Globus Medical Inc

NYSE:GMED

Earnings Call Transcript 2019-Q3

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to Globus Medical’s Third Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn our call over to Brian Kearns, Senior Vice President of Business Development and Investor Relations. Sir, please go ahead.

[Brian Kearns]

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; 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 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 on 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. Globus Medical had an outstanding third quarter, once again delivering above market growth and industry-leading profitability. Revenue for the quarter was $196 million, up 16% over the third quarter of 2018, as Musculoskeletal Solutions continue to grow well in excess of the market in all sectors up by 11.8% over last year. Enabling Technologies delivered back to back strong quarters producing $13.9 million in revenue, more than double our Q3, 2018 performance. Non-GAAP EPS was $0.43 per share versus $0.39 a year ago, an increase of 10%.

Adjusted EBITDA improved by – to 33.4% in Q3 compared to 31.5% we posted for the first half of this year. The results include the planned investments we made in growth initiatives such as INR and trauma. Factoring out the impact of these investments, would have resulted in an improvement of $0.06 to non-GAAP EPS and added approximately 600 basis points to adjusted EBITDA margin. Globus continues to achieve market-leading operating margins even as we invest in key strategic initiative.

Musculoskeletal Solutions performed exceptionally well in all areas, the U.S. Spine business continued to take significant market share during the quarter driven by competitive rep recruiting and implant pull through from ExcelsiusGPS installations. We expect to finish 2019 with our third consecutive record year in competitive rep recruiting. We also continue to see exceptional growth in implant sales from [indiscernible] with ExcelsiusGPS technology.

Finally, we are on pace for a strong year product launches, capped off by several exciting new products slated for launch in Q4, including our line of 3D printed interbody spacer and our next generation expandable TLIF device. The international spine business grew by almost 15% in Q3, both as reported and in constant currency, well in excess of the market in almost all significant geographies. The third quarter growth continues to be driven by access to new technology, pull through from robotic placements, increased investments in peer-to-peer education and management changes in certain key markets in 2018.

As we alluded to on previous calls, we experienced some deceleration in Q3 associated with the alleviation of pent-up demand caused by previous supply chain issues that are now largely behind us, while some additional deceleration is expected in Q4 as we come up against difficult comps. We are very excited by the strong turnaround in our international business this year, as we remain on pace to produce the highest level of international organic growth in our company’s history.

Under the leadership of Mitsuo Asai, our business in Japan has been very strong since the acquisition from Alphatec in 2016. After a long and successful career as Asai is retiring this month. We are very pleased to announce that Steve Burdumy assumed the role of President, Globus Medical Japan in August. Steve is well suited for this position having led Medtronic’s overall business in Japan for a number of years before becoming Medtronic’s Global Sector, President of Worldwide Spine Biologics and Kyphoplasty. We are very excited to have Steve join our leadership team in this important role.

Our Trauma business made good progress again in Q3, we launched the Autobahn Tibial Nailing, the ANTHEM Tibia Plating System and the ANTHEM Clavicle Plating System in Q3, thereby completing the development of all systems in our core portfolio. We continue to build sales momentum matching our ninth consecutive record quarter increasing sales by over 50% sequentially and by over 8x from a year ago, albeit off a small base.

Revenue from Enabling Technologies of $13.9 million in Q3, an increase of 125% over the third quarter of 2018 and up sequentially over the $12 million recorded in Q2. We are fully recover from a soft Q1, and very bullish about the potential of our INR division as we close out 2019 and look forward to 2020. Our optimism is based on a number of factors. One, strong adoption trends by surgeons, who are experiencing the benefits of Excelsius technology as they incorporated into their practice of medicine.

Two, Globus is widely acknowledged as a technology leader in spine robotics as expressed in our smarter, faster and stronger marketing campaign, which highlights the clinical advantages that surgeons have repeatedly endorsed in their revaluations of ExcelsiusGPS. Three, we are building on our technology lead in spine robotics.

We unveiled the interbody module at the recent NASS convention to outstanding reviews and we are on schedule to launch the spine deformity of solution early next year. Four, we are investing heavily to expand our scope in Enabling Technologies. We gave surgeons a preview of our imaging system at NASS to an extremely enthusiastic response. We are also in the final stages of completing the cranial module for ExcelsiusGPS. We expect both of these systems to be available in the first half of 2020.

