Globus Medical Reports Full Year and Fourth Quarter 2016 Results

Audubon, Pennsylvania, UNITED STATES


AUDUBON, Pa., Feb. 27, 2017 (GLOBE NEWSWIRE) -- Globus Medical, Inc. (NYSE:GMED), a leading musculoskeletal implant manufacturer, today announced its financial results for the fourth quarter and year ended December 31, 2016.

Fourth Quarter:

  • Worldwide sales increased 6.3% as reported to $151.6 million, or an increase of 6.5% on a constant currency basis
  • Fourth quarter net income was $24.3 million, or 16.0% of sales
  • Diluted earnings per share (EPS) were $0.25 
  • Non-GAAP diluted EPS were $0.31 
  • Non-GAAP adjusted EBITDA was 37.7% of sales

Full Year 2016:

  • Worldwide sales increased 3.5% as reported to $564.0 million, or an increase of 3.8% on a constant currency basis
  • Net income for the year was $104.3 million, or 18.5% of sales
  • Diluted EPS were $1.08 
  • Non-GAAP diluted EPS were $1.19 
  • Non-GAAP adjusted EBITDA was 37.4% of sales

David Paul, Chairman and CEO said, “Fourth quarter sales were $151.6 million, a year-over-year increase of 6.3%.  Despite our increased spending in support of our pending robotics and trauma launches, our adjusted EBITDA margins was an outstanding 37.7%.  We also delivered EPS of $0.25 and non GAAP EPS of $0.31.

"During the fourth quarter, we continued to make progress with product development, sales force development and integration of Alphatec's international business.  We also further expanded our in-house manufacturing capacity.  We are proud of our innovation and product development efforts, which resulted in a total of 17 new product launches in 2016.  We have addressed our sales force expansion challenges and are optimistic that we will return to more robust growth rates in the second half of 2017. We also remain confident in our long-term growth prospects and our ability to sustain industry-leading profitability by continuing to execute on our strategy of rapid product introduction, expansion of our U.S. and international sales footprints, and diligent expense control.”

Fourth quarter sales in the U.S. decreased by 2.7% compared to the fourth quarter of 2015, primarily due to one less selling day in the fourth quarter of 2016.  International sales increased by 109.0% over the fourth quarter of 2015 on an as reported basis and 111.8% on a constant currency basis.

Fourth quarter GAAP net income was $24.3 million, a decrease of 35.4% over the same period last year resulting from the one-time positive net income impact of $7.6 million in 2015 due to the settlement of outstanding litigation.  Diluted EPS for the fourth quarter was $0.25, as compared to $0.39 for the fourth quarter 2015.  Non-GAAP diluted EPS, which removes the impact of this litigation and acquisition related expenses, for the fourth quarter was $0.31, compared to $0.32 in the fourth quarter of 2015.

The company generated net cash provided by operating activities of $51.9 million and non-GAAP free cash flow of $37.7 million in the fourth quarter.  Cash, cash equivalents and marketable securities ended the quarter at $350.8 million.  The company remains debt free.

The company plans to request an extension to file its Annual Report on Form 10-K for the fiscal year ended December 31, 2016 by filing Form 12b-25, Notification of Late Filing with the Securities and Exchange Commission.  The company concluded it is not able to compile all information necessary to complete its Form 10-K by March 1, 2017 without unreasonable effort or expense.  The company anticipates filing its Form 10-K for the fiscal year ended December 31, 2016 within the extension period.

2017 Annual Guidance
The company projects 2017 full year sales of $625 million and and non-GAAP fully diluted earnings per share of $1.27.

Conference Call Information
Globus Medical will hold a teleconference to discuss its 2016 fourth quarter and full year 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.

The call will be archived until Monday, March 6, 2017.  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 6940-2658.

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, non-GAAP 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, provisions for litigation, technology in-licensing fee, and acquisition related costs, 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 non-GAAP adjusted EBITDA for planning purposes, including the preparation of our annual operating budget and financial projections.  Provision for litigation represents costs incurred for litigation settlements or unfavorable verdicts when the loss is known or considered probable and the amount can be reasonably estimated, or in the case of a favorable settlement, when income is realized.  Acquisition related costs/licensing represents the change in fair value of business acquisition related contingent consideration; costs related to integrating recently acquired businesses including but not limited to costs to exit or convert contractual obligations, severance, and information system conversion; and specific costs related to the consummation of the acquisition process such as banker fees, legal fees, and other acquisition related professional fees, as well as one time licensing fees.

