Globus Medical Reports Third Quarter 2015 Results

Reports Record Quarterly Sales and Increases Guidance

Audubon, Pennsylvania, UNITED STATES


AUDUBON, Pa., Nov. 03, 2015 (GLOBE NEWSWIRE) -- Globus Medical, Inc. (NYSE:GMED), a leading musculoskeletal implant manufacturer, today announced its financial results for the third quarter ended September 30, 2015. 

  • Worldwide sales increased 16.3% to $137.0 million, or 17.6% on a constant currency basis
  • Third quarter net income increased 14.8% to $26.5 million, or 18.0% on a constant currency basis
  • Fully diluted earnings per share (EPS) were $0.28 
  • Non-GAAP Adjusted EBITDA was 36.9% of sales
  • Company increases 2015 guidance for sales to $539 million and EPS to $1.07

David Paul, Chairman and CEO said, “We are pleased to report third quarter sales of $137 million, a year-over-year increase of 16.3% as reported and 17.6% on a constant currency basis.  Once again the Globus team achieved strong sales growth and market share gains while maintaining industry leading profitability, with quarterly net income of $26.5 million, or 14.8% higher than the same quarter last year.  During the third quarter, we also launched 3 new products and made further progress on integrating our two most recent acquisitions. We remain confident in our long term growth prospects and our ability to sustain our industry leading profitability by the continued execution of our strategy of introducing innovative products, expanding our U.S. and international sales footprint, and controlling our expenses.”

Third quarter sales in the U.S. grew by 17.9% over the third quarter of 2014.  International sales increased by 1.2% over the third quarter of 2014 on an as reported basis and 14.6% on a constant currency basis. 

Third quarter net income was $26.5 million, an increase of 14.8%, or 18.0% on a constant currency basis.  Fully diluted EPS for the third quarter was $0.28, as compared to $0.24 for the third quarter 2014. 

Cash, cash equivalents and marketable securities ended the quarter at $300.1 million.  The company remains debt free.

2015 Annual Guidance

The company today increased guidance for full year 2015 sales by $15 million to $539 million and earnings per share by $0.03 to $1.07. The increased sales guidance takes into account our expectations for $5.5 million unfavorable impact of foreign currency exchange.

Conference Call Information

Globus Medical will hold a teleconference to discuss its 2015 third quarter results with the investment community at 5:30 p.m. Eastern Time today.  Globus invites all interested parties to join the call by dialing:

1-855-533-7141          United States Participants
1-720-545-0060          International Participants
There is no pass code for the teleconference.

For interested parties who do not wish to ask questions, the teleconference will be webcast live and may be accessed through a link on the Globus Medical website at investors.globusmedical.com.

If you are unable to participate during the live teleconference, the call will be archived until Tuesday, November 17, 2015.  The audio archive can be accessed by calling 1-855-859-2056 in the U.S. or 1-404-537-3406 from outside the U.S.  The passcode for the audio replay is 8132-2678.

About Globus Medical, Inc.

Globus Medical, Inc. is a leading musculoskeletal implant company based in Audubon, PA. The company was founded in 2003 by an experienced team of professionals with a shared vision to create products that enable surgeons to promote healing in patients with musculoskeletal disorders.

Non-GAAP Financial Measures

To supplement our financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), management uses certain non-GAAP financial measures.  For example, Adjusted EBITDA, which represents net income before interest income, net and other non-operating expenses, provision for income taxes, depreciation and amortization, stock-based compensation, changes in the fair value of contingent consideration in connection with business acquisitions and other acquisition related costs, and provisions for litigation, is useful as an additional measure of operating performance, and particularly as a measure of comparative operating performance from period to period, as it is reflective of changes in pricing decisions, cost controls and other factors that affect operating performance, and it removes the effect of our capital structure, asset base, income taxes and interest income and expense.  Our management also uses Adjusted EBITDA for planning purposes, including the preparation of our annual operating budget and financial projections.  In addition, for the periods ended September 30, 2015 and for other comparative periods, we are presenting non-GAAP net income and non-GAAP diluted earnings per share, which represent net income and diluted earnings per share, respectively, before provisions for litigation, net of the tax effects of such provisions.  We believe these non-GAAP measures are also useful indicators of our operating performance, and particularly as additional measures of comparative operative performance from period to period as they remove the effects of litigation, which we believe are not reflective of underlying business trends.  We also define the non-GAAP measure of Free Cash Flow as the net cash provided by operating activities, adjusted for the impact of restricted cash, less the cash impact of purchases of property and equipment.  We believe that this financial measure provides meaningful information for evaluating our overall financial performance for comparative periods as it facilitates an assessment of funds available to satisfy current and future obligations and fund acquisitions.  Furthermore, we define the non-GAAP measure of sales and net income on a constant currency basis as the current and prior period sales and net income translated at the same predetermined exchange rate.  We believe that sales and net income on a constant currency basis provides insight to the comparative increase or decrease in period sales and net income, in dollar and percentage terms, excluding the effects of fluctuations in foreign currency exchange rates.