Finally, we have a number of other projects under development in INR that will roll out in 2020. We will provide more information on these developments next year. The long-term potential of computer-assisted technology to transform orthopedic surgery is tremendous. We are aggressively investing to ensure that Globus remains at the forefront of this transformation with a holistic, integrated and highly synchronized strategy. Our performance over the past two quarters demonstrates our ability to compete and capture share today as we work toward and invest for tomorrow.

In summary, we are excited about our third quarter performance and momentum and are poised to finish 2019 in record fashion, is demonstrated by our market-leading growth in Musculoskeletal Solutions, a sustained turnaround in Enabling Technologies, significantly improved EBITDA, driving industry-leading profitability and a strong pipeline of new product introduced deductions on tap for Q4.

I would like to take this opportunity to introduce Keith Pfeil, our new Senior Vice President and Chief Financial Officer. As we announced in June, Keith comes to us after 16 years as a publicly traded consumer products company where he most recently served as CFO. We are pleased to broaden our Senior Leadership team with the addition of Keith. His analytical approach, his experience with making and integrating acquisitions successfully and his track record of driving efficiencies will serve him well in his role with Globus.

I would also like to recognize the contributions from Dan Scavilla has made as our CFO for the past four years. Dan has done an outstanding job of leading our financial organization as we have expanded the scope of our business is to INR and trauma and continue to grow the company while maintaining fiscal discipline and producing exceptional cash flow. The addition of Keith will enable Dan to focus on his role as Chief Commercial Officer of Globus by building our Trauma business and continuing to be responsible for most of the operational functions within Globus.

I will now turn the call over to Keith.

[Keith Pfeil]

Thanks, Dave, and good afternoon, everyone. The third quarter results for Globus reflect yet again, another strong quarter of revenue, profit and cash flow generation. The growth in sales was largely driven by continued above market gains within U.S. Spine, as well as significant growth with enabling technologies, international markets and trauma. Profitability remains robust, while we continue to invest in R&D and expand our sales force.

Cash flow remains strong as we push for growth while maintaining our commitment to invest in sets for future placement within spine, trauma and joints. Third quarter revenue was $196.2 million representing 15.9% growth as reported or 14.5% on a day-adjusted basis with one more selling day in the quarter as compared to prior year.

GAAP net income was $38.3 million and non-GAAP net income was $43.5 million, driving $0.43 of fully diluted non-GAAP earnings per share. Adjusted EBITDA was 33.4% and we delivered $43.8 million of free cash flow. Shifting our attention to sales, U.S. revenue for the quarter was $162.7 million growing 17% versus the prior year quarter. Our U.S. spinal implant business continues to sustain above market growth as we remain focused on transitioning competitive reps into Globus while also experiencing implant pull through from accounts utilizing our ExcelsiusGPS platform.

International revenue for the quarter was $33.5 million growing 11.2% as reported. Constant currency impacts are immaterial to the quarter. We continue to experience growth through market penetration across our international markets. However, we specifically know robust growth within Japan, the UK, Italy, India and Austria. It is important to note that while our growth rate slowed as planned compared to the second quarter. It is in line with expectations and consistent with our previous comments related to large distributor orders placed in the first half, which would not repeat in the second half.

Overall, musculoskeletal sales for the quarter were $182.3 million growing 11.8% versus the prior year quarter, while enabling technology sales were $13.9 million for the quarter, representing 125% growth compared to the prior year quarter. The significant growth in Enabling Technologies is being driven by the increasing surgeon interest in our ExcelsiusGPS platform.

Moving further into the P&L, Q3 gross profit was 76.9% compared to 77.6% in the third quarter of 2018. The decline in gross profit was primarily due to a one-time benefit realized in the third quarter of 2018, which did not repeat in the current year quarter. Adjusting for that benefit, gross profit was 77.3% in the prior year quarter.

Research and development expenses for the quarter were $14.5 million or 7.4% of sales compared to $15.5 million or 9.2% of sales in the third quarter of 2018. It is important to note that we incurred $2.5 million of one-time expenses in the third quarter of 2018, primarily related to technology and licensing fees.

Our R&D expense continues to be reflective of significant investments in INR platforms, which will be realized in 2020 as we continue to lead the market and drive innovation through new product launches. SG&A expenses for the third quarter were $88.5 million versus $75.1 million in the third quarter of 2018, reflecting our expansion of the U.S. Spine sales force, investments in international and robotics.

The GAAP income tax rate for the third quarter was 18.1% compared to 17.3% in the third quarter of 2018. The slight uptick in rate was a result of slightly lower deductible expenses as compared to prior year, which was in line with expectations.