In addition, for the period ended December 31, 2016 and for other comparative periods, we are presenting non-GAAP net income and non-GAAP diluted earnings per share, which represents net income and diluted earnings per share excluding the provision for litigation, amortization of intangibles, acquisition related costs/licensing, prior period adjustment and the tax effects of such adjustments.  Prior period adjustments represent the cumulative impact of prior year adjustments related to depreciation, scrap and provision for excess and obsolete inventory, none of which were individually material to the related year's financial position or results of operations.  We believe these non-GAAP measures are also useful indicators of our operating performance, and particularly as additional measures of comparative operating performance from period to period as they remove the effects of litigation, amortization of intangibles, acquisition related costs/licensing, prior period adjustments and the tax effects of such adjustments, which we believe are not reflective of underlying business trends.  Additionally, for the periods ended December 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, the non-GAAP measure of constant currency sales growth is calculated by translating current year sales at the same average exchange rates in effect during the applicable prior year period.  We believe constant currency sales growth 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.

Non-GAAP adjusted EBITDA, non-GAAP net income, non-GAAP diluted earnings per share, free cash flow and constant currency sales growth 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 non-GAAP adjusted EBITDA, non-GAAP net income, non-GAAP diluted earnings per share, free cash flow and constant currency sales growth may differ from that of other companies and therefore may not be comparable.  Additionally, we have recast prior periods for non-GAAP net income and non-GAAP diluted earnings per share.

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 successfully integrate the international operations acquired from Alphatec, both in general and on our anticipated timeline, our ability to transition Alphatec’s international customers to Globus products, our ability to realize the expected benefits to our results from the Alphatec acquisition, 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 Year Ended
(In thousands, except per share amounts)December 31,
 2016
 December 31,
 2015
 December 31,
 2016
 December 31,
 2015
Sales$151,590  $142,587  $563,994  $544,753 
Cost of goods sold39,002  34,940  134,705  132,333 
Gross profit112,588  107,647  429,289  412,420 
        
Operating expenses:       
Research and development13,643  9,672  44,532  36,312 
Selling, general and administrative60,839  52,802  222,156  210,241 
Provision for litigation100  (11,701) 3,156  (11,268)
Amortization of intangibles1,805  389  3,478  1,561 
Acquisition related costs479  488  1,826  3,352 
Total operating expenses76,866  51,650  275,148  240,198 
        
Operating income35,722  55,997  154,141  172,222 
Other income, net755  236  3,138  583 
Income before income taxes36,477  56,233  157,279  172,805 
Income tax provision12,179  18,632  52,938  60,021 
        
Net income$24,298  $37,601  $104,341  $112,784 
        
Earnings per share:       
Basic$0.25  $0.39  $1.09  $1.19 
Diluted$0.25  $0.39  $1.08  $1.17 
Weighted average shares outstanding:       
Basic95,862  95,273  95,647  95,046 
Diluted96,513  96,214  96,432  96,073 


GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
(In thousands, except par value)December 31, 2016 December 31, 2015
    
ASSETS(unaudited)  
Current assets:   
Cash and cash equivalents$132,639  $60,152 
Restricted cash477  26,119 
Short-term marketable securities157,673  220,877 
Accounts receivable, net of allowances of $2,771 and $2,513, respectively91,983  77,681 
Inventories112,692  105,260 
Prepaid expenses and other current assets14,502  7,351 
Income taxes receivable3,800  8,672 
Deferred income taxes  38,687 
Total current assets513,766  544,799 
Property and equipment, net of accumulated depreciation of $166,711 and $139,144, respectively124,229  114,743 
Long-term marketable securities60,444  48,762 
Note receivable30,000   
Intangible assets, net61,706  33,242 
Goodwill105,926  91,964 
Other assets928  590 
Deferred income taxes30,638   
Total assets$927,637  $834,100 
    
