Globus Medical Reports First Quarter 2016 Results

Audubon, Pennsylvania, UNITED STATES


AUDUBON, Pa., May 03, 2016 (GLOBE NEWSWIRE) -- Globus Medical, Inc. (NYSE:GMED), a leading musculoskeletal implant manufacturer, today announced its financial results for the first quarter ended March 31, 2016.

  • Worldwide sales increased 5.8% as reported to $139.3 million, or 6.2% on a constant currency basis
  • First quarter net income increased 13.6% to $28.0 million
  • Fully diluted earnings per share (EPS) increased 13.2% to $0.29
  • Non-GAAP Adjusted EBITDA was 38.2% of sales
  • Company reiterates 2016 guidance for sales of $583 million and EPS of $1.20

David Paul, Chairman and CEO said, “First quarter sales were $139.3 million, a year-over-year increase of roughly 6%.  The Globus team continued to take market share while maintaining industry leading profitability, with quarterly EPS of $0.29, which was 13.2% higher than the same quarter last year.  Our non-GAAP Adjusted EBITDA for the quarter was 38.2% of sales, compared to 35.2% in the first quarter of 2015, marking the eighth consecutive year of mid-thirties EBITDA margin.  During the first quarter, we also launched 6 new products and made further progress 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.”

First quarter sales in the U.S. grew by 6.3% over the first quarter of 2015.  International sales increased by 0.7% over the first quarter of 2015 on an as reported basis and 5.3% on a constant currency basis. 

First quarter net income was $28.0 million, an increase of 13.6% over the same period last year.  Fully diluted EPS for the first quarter was $0.29, as compared to $0.26 for the first quarter 2015. 

The company generated non-GAAP free cash flow of $30.0 million in the first quarter.  Cash, cash equivalents and marketable securities ended the quarter at $377.1 million.  The company remains debt free.

2016 Annual Guidance
The company today reiterated guidance for full year 2016 sales of approximately $583 million and earnings per share of approximately $1.20.

Conference Call Information
Globus Medical will hold a teleconference to discuss its 2016 first 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:

1-855-533-7141United 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, May 17, 2016.  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 9354-8448.

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 March 31, 2016 and for other comparative periods, 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 on a constant currency basis as the current and prior period sales translated at the same predetermined exchange rate.  We believe that sales on a constant currency basis provides insight to the comparative increase or decrease in period sales, in dollar and percentage terms, excluding the effects of fluctuations in foreign currency exchange rates.

Adjusted EBITDA, Free Cash Flow and sales 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, Free Cash Flow, and sales 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
(In thousands, except per share amounts)  March 31,
 2016
 March 31,
 2015
Sales$139,264  $131,604 
Cost of goods sold31,644  32,107 
Gross profit107,620  99,497 
    
Operating expenses:   
Research and development10,199  8,656 
Selling, general and administrative54,570  52,289 
Provision for litigation  32 
Total operating expenses64,769  60,977 
    
Operating income42,851  38,520 
Other income/(expense), net760  (347)
Income before income taxes43,611  38,173 
Income tax provision15,601  13,525 
    
Net income$28,010  $24,648 
    
Earnings per share:   
Basic$0.29  $0.26 
Diluted$0.29  $0.26 
Weighted average shares outstanding:   
Basic95,398  94,788 
Diluted96,293  95,905 
      


 
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
 
(In thousands, except par value)March 31,
 2016
 December 31,
2015
    
ASSETS   
Current assets:   
Cash and cash equivalents$81,275  $60,152 
Restricted cash10,451  26,119 
Short-term marketable securities236,856  220,877 
Accounts receivable, net of allowances of $2,563 and $2,513, respectively75,527  77,681 
Inventories105,147  105,260 
Prepaid expenses and other current assets5,961  7,351 
Income taxes receivable281  8,672 
Deferred income taxes  38,687 
Total current assets515,498  544,799 
Property and equipment, net of accumulated depreciation of $145,642 and $139,144, respectively115,105  114,743 
Long-term marketable securities58,943  48,762 
Intangible assets, net32,849  33,242 
Goodwill91,964  91,964 
Other assets306  590 
Deferred income taxes25,323   
Total assets$839,988  $834,100 
    
LIABILITIES AND EQUITY   
Current liabilities:   
Accounts payable$12,124  $15,971 
Accrued expenses42,190  53,769 
Income taxes payable6,390  763 
Business acquisition liabilities, current11,633  12,188 
Total current liabilities72,337  82,691 
Business acquisition liabilities, net of current portion17,056  21,126 
Deferred income taxes  13,260 
Other liabilities1,710  1,699 
Total liabilities91,103  118,776 
Commitments and contingencies   
Equity:   
Common stock; $0.001 par value.  Authorized 785,000 shares; issued and outstanding 95,498 and 95,320 shares at March 31, 2016 and December 31, 2015, respectively  95  95 
Additional paid-in capital197,875  192,629 
Accumulated other comprehensive loss(1,653) (1,958)
Retained earnings552,568  524,558 
Total equity748,885  715,324 
Total liabilities and equity$839,988  $834,100 
        