Adjusted EBITDA for the quarter was 33.4%, which improved as planned, growing 140 basis points sequentially versus the second quarter of 2019 versus the third quarter of 2018 adjusted EBITDA is lower by 70 basis points, which is reflective of the continued R&D investments within robotics, as well as increased investments within our U.S. sales force driven by competitive rep placements in our international sales force due to our focused market penetration and expanded outreach.

GAAP net income was $38.3 million and non-GAAP net income was $43.5 million. GAAP diluted earnings per share were $0.38, while non-GAAP diluted earnings per share were $0.43 compared to $0.39 in the third quarter of 2018 reflecting 9.9% growth. This growth is reflective of the continued strong sales performance across the portfolio, while driving investments for the long-term. We ended the quarter with $660.7 million of cash, cash equivalents and marketable securities. Third quarter net cash provided by operating activities was $55.9 million and free cash flow was $43.8 million.

Our Q3 cash flow increased $10.1 million of tax payments in the quarter as well as ongoing investments in sets for our spine and trauma businesses. The company remains debt free. This company is increasing its full year 2019 sales guidance from $775 million to $783 million reflecting the continued overall strength across our portfolio, while maintaining appropriate conservatism.

Non-GAAP diluted earnings per share guidance remains unchanged at a $1.72 as we remain steadfast driving investments within our I&R platform, which will fuel new and exciting product launches in 2020 and beyond. We remain on track to deliver strong year-over-year growth, both in sales and earnings.

We will now open the call for questions.

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

[Matt Miksic, Credit Suisse]

Hi, can you hear me, okay?

[Dave Demski, President and Chief Executive Officer]

Yes. We can, Matt.

[Matt Miksic, Credit Suisse]

Great, thanks for taking the question. So, and congrats on a pretty strong quarter here. So maybe one question on just, the tone of the spine market and I think you mentioned, David, your opening remarks, driven in part by pull through via Excelsius, maybe you could give us a sense, did anything else, sort of, what would you line up maybe after the robot in terms of growth drivers or competitive share gains and I have one follow-up?

[Dave Demski, President and Chief Executive Officer]

Well, yes. Thanks, Matt. I think, there is the two drivers of our growth in spine, our competitive rep recruiting and onboarding as well as the pull through from Excelsius. After that you just – you’ve got their normal product launches in Spine.

[Matt Miksic, Credit Suisse]

Right, well, and – I see other products. I guess, I was fishing for but just really impressive underlying spine growth. So maybe I will go – maybe go to the robot and then jump back in queue here. Just the – third quarter, historically, kind of a maybe a slightly tougher quarter in capital sales for everybody and then, folks who sell robots, as well. What if anything have you seen in terms of interest or acceleration or competitive dynamics that drove some of the, at least upside to our estimates in the third quarter here for Excelsius?

[Dave Demski, President and Chief Executive Officer]

Yes, well. I think the market overall remained strong, there is just growing interest on the part of surgeons in terms of robotics in general and then, I think we’ve done a really good job of articulating the differences in Excelsius through our marketing campaign, I know if you’ve seen any of it on social media but surgeons have consistently, as they’ve done their evaluations pointed out that they think our products better and we needed to just really go back and focus on those basics and conveying that information to surgeons and our team did a great job of getting them to understand that and getting the deals closed in Q3.

[Matt Miksic, Credit Suisse]

That’s great. I’ll keep it to two and jump back in queue, but congrats again.

[Dave Demski, President and Chief Executive Officer]

Thank you.

[Operator]

Your next question comes from Shagun Singh of Wells Fargo.

[Shagun Singh, Wells Fargo]

Hey guys, thank you so much for taking the question. I guess the first one on the robot, can you give us a little bit more color on what's driving the uptick? And then how should we think about Q4? Historically, you've indicated that 30% to 40% of the year’s total placements would be placed in Q4. Is that how you're thinking about it? I think that would imply about 14 to 21 systems are pretty broad range, but Q4 is your strongest quarter.

And then I was just wondering if you could call out the contribution to your year-over-year musculoskeletal growth from Excelsius pulled through competitive reps and new products. I think in Q2 you had indicated that it was about 40%, 40% and 20%. So just looking for an update there. Thank you so much.