LIABILITIES AND EQUITY   
Current liabilities:   
Accounts payable$17,472  $15,971 
Accrued expenses46,401  53,769 
Income taxes payable1,911  763 
Business acquisition liabilities, current14,108  12,188 
Total current liabilities79,892  82,691 
Business acquisition liabilities, net of current portion5,972  21,126 
Deferred income taxes7,876  13,260 
Other liabilities1,819  1,699 
Total liabilities95,559  118,776 
Commitments and contingencies   
Equity:   
Common stock; $0.001 par value. Authorized 785,000 shares; issued and outstanding 95,930 and 95,320 shares at December 31, 2016 and December 31, 2015, respectively96  95 
Additional paid-in capital211,725  192,629 
Accumulated other comprehensive loss(8,642) (1,958)
Retained earnings628,899  524,558 
Total equity832,078  715,324 
Total liabilities and equity$927,637  $834,100 


GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 Year Ended
(In thousands)December 31,
 2016
 December 31,
 2015
Cash flows from operating activities:   
Net income$104,341  $112,784 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization38,771  24,084 
Amortization of premium on marketable securities4,068  3,354 
Write-down for excess and obsolete inventories12,836  9,924 
Stock-based compensation expense11,382  9,639 
Excess tax benefit related to nonqualified stock options(1,571) (2,050)
Allowance for doubtful accounts685  1,465 
Change in fair value of contingent consideration2,866  3,118 
Non-cash settlement of accrued expenses(4,632) (8,405)
Impairment of intangible assets3,472   
Change in deferred income taxes(3,810) 6,235 
(Increase)/decrease in:   
Restricted cash25,641  (2,749)
Accounts receivable(4,668) (4,193)
Inventories(10,503) (19,327)
Prepaid expenses and other assets4,568  (1,203)
Increase/(decrease) in:   
Accounts payable(23) (3,825)
Accounts payable to related-party  (5,359)
Accrued expenses and other liabilities(18,164) (878)
Income taxes payable/receivable6,634  (657)
Net cash provided by operating activities171,893  121,957 
    
Cash flows from investing activities:   
Purchases of marketable securities(287,263) (297,707)
Maturities of marketable securities281,885  188,702 
Sales of marketable securities52,802  57,728 
Purchases of property and equipment(40,909) (50,760)
Issuance of note receivable(30,000)  
Acquisition of businesses, net of cash acquired(76,068) (48,513)
Net cash used in investing activities(99,553) (150,550)
    
Cash flows from financing activities:   
Payment of business acquisition liabilities(5,404) (1,200)
Proceeds from exercise of stock options5,874  5,477 
Excess tax benefit related to nonqualified stock options1,571  2,050 
Net cash provided by financing activities2,041  6,327 
    
Effect of foreign exchange rate on cash(1,894) 153 
    
Net increase/(decrease) in cash and cash equivalents72,487  (22,113)
Cash and cash equivalents, beginning of period60,152  82,265 
Cash and cash equivalents, end of period$132,639  $60,152 
    
Supplemental disclosures of cash flow information:   
Interest paid35  9 
Income taxes paid$50,087  $57,100 


Supplemental Financial Information
 
Sales by Geographic Area:
    
(Unaudited)Three Months Ended Year Ended
(In thousands)December 31,
 2016
 December 31,
 2015
 December 31,
 2016
 December 31,
 2015
United States$127,477  $131,051  $500,226  $498,191 
International24,113  11,536  63,768  46,562 
Total sales$151,590  $142,587  $563,994  $544,753 


Sales by Product Category:
 
(Unaudited)Three Months Ended Year Ended
(In thousands)December 31,
 2016
 December 31,
 2015
 December 31,
 2016
 December 31,
 2015
Innovative Fusion$79,609  $73,631  $287,594  $288,062 
Disruptive Technology71,981  68,956  276,400  256,691 
Total sales$151,590  $142,587  $563,994  $544,753 


Liquidity and Capital Resources:
 
(Unaudited)December 31, 2016 December 31, 2015
(In thousands)   
Cash and cash equivalents$132,639  $60,152 
Short-term marketable securities157,673  220,877 
Long-term marketable securities60,444  48,762 
Total cash, cash equivalents and marketable securities$350,756  $329,791 
    
