Globus Medical Reports First Quarter 2017 Results

Audubon, Pennsylvania, UNITED STATES


AUDUBON, Pa., May 03, 2017 (GLOBE NEWSWIRE) -- Globus Medical, Inc. (NYSE:GMED), a leading musculoskeletal implant manufacturer, today announced its financial results for the first quarter ended March 31, 2017.

  • Worldwide sales were $155.8 million, an increase of 11.9% as reported, or 12.1% in constant currency
  • First quarter net income was $28.7 million, or 18.4% of sales
  • Diluted earnings per share (EPS) were $0.30
  • Non-GAAP diluted EPS were $0.32
  • Non-GAAP adjusted EBITDA was 37.1% of sales

David Paul, Chairman and CEO said, “Our worldwide sales for the first quarter were $155.8 million, an increase of 11.9% over the first quarter of 2016.  Our adjusted EBITDA margins remained at an outstanding 37.1% and we also delivered non GAAP EPS of $0.32.

“We are very pleased with our performance during the first quarter.  We launched three new spine products, received our first trauma 510(k) clearance, had a strong competitive rep hiring quarter, further expanded our in-house manufacturing capacity, and continued to run an extremely efficient organization with best in class adjusted EBITDA margins.  We 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.”

First quarter sales in the U.S. increased by 1.6% compared to the first quarter of 2016.  International sales increased by 123.4% over the first quarter of 2016 on an as reported basis and 126.5% on a constant currency basis due to the Alphatec acquisition included in the first quarter of 2017.  Sales from the Alphatec acquisition contributed $15.2 million in the quarter. 

First quarter GAAP net income was $28.7 million, an increase of 2.5% over the same period last year.  Diluted EPS for the first quarter was $0.30, as compared to $0.29 for the first quarter 2016.  Non-GAAP diluted EPS for the first quarter was $0.32, compared to $0.30 in the first quarter of 2016.

The company generated net cash provided by operating activities of $53.4 million and non-GAAP free cash flow of $41.9 million in the first quarter.  Cash, cash equivalents and marketable securities ended the quarter at $389.2 million.  The company remains debt free.

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

Conference Call Information
Globus Medical will hold a teleconference to discuss its 2017 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:

1-855-533-7141  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 Wednesday, May 9, 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, provision for litigation, 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 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.

In addition, for the period ended March 31, 2017 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 and the tax effects of such adjustments.  The tax impact of these non-GAAP adjustments is calculated based on the consolidated effective tax rate on a GAAP basis, applied to the non-GAAP adjustments, unless the underlying item has a materially different tax treatment, in which case the estimated tax rate applicable to the adjustment is used.  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, and the tax effects of such adjustments, which we believe are not reflective of underlying business trends.  Additionally, for the periods ended March 31, 2017 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 liquidity 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 within the meaning of Item 10(e) of Regulation S-K.  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
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 
 Three Months Ended
(In thousands, except per share amounts)March 31,
 2017
 March 31,
 2016
Sales$155,809  $139,264 
Cost of goods sold35,600  31,519 
Gross profit120,209  107,745 
    
Operating expenses:   
Research and development10,666  10,030 
Selling, general and administrative67,059  53,798 
Amortization of intangibles1,782  392 
Acquisition related costs388  674 
Total operating expenses79,895  64,894 
    
Operating income40,314  42,851 
Other income, net2,100  760 
Income before income taxes42,414  43,611 
Income tax provision13,700  15,601 
    
Net income$28,714  $28,010 
    
Earnings per share:   
Basic$0.30  $0.29 
Diluted$0.30  $0.29 
Weighted average shares outstanding:   
Basic95,996  95,398 
Diluted97,148  96,293 


GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In thousands, except par value)March 31,
2017
 December 31,
2016
    
ASSETS(unaudited)  
Current assets:   
Cash and cash equivalents$182,435  $132,639 
Restricted cash477  477 
Short-term marketable securities143,663  157,673 
Accounts receivable, net of allowances of $3,627 and $2,771, respectively94,232  91,983 
Inventories113,037  112,692 
Prepaid expenses and other current assets7,008  14,502 
Income taxes receivable47  3,800 
Total current assets540,899  513,766 
Property and equipment, net of accumulated depreciation of $173,890 and $166,711, respectively124,840  124,229 
Long-term marketable securities63,066  60,444 
Note receivable30,000  30,000 
Intangible assets, net61,343  61,706 
Goodwill106,215  105,926 
Other assets954  928 
Deferred income taxes33,104  30,638 
Total assets$960,421  $927,637 
    