[Dave Demski, President and Chief Executive Officer]

Sure Shagun I'll try to tackle those in order. I think as I spoke to Matt about it, I think, our success in the third quarter was really about being able to articulate the advantages of our system, and getting surgeons to really understand that, and buy into that and get the deals closed. We're not going to comment on a quarter-by-quarter basis in terms of what we think the cadence will be. It's really challenging to predict capital in general and it's not our practice to really get into the quarter. So I will say our pipeline is very strong. We're really comfortable with the team we have in place and we're working hard to get deals closed at this point.

And to your last question about the breakdown, I don't think we've actually commented on that split. I don't think split that you just mentioned was accurate. But we're not going to get into that granular level of detail. It's competitive information and I'm not comfortable sharing it.

[Shagun Singh, Wells Fargo]

Got it. Thank you.

[Dave Demski, President and Chief Executive Officer]

Sure.

[Operator]

And our next question comes from Richard Newitter of SVB Leerink.

[Richard Newitter, SVB Leerink]

Alright, thanks for taking the question guys and the solid quarter here. I have a couple – I wanted to start maybe just making sure that I'm understanding what the core U.S. implant – spine U.S. implant growth rate is. I'm calculating something in the 8.5% to 9% range inclusive of an extra day and about call it 7% excluding selling day. And that assumes about a two million contribution from StelKast revenue. Is that directionally correct? I just want to make sure I'm kind of getting the right sense of what your core U.S. implant growth rate is.

[Keith Pfeil]

This is Keith and thanks for the question. This quarter we decided to really focus on talking about musculoskeletal in total. Our business, whether it's musculoskeletal or enabling we feel strong about where our business is across the entire portfolio. In saying that the strength within musculoskeletal is really across the entire thing. And the reason why we are really pulling up and want to talk about musculoskeletal in total is because some of these smaller acquisitions such as StelKast the growth of trauma, at this point they are really small and immaterial to the total. And until these businesses grow to a more meaningful number we're going to really focus on talking about musculoskeletal and enabling.

[Richard Newitter, SVB Leerink]

Okay. I guess immaterial like sub 5 million immaterial is that fair?

[Keith Pfeil]

That's fair.

[Richard Newitter, SVB Leerink]

Okay. And while we're on the subject of trauma would love to just here Dave in the past when we've asked you about ways to calibrate for next year, just because it's truly an incremental revenue opportunity the Street is modeling it, is the right way to think of that ramping? I think the consensus has you in the $10 million to $12 million range. Do you feel comfortable with that as a placeholder for right now?

[Dan Scavilla]

Hey Rich it’s Dan. Thanks for the question. I would think that's fair. If you remember, one of the things that we've said is the Q4 for us with trauma would be a significant quarter because we've got our products launched, we're starting to make access into the market. And in itself that would be one of the main drivers. I think just early on for 2020 that's a reasonable place holder to take. And as you know we'll fine tune that as we get through January and into our release.

[Richard Newitter, SVB Leerink]

Great. Maybe if I could squeeze one more in. You mentioned some new robot indications on tap next year. Dave at NASH one of the things that we consistently heard about is – the killer app, so to speak from physicians, is going to be saying that gets into the disc space and that actually allows for bone cutting. I'm just curious is that something that is potentially for Globus being that you're one of the bigger innovators on the robotic front right now, is that something that's possible within kind of a 2020, maybe even 2021 time frame? Or is that something that's kind of further out more than the three to four years that some of the other competitors are talking about? Thanks.

[Dan Scavilla]

Yes Rich I’ll say this about that it won't be next year. I don't want to comment further than that on it, but that is not one of the things that we're planning on rolling out next year.

[Richard Newitter, SVB Leerink]

Okay, thanks.

[Dan Scavilla]

Sure.

[Operator]

Our next question comes from Craig Bijou of Cantor Fitzgerald.

[Craig Bijou, Cantor Fitzgerald]

Thanks guys for taking the questions. Congrats on a strong quarter. Wanted to start maybe a follow-up on robots. And I know earlier in the year you referenced a lengthening selling cycle. And obviously coming out of NASH we saw a competitive offering that is going to come. So, maybe if you can just talk about what you're seeing from a robotic selling cycle now if it's kind of shortening again? And then as we start to hear more about competitor systems coming next year, how do you see that environment evolving over the next say 12 months, 12 to 18 months?

[Dan Scavilla]

Thanks Craig. It's hard to say how it's going to evolve. I can comment on wherever we are. I don't think it's shortened again. I think it's still highly competitive. I think right now it's a two-horse race. But I think we're both in most of those deals. So there's a longer process to sort of go back and forth and evaluate both alternatives. I would imagine more viable competitors would make that process even a little more challenging to wade through and for surgeons and executives to decide what technology is best for their purpose. But we can only wait to see what will happen if some others get some products out there.