Adjusted EBITDA, non-GAAP net income, non-GAAP diluted earnings per share, Free Cash Flow and sales and net income on a constant currency basis are not calculated in conformity with U.S. GAAP.  Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for financial measures prepared in accordance with U.S. GAAP.  These measures do not include certain expenses that may be necessary to evaluate our liquidity or operating results.  Our definitions of Adjusted EBITDA, non-GAAP net income, non-GAAP diluted earnings per share, Free Cash Flow, and sales and net income on a constant currency basis may differ from that of other companies and therefore may not be comparable.

Safe Harbor Statements

All statements included in this press release other than statements of historical fact are forward-looking statements and may be identified by their use of words such as “believe,” “may,” “might,” “could,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “plan” and other similar terms.  These forward-looking statements are based on our current assumptions, expectations and estimates of future events and trends.  Forward-looking statements are only predictions and are subject to many risks, uncertainties and other factors that may affect our businesses and operations and could cause actual results to differ materially from those predicted.  These risks and uncertainties include, but are not limited to, factors affecting our quarterly results, our ability to manage our growth, our ability to sustain our profitability, demand for our products, our ability to compete successfully (including without limitation our ability to convince surgeons to use our products and our ability to attract and retain sales and other personnel), our ability to rapidly develop and introduce new products, our ability to develop and execute on successful business strategies, our ability to comply with laws and regulations that are or may become applicable to our businesses, our ability to safeguard our intellectual property, our success in defending legal proceedings brought against us, trends in the medical device industry, general economic conditions, and other risks.  For a discussion of these and other risks, uncertainties and other factors that could affect our results, you should refer to the disclosure contained in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission, including the sections labeled “Risk Factors” and “Cautionary Note Concerning Forward-Looking Statements,” and in our Forms 10-Q, Forms 8-K and other filings with the Securities and Exchange Commission.  These documents are available at www.sec.gov.  Moreover, we operate in an evolving environment.  New risk factors and uncertainties emerge from time to time and it is not possible for us to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.  Given these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements.  Forward-looking statements contained in this press release speak only as of the date of this press release.  We undertake no obligation to update any forward-looking statements as a result of new information, events or circumstances or other factors arising or coming to our attention after the date hereof.

GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

 Three Months Ended Nine Months Ended
(In thousands, except per share amounts)September 30,
 2015
 September 30,
 2014
 September 30,
 2015
 September 30,
 2014
Sales$136,992  $117,787  $402,166  $345,570 
Cost of goods sold33,052  27,686  97,738  79,581 
Gross profit103,940  90,101  304,428  265,989 
        
 Operating expenses:       
Research and development9,409  8,146  27,146  23,283 
Selling, general and administrative53,829  46,986  160,624  140,089 
Provision for litigation27  46  433  3,899 
Total operating expenses63,265  55,178  188,203  167,271 
        
Operating income40,675  34,923  116,225  98,718 
Other income/(expense), net253  (124) 347  446 
Income before income taxes40,928  34,799  116,572  99,164 
Income tax provision14,447  11,738  41,389  34,317 
        
Net income$26,481  $23,061  $75,183  $64,847 
        
Earnings per share:       
Basic$0.28  $0.24  $0.79  $0.69 
Diluted$0.28  $0.24  $0.78  $0.68 
Weighted average shares outstanding:       
Basic95,138  94,399  94,970  94,111 
Diluted96,119  95,475  96,026  95,378 