Available borrowing capacity under revolving credit facility50,000  50,000 
Working capital$433,874  $462,108 
        

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

 
Non-GAAP Adjusted EBITDA Reconciliation Table:
 
(Unaudited)Three Months Ended Year Ended
(In thousands, except percentages)December 31,
 2016
 December 31,
 2015
 December 31,
 2016
 December 31,
 2015
Net income$24,298  $37,601  $104,341  $112,784 
Interest income, net(1,164) (406) (3,057) (1,304)
Provision for income taxes12,179  18,632  52,938  60,021 
Depreciation and amortization17,235  6,415  38,771  24,084 
EBITDA52,548  62,242  192,993  195,585 
Stock-based compensation expense2,945  2,704  11,382  9,639 
Provision for litigation100  (11,701) 3,156  (11,268)
Acquisition related costs/licensing5,280  488  6,931  3,577 
Prior period adjustment, excluding depreciation(3,697)   (3,697)  
Adjusted EBITDA$57,176  $53,733  $210,765  $197,533 
        
Net income as a percentage of sales16.0% 26.4% 18.5% 20.7%
Adjusted EBITDA as a percentage of sales37.7% 37.7% 37.4% 36.3%


Non-GAAP Net Income Reconciliation Table:
 
(Unaudited)Three Months Ended Year Ended
(In thousands)December 31,
 2016
 December 31,
 2015
 December 31,
 2016
 December 31,
 2015
Net income$24,298  $37,601  $104,341  $112,784 
Provision for litigation100  (11,701) 3,156  (11,268)
Amortization of intangibles1,805  389  3,478  1,561 
Acquisition related costs/licensing5,280  488  6,931  3,577 
Prior period adjustment1,765    1,765   
Tax effect of adjusting items(3,054) 3,803  (5,166) 2,127 
Non-GAAP net income$30,194  $30,580  $114,505  $108,781 


Non-GAAP Diluted Earnings Per Share Reconciliation Table:
 
(Unaudited)Three Months Ended Year Ended
(Per share amounts)December 31,
 2016
 December 31,
 2015
 December 31,
 2016
 December 31,
 2015
Diluted earnings per share, as reported$0.25  $0.39  $1.08  $1.17 
Provision for litigation  (0.12) 0.03  (0.12)
Amortization of intangibles0.02    0.04  0.02 
Acquisition related costs/licensing0.05  0.01  0.07  0.04 
Prior period adjustment0.02    0.02   
Tax effect of adjusting items(0.03) 0.04  (0.05) 0.02 
Non-GAAP diluted earnings per share$0.31  $0.32  $1.19  $1.13 


Non-GAAP Free Cash Flow Reconciliation Table:
 
(Unaudited)Three Months Ended Year Ended
(In thousands)December 31,
 2016
 December 31,
 2015
 December 31,
 2016
 December 31,
 2015
Net cash provided by operating activities$51,896  $44,080  $171,893  $121,957 
Adjustment for impact of restricted cash1  734  (25,641) 2,749 
Purchases of property and equipment(14,208) (14,154) (40,909) (50,760)
Non-GAAP free cash flow$37,689  $30,660  $105,343  $73,946 


Non-GAAP Sales on a Constant Currency Basis Comparative Table:
 
(Unaudited)Three Months Ended Reported Growth Currency Impact on Current Period Constant Currency Growth
(In thousands, except percentages)December 31,
 2016
 December 31,
 2015
   
United States$127,477  $131,051  (2.7)%   (2.7)%
International24,113  11,536  109.0% $(326) 111.8%
Total sales$151,590  $142,587  6.3% $(326) 6.5%


(Unaudited)Year Ended Reported Growth Currency Impact on Current Period Constant Currency Growth
(In thousands, except percentages)December 31,
 2016
 December 31,
 2015
   
United States$500,226  $498,191  0.4%   0.4%
International63,768  46,562  37.0% $(1,594) 40.4%
Total sales$563,994  $544,753  3.5% $(1,594) 3.8%


 


        

Coordonnées