Brien -- Piper Sandler -- Analyst

OK. Thank you. And then as a follow-up. On the robotics side of things, you know, you talked about closing a lot of deals in June, assuming everything you printed here today happened in June, you've done some more in July.

Is there a willingness among hospitals to be buying capital equipment in this environment? Do you have to get aggressive on the economic side in terms of what you're going to give up a front end to get more volume on the back end? And then, one of your competitors announced a delay to their robotics system yesterday. Is that been any kind of gating factor where people are kind of waiting to see that one versus going ahead and executing Excelsius purchase. And now that they're delayed, do you think there could be maybe a little bit more push to get access to your product?

Dave Demski -- President and Chief Executive Officer

Yeah. Let me see if I can keep track of the questions. I -- in terms of pricing, we haven't -- we haven't done anything more aggressive than we normally would to get systems placed. And to characterize hospitals as willing or not, that's dangerous because there is an entire spectrum.

There's CEOs who say, I can't even think about this right now. So, you know, I have too -- I have too many things going on with COVID, too many problems to address so you need to come back in a quarter. And there's other ones who maybe aren't as impacted by the COVID environment themselves. They see an opportunity to differentiate their hospitals even more to pull more patients to them that are maybe not able to be treated at other places.

So it's an entire spectrum. Generally speaking, though, it's challenging to get their attention right now versus the way it was six months ago. And then finally to the competitor you mentioned, yeah, I think that's -- I don't think we've seen that yet, but I think as a result of continued delays, the reality is that we don't really know when that's coming, if it's coming. So that'll -- that'll be useful for our sales force in terms of addressing those folks who might be waiting.

Matthew O'Brien -- Piper Sandler -- Analyst

Got it. Very helpful. Thank you.

Dave Demski -- President and Chief Executive Officer

Sure.

Operator

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

Matt Taylor -- UBS -- Analyst

Hi, thanks for taking the question -- the question and congrats. So I wanted to ask more about the recruiting. You continue to have record levels of recruiting and you mentioned some of the reasons just now. I just was curious how you're able to maintain that during this time? And is the bigger difference in your performance going to make that continue and make it easier for you in some ways? And what are you seeing your competitors do on the recruiting side?

Dave Demski -- President and Chief Executive Officer

You know, they do seem to have backed off a bit. I -- that -- that's nearly anecdotal, but our guys are 100% focused on that. And it's a credit to Gregg Harris, our executive VP of U.S. sales and his team, just the focus they've had in this period to really accentuate the strength of our company, and in terms of our financial strength, our technology strength, and just the culture that we've built to bring people over.

When things become uncertain, people are looking for security and they've been able to convey that to folks and continue to generate that interest. And we've been willing to be aggressive and make a bet on ourselves that things are going to come back and we're going to -- those bets are going to pay off in the future.

Matt Taylor -- UBS -- Analyst

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

Dave Demski -- President and Chief Executive Officer

Yeah. That's a -- that's a ways out. We're probably not going to see that for a good bit at this point. We're -- we've been challenged in earlier stages of development there.

The team is fairly dispersed. So it's been challenging to get into the labs and do the the labs that we need to on those early stages to get the products finalized. So I -- I think that has been a bit of a casualty of COVID. Don't have a timeline to tell you at this point, but I -- we are further behind than we were, I'll say, six or -- six months ago.

Matt Taylor -- UBS -- Analyst

OK. Fair enough. Thank you.

Dave Demski -- President and Chief Executive Officer

Sure.

Operator

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

Mason Austen -- Morgan Stanley -- Analyst

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

I just wanted to check, is there any additional selling days clouding that comparability? Some device companies have called out different days in June, specifically, year over year?

Dave Demski -- President and Chief Executive Officer

Yeah, Mason, good question. That's a day-adjusted rate I gave you.

Mason Austen -- Morgan Stanley -- Analyst

Great. And then --

Dave Demski -- President and Chief Executive Officer

Though it's higher than that normally.

Mason Austen -- Morgan Stanley -- Analyst

Got it. That's helpful. And then just as a quick follow-up. July accelerating off of this.

Obviously, encouraging to see that growth rate continuing. Are you seeing a plateau as you look week-to-week as backlogs continue to be worked through? Or the growth rate still accelerating off of this in the back half of July and into August? Thanks so much.

Dave Demski -- President and Chief Executive Officer

Yeah, with the -- another good question. Yeah, it's plateaued in terms of our sequential week to week. We're kind of -- we seem to be at a certain level. July is typically a month where -- where we tail off for vacation.

So we're -- we're -- sequentially, we're plateauing, but we're up against maybe easier comps for July. So we'll enjoy those easy comps in August and then September, obviously, that's when people would normally come back. So the comps will get harder for us come September.

Mason Austen -- Morgan Stanley -- Analyst

Understood. Thanks.