GLOBUS MEDICAL, INC. AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)September 30,
 2015
 December 31, 2014
 (unaudited)  
ASSETS   
Current assets:   
Cash and cash equivalents$50,501  $82,265 
Restricted cash25,385  23,370 
Short-term marketable securities188,101  146,439 
Accounts receivable, net of allowances of $2,224 and $1,647, respectively77,596  75,430 
Inventories105,705  90,945 
Prepaid expenses and other current assets7,107  5,742 
Income taxes receivable7,995  5,772 
Deferred income taxes43,918  40,062 
Total current assets506,308  470,025 
Property and equipment, net of accumulated depreciation of $134,108 and $118,544, respectively106,180  69,475 
Long-term marketable securities61,525  75,347 
Intangible assets, net33,635  34,529 
Goodwill91,964  53,196 
Other assets1,049  975 
Total assets$800,661  $703,547 
    
LIABILITIES AND EQUITY   
Current liabilities:   
Accounts payable$16,358  $15,904 
Accounts payable to related-party  5,359 
Accrued expenses64,169  61,499 
Income taxes payable550  569 
Business acquisition liabilities, current13,342  6,081 
Total current liabilities94,419  89,412 
Business acquisition liabilities, net of current portion20,732  20,195 
Deferred income taxes8,193  5,166 
Other liabilities3,400  3,320 
Total liabilities126,744  118,093 
Commitments and contingencies   
Equity:   
Common stock; $0.001 par value.  Authorized 785,000 shares; issued and outstanding 95,226 and 94,706 shares at September 30, 2015 and December 31, 2014, respectively95  95 
Additional paid-in capital188,603  175,242 
Accumulated other comprehensive loss(1,738) (1,657)
Retained earnings486,957  411,774 
Total equity673,917  585,454 
Total liabilities and equity$800,661  $703,547 


GLOBUS MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

 Nine Months Ended
(In thousands)September 30,
 2015
 September 30,
 2014
Cash flows from operating activities:   
Net income$75,183  $64,847 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization17,669  16,057 
Amortization of premium on marketable securities2,352  2,073 
Write-down for excess and obsolete inventories7,122  5,439 
Stock-based compensation expense6,935  5,211 
Excess tax benefit related to nonqualified stock options(1,973) (4,044)
Allowance for doubtful accounts957  236 
Change in deferred income taxes(4,115) (5,115)
Increase in:   
Restricted cash(2,015)  
Accounts receivable(3,468) (886)
Inventories(16,998) (12,535)
Prepaid expenses and other assets(1,368) (1,325)
Increase/(decrease) in:   
Accounts payable(2,812) (2,253)
Accounts payable to related-party(5,359) 1,289 
Accrued expenses and other liabilities6,042  3,855 
Income taxes payable/receivable(275) 4,378 
Net cash provided by operating activities77,877  77,227 
    
Cash flows from investing activities:   
Purchases of marketable securities(207,407) (161,149)
Maturities of marketable securities131,318  144,207 
Sales of marketable securities46,064  24,028 
Purchases of property and equipment(36,606) (15,659)
Acquisition of businesses, net of cash acquired(48,513)  
Net cash used in investing activities(115,144) (8,573)
    
Cash flows from financing activities:   
Payment of business acquisition liabilities(900) (900)
Proceeds from exercise of stock options4,313  7,644 
Excess tax benefit related to nonqualified stock options1,973  4,044 
Net cash provided by financing activities5,386  10,788 
    
Effect of foreign exchange rate on cash117  45 
    
Net increase/(decrease) in cash and cash equivalents(31,764) 79,487 
Cash and cash equivalents, beginning of period82,265  89,962 
Cash and cash equivalents, end of period$50,501  $169,449 
    
Supplemental disclosures of cash flow information:   
Interest paid9  32 
Income taxes paid$45,955  $36,362 


Supplemental Financial Information 

Sales by Geographic Area:

(Unaudited)Three Months Ended Nine Months Ended
(In thousands)September 30,
 2015
 September 30,
 2014
 September 30,
 2015
 September 30,
 2014
United States$125,670  $106,601  $367,140  $309,937 
International11,322  11,186  35,026  35,633 
Total sales$136,992  $117,787  $402,166  $345,570 