[Craig Bijou, Cantor Fitzgerald]

Okay, that's helpful. And then, I know you talked about the international strength and maybe just a little bit more color there, the markets there you really see as an opportunity for a sustained or durable growth over the next couple of years. I know Japan has been the focus ever since you guys made the Alphatec acquisition. But maybe just a little bit more color on the markets and the potential there.

[Keith Pfeil]

This is Keith. Thanks for the question. The comment I would make here is that the international business is an area of growth for us. Obviously we had a strong first half. We expected a slowdown in the second half, it's in line with expectations. But when you step back and say, okay, what's driving it. We have new management in place over there. We invested in education and outreach to doctors and facilities on an international basis. And really that's taking hold and help driving the growth. And from our perspective, we're small from a market share perspective there. So we view there'll be a lot of white space and we can take share as we look to grow.

[Craig Bijou, Cantor Fitzgerald]

Great. Thanks for taking the questions guys.

[Operator]

Our next question comes from Matt Taylor of UBS.

[Matt Taylor, UBS]

Hi, thanks for taking the question. So first thing I want to ask about was just on some of the new offerings that you introduced at NASH and so could you get some color commentary on how the response has been of the interbody offering in the single position surgery that you are pushing now with the Excelsius robot and your new instrumentation.

[Dave Demski, President and Chief Executive Officer]

Sure Matt. In terms of single-position lateral that's actually been part of the technology since day one. We have several sites doing that every day. And the response has been fantastic. It cuts a lot of time out of the procedure if you don't have to flip the patient. And we're seeing just fantastic accuracy and not the level of complications that folks have experienced in a manual situation.

In terms of interbody, we haven't launched that to the market yet. I will say that the response at our booth in NASH was, was tremendous. There was a lot of interest there and we're trying to get the equipment together to get that launched in early in Q1. So we expect to see some uptick in the early part of next year on that.

[Matt Taylor, UBS]

Thanks. And you mentioned you're hiring continues to be strong. In the past you've talked about record hiring. Are you still seeing those kinds of levels of hiring?

[Dave Demski, President and Chief Executive Officer]

Yes, I think we're already past where we were last year as we speak today. And we've got a couple more months left in the year.

[Matt Taylor, UBS]

Okay, great. Thank you.

[Dave Demski, President and Chief Executive Officer]

Sure.

[Operator]

Our next question comes from Matt O'Brien of Piper Jaffray.

[Drew Stafford, Piper Jaffray]

Hi guys, this is Drew on for Matt. And thank you for taking the questions and congrats on the nice quarter here. On the knee platform you acquired last quarter, I guess kind of as we monitor progress with your robotics platform there, obviously it's a new market for you guys. Are there any milestones we should be watching for here in 2019 to probably more likely into 2020?

[Dave Demski, President and Chief Executive Officer]

Yes no milestones in 2019, that's going to be more a 2020 effort. And even that late in the year.

[Drew Stafford, Piper Jaffray]

Okay, helpful. And then you kind of touched on this a little bit earlier, but I mean, as we said a little bit later here in the med tech earning cycle, a lot of the spine peer plays have not – pretty strong performance domestically. I guess to ask the question more specifically, are you seeing an uptick in the spine market at all and then kind of what in your view could be driving that, be it, conversions off SCS, pricing, et cetera. Thank you.

[Dave Demski, President and Chief Executive Officer]

Sure. Drew we're a small player Drew, so it's hard for us to really understand what the entire market is doing. But I would say anecdotally it continues to be relatively strong, but no big spike. We're going into the time of year when we're seeing a big amount of demand as the high deductible coverage folks go in to get surgery that's going to happen again this year it appears to be. But nothing overall that I would say has been either good or bad. I think it's just kind of business as usual from our perspective.

[Drew Stafford, Piper Jaffray]

Thank you.

[Operator]

And our next question comes from Mike Matson of Needham & Company.

[Mike Matson, Needham & Company]

Yes thanks for taking my questions. Just wanted to start with the imaging system. So I think you said it'd be out in the first half of 2020. So how should we think about the launch and the trajectory there as compared to Excelsius? I realize that's more of kind of you're coming into a more of an established or mature market. And I mean is that going to have a material contribution in 20 years that really more of a 2021 story with the sales cycle and everything?