Operator

Our next question comes from the line of Jason Wittes with Northland Capital.

Jason Wittes -- Northland Capital -- Analyst

Hi, thanks. Just two questions. One, follow-up on recruitment, which is obviously very important to the story. Did you say that your competitors for talent are pulling back? And at the same time, can you describe kind of the way you see the situation forming at the larger companies where you're poaching talent?

Dave Demski -- President and Chief Executive Officer

Uh, I -- I don't know for sure if they're pulling back. They don't seem to be as aggressive when we -- when we are talking to folks. You usually ask them, if they're thinking about making a move, it usually behooves them to shop around a bit, and it doesn't feel like we're really in competition with a lot of folks at this point. They're narrowing their choice.

And I -- that may just be because we've differentiated ourselves enough that they know where they want to end up and not anything our competition is doing. And then I apologize, I didn't -- I didn't catch the --

Jason Wittes -- Northland Capital -- Analyst

I guess the -- related to that was -- and I had a quick follow-up, related to that was what's the situation of the larger companies where you generally poach from? Is there a fair amount of uncertainty that's driving a lot of movement? And is that something you kind of anticipate to continue for the rest of the year and even into next?

Dave Demski -- President and Chief Executive Officer

I -- I don't know if it's uncertainty. I think it's just clear from the larger folks that they're the buying technology, if they're -- if they're moving at all. And then maybe on the more peer related, there just seems to be a lack of some of the key elements in terms of where the future is. So I -- I think it's our culture here and the technology that we have, the implants that we have for them to sell combined with the power of the enabling technology, the imaging and navigation robotics platform that we're building.

I think it's all -- it's what we're doing more than what -- and maybe what they're not doing versus something that they're actively doing.

Jason Wittes -- Northland Capital -- Analyst

OK. And then just quickly on trauma, impressive numbers. You know, when I originally spoke to you guys, you kind of mentioned that it took a while to get things in place. Things are in place now.

But it's kind of a bit of a waiting game for contracts to expire. And is that kind of what we're seeing here that you're picking up sort of new contracts as they expire? Or are -- is there other drivers of the growth that are kind of behind that number?

Dan Scavilla -- Executive Vice President, Chief Commercial Officer

Hey, Jason, it's Dan again. It's really multifaceted, right? It's going to be about recruiting and bringing reps onboard so you penetrate a market given that we're small. So you're able to get into new territories. It's certainly about creating access, whether that's at ASCs or hospitals or through GPOs, all of those things are working for us.

And of course, it's getting more products and more sets out into the market in a regulated fashion that allow us to continue to get more usage and more trials as we build surgeon relationships. So all of those are really working. It's not necessarily that a contract's expired and we jump on and do it. It is part of it, but it's not the sole reason.

Jason Wittes -- Northland Capital -- Analyst

OK. Thank you very much.

Operator

Your next question comes from Kyle Rose with Canaccord.

Kyle Rose -- Canaccord Genuity -- Analyst

Great. Thank you very much for taking the questions. I wanted to follow-up on one of the earlier questions on enabling technologies. I appreciate the comments on the timing for the robotics side, but maybe any additional insight with respect to procedure specific indications in the spine arena.

And then, any update on timing with respect to the imaging platform as well?

Dave Demski -- President and Chief Executive Officer

Sure. Thanks, Kyle. Yeah, we're actually just in the soft launch of our interbody module, if that's what your reference to procedure specific was and it's going quite well. We've done a half a dozen cases this week, and by all accounts, we'll be in full commercial launch during this quarter, if it continues at that rate.

The imaging system is also going well. We're in the sort of the final stages of testing with the agency right now, which is the last step before we go to the FDA. So assuming that goes well, we don't see any -- any major hiccups there. We'll be filing with the FDA within the next couple of months.

Kyle Rose -- Canaccord Genuity -- Analyst

Great. I appreciate the update. And then just a follow-up on the trauma side for Dan. Dan, when you're going into accounts and trying to get on contract, are you taking, I guess, what you characterize as smaller bites of those contracts, yo know, one to two product lines? Or are you able to go in and compete against the full line trauma players when we think about entering a Level 1 facility and taking material share in one of those facilities?

Dan Scavilla -- Executive Vice President, Chief Commercial Officer

Yeah, we're not in a position yet to take and displace a full large player. We're working toward that as we build out the portfolio. But at most places, you're going to begin with one or two products to get usage, depending on the surgeon if he's an opportunity or lower, obviously, and then kind of expand through there. So again, with 12 product families launched, we knew quite a bit, but we still need to continue to put more out on the market before we can disrupt or displace the bigger competitors.

Kyle Rose -- Canaccord Genuity -- Analyst

Great. Thank you for taking the questions.