Sales by Product Category:

(Unaudited)Three Months Ended Nine Months Ended
(In thousands)September 30,
 2015
 September 30,
 2014
 September 30,
 2015
 September 30,
 2014
Innovative Fusion$72,490  $67,726  $214,431  $200,356 
Disruptive Technology64,502  50,061  187,735  145,214 
Total sales$136,992  $117,787  $402,166  $345,570 


Liquidity and Capital Resources:

(Unaudited)September 30,
 2015
 December 31,
 2014
(In thousands)   
Cash and cash equivalents$50,501  $82,265 
Short-term marketable securities188,101  146,439 
Long-term marketable securities61,525  75,347 
Total cash, cash equivalents and marketable securities$300,127  $304,051 
    
Available borrowing capacity under revolving credit facility50,000  50,000 
Working capital$411,889  $380,613 


The following tables reconcile GAAP to Non-GAAP financial measures.


Non-GAAP Adjusted EBITDA Reconciliation Table:

(Unaudited)Three Months Ended Nine Months Ended
(In thousands, except percentages)September 30,
 2015
 September 30,
 2014
 September 30,
 2015
 September 30,
 2014
Net income$26,481  $23,061  $75,183  $64,847 
Interest income, net(342) (181) (898) (577)
Provision for income taxes14,447  11,738  41,389  34,317 
Depreciation and amortization6,090  5,373  17,669  16,057 
EBITDA46,676  39,991  133,343  114,644 
Stock-based compensation expense2,266  1,661  6,935  5,211 
Provision for litigation27  46  433  3,899 
Change in fair value of contingent consideration and other acquisition related costs1,550  263  2,864  416 
Adjusted EBITDA$50,519  $41,961  $143,575  $124,170 
Adjusted EBITDA as a percentage of sales36.9% 35.6% 35.7% 35.9%


Non-GAAP Net Income Reconciliation Table:

(Unaudited)Three Months Ended Nine Months Ended
(In thousands)September 30,
 2015
 September 30,
 2014
 September 30,
 2015
 September 30,
 2014
Net income$26,481  $23,061  $75,183  $64,847 
Provision for litigation, net of taxes18  30  279  2,527 
Non-GAAP net income$26,499  $23,091  $75,462  $67,374 


Non-GAAP Diluted Earnings Per Share Reconciliation Table:

(Unaudited)Three Months Ended Nine Months Ended
(Per share amounts)September 30,
 2015
 September 30,
 2014
 September 30,
 2015
 September 30,
 2014
Diluted earnings per share, as reported$0.28  $0.24  $0.78  $0.68 
Provision for litigation, net of taxes    0.01  0.03 
Non-GAAP diluted earnings per share$0.28  $0.24  $0.79  $0.71 


Non-GAAP Free Cash Flow Reconciliation Table:

(Unaudited)Three Months Ended Nine Months Ended
(In thousands)September 30,
 2015
 September 30,
 2014
 September 30,
 2015
 September 30,
 2014
Net cash provided by operating activities$30,046  $35,645  $77,877  $77,227 
Adjustment for impact of restricted cash703    2,015   
Purchases of property and equipment(11,480) (3,428) (36,606) (15,659)
Non-GAAP free cash flow$19,269  $32,217  $43,286  $61,568 


Non-GAAP Sales and Net Income on a Constant Currency Basis Comparative Table:

(Unaudited)Three Months Ended Percent Change
(In thousands, except percentages)September 30,
 2015
 September 30,
 2014
 Reported Constant Currency
United States$125,670  $106,601  17.9% 17.9%
International11,322  11,186  1.2% 14.6%
Total sales$136,992  $117,787  16.3% 17.6%
        
Net Income$26,481  $23,061  14.8% 18.0%


(Unaudited)Nine Months Ended Percent Change
(In thousands, except percentages)September 30,
 2015
 September 30,
 2014
 Reported Constant Currency
United States$367,140  $309,937  18.5% 18.5%
International35,026  35,633  (1.7%) 11.0%
Total sales$402,166  $345,570  16.4% 17.7%
        
Net Income$75,183  $64,847  15.9% 18.4%



        

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