[Dave Demski, President and Chief Executive Officer]

Thanks Mike. I do anticipate having some fairly significant sales next year. It's really challenging to predict the WAN at this point where we're still finishing out the development, we need to get it to the FDA and get it launched. So it's a little early to be predicting sort of the amount of revenue. But the response that we've gotten from folks who have seen it, it brings a lot of value. It really surpasses what's out there today in a lot of respects. So we're excited about being able to sell it. And we hope that we will see a nice ramp in it.

[Mike Matson, Needham & Company]

Okay. And then I know there were a few other questions about the rep hires. But is it safe to assume that you expect kind of similar plan, similar amount of hires in 2021 – sorry in 2020 to what we've seen in 2018 and 2019?

[Dave Demski, President and Chief Executive Officer]

It's a big focus of our sales team. I think we are becoming more and more attractive to spinal implant sales people because of our enabling technology, as well as the breadth of our implant technology. So I think our story gets better and better and the best people want to come and sell the best products. So I do intend to continue to focus on it and we continue to see opportunities. So I see no reason why we would back off at all next year.

[Mike Matson, Needham & Company]

Okay, thanks. And then just Excelsius outside the U.S. can you maybe comment on how that's going?

[Dave Demski, President and Chief Executive Officer]

Very happy with it. We've got several installations. We've not broken out the numbers for folks, but we're seeing it being utilized all over the world and it's very exciting to see that.

[Mike Matson, Needham & Company]

Okay, great. Thank you.

[Dave Demski, President and Chief Executive Officer]

Sure.

[Operator]

And our next question comes from Ryan Zimmerman of BTIG.

[Ryan Zimmerman, BTIG]

Thank you. So I want to ask first on guidance for this year and then I have a couple of others. So you guys beat by $11 million, you took up guidance by essentially $8 million for the year. I'm just curious if you can – is that all essentially international headwinds that you're referring to or is there something else contemplated in those – in that guidance for 2019?

[Keith Pfeil]

This is Keith. Thanks for the question. When we looked at guidance taking it up $8 million, really – we feel good about our business across musculoskeletal and enabling. When you go back to the beginning of the year, we started the year at $770 million. We've taken our number up $13 million from the beginning of the year. When we look out there is nothing that peaks our interest or causes rise of concern. It's really more of us applying appropriate conservatism to our sales number.

[Ryan Zimmerman, BTIG]

Okay, that's helpful. And then Keith this is really a question on margins, but it gets to the introduction of the CRM next year. These will combine with Excelsius way to some extent on margins. And I'm just kind of curious what your view is or how we should be thinking about your gross margins into 2020, given the introduction of some of these higher capital dollar systems that may carry lower gross margins relative to your implant business?

[Keith Pfeil]

Yes, I mean, thanks for the question. Really want to think about – when I think about gross profit, I think, for next year any impact would be small, immaterial. When I step back and look at the business, I think, our gross margin profile is pretty strong. The last couple of quarters and we're sitting in 77, 77, 77, 2. In the near term I don't really see that changing.

[Ryan Zimmerman, BTIG]

All right, thanks Keith.

[Operator]

And our next question comes from Steven Lichtman of Oppenheimer.

[Unidentified Analyst]

Hey guys, thanks for taking the questions. This is actually David on for Steve. Starting off, could you provide any color on sales contribution from trauma in the quarter? And are you still on pace for about five million for the full year? Thank you.

[Keith Pfeil]

I think I will go back to what I had said earlier. First off, thanks for the question. We're looking musculoskeletal as a whole. Those pieces of the business are really small and immaterial. I would really refer back to some of Dave's comments in his script. But overall, musculoskeletal performed strong. We don't see any issues across the business and we continue to move forward to closing out the year.

[Unidentified Analyst]

Okay, thanks. And then just one follow-up on the marketing campaign, you mentioned last quarter, how has that been received? And did you see an impact from that program in the third quarter? Thank you.

[Dave Demski, President and Chief Executive Officer]

Yes David we did. Thanks for the question. A couple of other colleges have asked about why we saw such a strong quarter. I think it's been our ability to articulate the advantages of our system over the competition so just to understand that. And marketing campaign really does a good job of drilling down into the unique aspects of Excelsius. Why it's smarter, why it’s stronger, why it's faster? So yes.

[Unidentified Analyst]

Okay. Thank you.

[Dave Demski, President and Chief Executive Officer]

Sure.

[Operator]

We have no further questions this concludes the Globus Medical third quarter earnings call. Thank you for joining. You may now disconnect.