Operator

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

Unknown speaker

Hey, guys, this is actually Max on for Ryan. I just wanted to go back to HEDRON and SABLE. I know you mentioned that you're really encouraged by the rollout of both products during the quarter. But just wondering if you could talk a little bit more about how those products contributed to the top line? And whether there was anything different you did with those rollouts given the COVID environment that you might be able to take forward to additional product launches here in the back half of the year?

Dave Demski -- President and Chief Executive Officer

Yeah. Thanks, Max. Nothing we really -- we did any differently than our norm. I will say that I blew it on the projection of how much we'd sell and I undershot that.

So we've kind of exhausted our set capacity at this point. Those are producing a lot, but we need to make more and for that, we needed to expand our manufacturing capacity. So we've got the orders in and those machines and that capacity is coming on board, we should -- we should see the impact of that in Q4. And again, nothing different than normal and we typically don't give you the granularity in terms of what the components of our growth are.

I will tell you that new products are contributing significantly this year.

Unknown speaker

Got it. Thank you. That's very helpful. And then, switching over to the emerging technologies segment.

Given that the cranial module is now approved, can you just provide some more detail around your commercial strategy and the model itself? Is it a software upgrade and some hardware? Or is it a separate unit entirely? Just kind of help us think through that, please.

Dave Demski -- President and Chief Executive Officer

Yeah, it rides on the Excelsius platform. It does require some different hardware, but the core unit's the same and it's obviously different software. They're putting the final touches on the rollout of the software. We're probably going to roll it out into the fourth quarter.

I don't expect any meaningful revenue from it this year. And we're probably going to go initially to customers who have a unit to expand their capacity and buy the cranial module, but we'll also be addressing neurosurgeons who just focus on bringing procedures. But that's a new area, a new call point for our folks. So I don't anticipate meaningful revenue from that segment until we really get out there and get some good clinical data on the system.

Unknown speaker

Got it. Thank you.

Dave Demski -- President and Chief Executive Officer

Sure.

Operator

Your next question comes from Mike Matson with Needham.

David Saxon -- Needham and Company -- Analyst

Yeah. Hi, this is David Saxon on for Mike. Thanks for taking the questions. I just had a follow-up on the imaging system.

Just wondering, can you give a timeline to commercialization? And then also, how are you thinking about the risks or opportunities in launching in the current environment?

Dave Demski -- President and Chief Executive Officer

Thanks, David. Yeah, we'll be out in the first quarter with that along with the navigation that goes with that. Yeah, are there risks launching capital in the current environment? I think there are. But at the same time, I think that this is going to end at some point and we're excited about what this technology can do.

It's been uh -- it's been an issue for us competitively not having this system as we go up against our No. 1 competitor. So this is going to put us on equal or greater footing once it gets to the market. So we're -- we can't wait to get it out there.

David Saxon -- Needham and Company -- Analyst

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

Keith Pfeil -- Senior Vice President and Chief Financial Officer

This is Keith. Thanks for the question. I think on a normalized basis, again, we have no reason to believe that we're not a mid-70s business. But I -- but I err on saying how quickly we return there given that we still don't know what the second half is going to bring.

Yes, we do see some optimism with sales so far in July. But looking ahead, I err on providing a specific target for the back half of the year. I think what I would say is on a go-forward basis, non-COVID environment, we should be a mid-70s business.

Operator

And your last question comes from the line of Steve Lichtman with Oppenheimer & Co.

Unknown speaker

Hey, thanks for taking the question. This is actually David on for Steve. Just maybe one for me. Any color you can provide on Japan during the second quarter? Have you begun selling Excelsius units? And if so, how much of an impact should we expect for that rollout in the second half? Thank you.

Dave Demski -- President and Chief Executive Officer

Yeah. Thanks, David. We are marketing it there. We have not sold a unit yet in Japan, but we have a pretty nice pipeline of potential leads and we're optimistic about the future with it there.

Did you have a follow-up question?

Unknown speaker

No. That's it. Thank you.

Dave Demski -- President and Chief Executive Officer

OK, good. Thank you.

Operator

[Operator signoff]

Duration: 47 minutes

Call participants:

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

Dave Demski -- President and Chief Executive Officer

Keith Pfeil -- Senior Vice President and Chief Financial Officer

Matt Miksic -- Credit Suisse -- Analyst

Shagun Singh -- Wells Fargo Securities -- Analyst

Richard Newitter -- SVB Leerink -- Analyst

Dan Scavilla -- Executive Vice President, Chief Commercial Officer

Kaila Krum -- Truist Securities -- Analyst

Matthew O'Brien -- Piper Sandler -- Analyst

Matt Taylor -- UBS -- Analyst

Mason Austen -- Morgan Stanley -- Analyst

Jason Wittes -- Northland Capital -- Analyst

Kyle Rose -- Canaccord Genuity -- Analyst

Unknown speaker

David Saxon -- Needham and Company -- Analyst

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