 
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 Three Months Ended
(In thousands)March 31,
 2016
 March 31,
 2015
Cash flows from operating activities:   
Net income$28,010  $24,648 
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation and amortization6,676  5,674 
Amortization of premium on marketable securities953  640 
Write-down for excess and obsolete inventories2,225  2,529 
Stock-based compensation expense2,770  2,131 
Excess tax benefit related to nonqualified stock options(510) (684)
Allowance for doubtful accounts88  47 
Change in deferred income taxes391  (2,217)
(Increase)/decrease in:   
Restricted cash15,668   
Accounts receivable2,201  1,888 
Inventories(2,252) (7,361)
Prepaid expenses and other assets1,209  896 
Increase/(decrease) in:   
Accounts payable(1,238) 835 
Accounts payable to related-party  (5,359)
Accrued expenses and other liabilities(15,661) (3,904)
Income taxes payable/receivable14,517  14,907 
Net cash provided by operating activities55,047  34,670 
    
Cash flows from investing activities:   
Purchases of marketable securities(104,208) (72,874)
Maturities of marketable securities69,656  64,574 
Sales of marketable securities7,798  19,764 
Purchases of property and equipment(9,366) (7,228)
Acquisition of businesses, net of cash acquired  (48,015)
Net cash used in investing activities(36,120) (43,779)
    
Cash flows from financing activities:   
Payment of business acquisition liabilities(300) (300)
Proceeds from exercise of stock options1,895  1,425 
Excess tax benefit related to nonqualified stock options510  684 
Net cash provided by financing activities2,105  1,809 
    
Effect of foreign exchange rate on cash91  41 
    
Net decrease in cash and cash equivalents21,123  (7,259)
Cash and cash equivalents, beginning of period60,152  82,265 
Cash and cash equivalents, end of period$81,275  $75,006 
    
Supplemental disclosures of cash flow information:   
Interest paid1   
Income taxes paid$774  $509 
        



 
Supplemental Financial Information
 
Sales by Geographic Area:
 
(Unaudited)Three Months Ended
(In thousands)                                    March 31,
 2016
 March 31,
 2015
United States$127,560  $119,983 
International11,704  11,621 
Total sales$139,264  $131,604 
        


 
Sales by Product Category:
 
(Unaudited)Three Months Ended
(In thousands)March 31,
 2016
 March 31,
 2015
Innovative Fusion$70,046  $70,370 
Disruptive Technology                      69,218  61,234 
Total sales$139,264  $131,604 
        


 
Liquidity and Capital Resources:
 
(Unaudited)March 31,
 2016
 December 31,
 2015
(In thousands)   
Cash and cash equivalents$81,275  $60,152 
Short-term marketable securities236,856  220,877 
Long-term marketable securities58,943  48,762 
Total cash, cash equivalents and marketable securities$377,074  $329,791 
    
Available borrowing capacity under revolving credit facility  50,000  50,000 
Working capital$443,161  $462,108 
        

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

 
Non-GAAP Adjusted EBITDA Reconciliation Table:
 
(Unaudited)Three Months Ended
(In thousands, except percentages)March 31,
 2016
 March 31,
 2015
Net income$28,010  $24,648 
Interest income, net(496) (278)
Provision for income taxes15,601  13,525 
Depreciation and amortization6,676  5,674 
EBITDA49,791  43,569 
Stock-based compensation expense2,770  2,131 
Provision for litigation  32 
Change in fair value of contingent consideration and other acquisition related costs  674  584 
Adjusted EBITDA$53,235  $46,316 
Adjusted EBITDA as a percentage of sales38.2% 35.2%
      


 
Non-GAAP Free Cash Flow Reconciliation Table:
 
(Unaudited)Three Months Ended
(In thousands)March 31,
 2016
 March 31,
 2015
Net cash provided by operating activities  $55,047  $34,670 
Adjustment for impact of restricted cash(15,668)  
Purchases of property and equipment(9,366) (7,228)
Non-GAAP free cash flow$30,013  $27,442 
        


 
Non-GAAP Sales on a Constant Currency Basis Comparative Table:
 
(Unaudited)Three Months Ended Percent Change
(In thousands, except percentages)  March 31,
 2016
 March 31,
 2015
 Reported Constant
Currency
United States$127,560  $119,983  6.3% 6.3%
International11,704  11,621  0.7% 5.3%
Total sales$139,264  $131,604  5.8% 6.2%
              

 


        

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