LIABILITIES AND EQUITY   
Current liabilities:   
Accounts payable$17,013  $17,472 
Accrued expenses37,409  46,401 
Income taxes payable11,708  1,911 
Business acquisition liabilities, current9,239  14,108 
Total current liabilities75,369  79,892 
Business acquisition liabilities, net of current portion6,087  5,972 
Deferred income taxes8,261  7,876 
Other liabilities1,819  1,819 
Total liabilities91,536  95,559 
Commitments and contingencies   
Equity:   
Common stock; $0.001 par value.  Authorized 785,000 shares; issued and outstanding 96,077 and 95,930 shares at March 31, 2017 and December 31, 2016, respectively96  96 
Additional paid-in capital217,257  211,725 
Accumulated other comprehensive loss(6,081) (8,642)
Retained earnings657,613  628,899 
Total equity868,885  832,078 
Total liabilities and equity$960,421  $927,637 



GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 Three Months Ended
(In thousands)March 31,
 2017
 March 31,
 2016
Cash flows from operating activities:   
Net income$28,714  $28,010 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization12,240  6,676 
Amortization of premium on marketable securities1,008  953 
Write-down for excess and obsolete inventories1,671  2,225 
Stock-based compensation expense3,491  2,770 
Allowance for doubtful accounts794  88 
Change in fair value of contingent consideration478   
Change in deferred income taxes(2,399) 391 
(Increase)/decrease in:   
Restricted cash  15,668 
Accounts receivable(2,225) 2,201 
Inventories(2,102) (2,252)
Prepaid expenses and other assets8,628  1,209 
Increase/(decrease) in:   
Accounts payable(172) (1,238)
Accrued expenses and other liabilities(10,170) (15,661)
Income taxes payable/receivable13,493  14,517 
Net cash provided by operating activities53,449  55,557 
    
Cash flows from investing activities:   
Purchases of marketable securities(51,215) (104,208)
Maturities of marketable securities55,280  69,656 
Sales of marketable securities6,505  7,798 
Purchases of property and equipment(11,533) (9,366)
Net cash used in investing activities(963) (36,120)
    
Cash flows from financing activities:   
Payment of business acquisition liabilities(5,001) (300)
Proceeds from exercise of stock options1,990  1,895 
Net cash (used in)/provided by financing activities(3,011) 1,595 
    
Effect of foreign exchange rate on cash321  91 
    
Net increase in cash and cash equivalents49,796  21,123 
Cash and cash equivalents, beginning of period132,639  60,152 
Cash and cash equivalents, end of period$182,435  $81,275 
    
Supplemental disclosures of cash flow information:   
Interest paid8  1 
Income taxes paid$2,656  $774 



Supplemental Financial Information
 
Sales by Geographic Area:
 
(Unaudited)Three Months Ended
(In thousands)March 31,
 2017
 March 31,
 2016
United States$129,663  $127,560 
International26,146  11,704 
Total sales$155,809  $139,264 


Sales by Product Category:
 
(Unaudited)Three Months Ended
(In thousands)March 31,
 2017
 March 31,
 2016
Innovative Fusion$81,872  $70,046 
Disruptive Technology73,937  69,218 
Total sales$155,809  $139,264 


Liquidity and Capital Resources:
 
(Unaudited)March 31,
 2017
 December 31,
 2016
(In thousands)   
Cash and cash equivalents$182,435  $132,639 
Short-term marketable securities143,663  157,673 
Long-term marketable securities63,066  60,444 
Total cash, cash equivalents and marketable securities$389,164  $350,756 
    
Available borrowing capacity under revolving credit facility50,000  50,000 
Working capital$465,530  $433,874 


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,
 2017
 March 31,
 2016
Net income$28,714  $28,010 
Interest income, net(1,418) (496)
Provision for income taxes13,700  15,601 
Depreciation and amortization12,240  6,676 
EBITDA53,236  49,791 
Stock-based compensation expense3,491  2,770 
Acquisition related costs1,086  674 
Adjusted EBITDA$57,813  $53,235 
    
Net income as a percentage of sales18.4% 20.1%
Adjusted EBITDA as a percentage of sales37.1% 38.2%


Non-GAAP Net Income Reconciliation Table:
 
(Unaudited)Three Months Ended
(In thousands)March 31,
 2017
 March 31,
 2016
Net income$28,714  $28,010 
Amortization of intangibles1,782  392 
Acquisition related costs1,086  674 
Tax effect of adjusting items(926) (382)
Non-GAAP net income$30,656  $28,694 


Non-GAAP Diluted Earnings Per Share Reconciliation Table:
 
(Unaudited)Three Months Ended
(Per share amounts)March 31,
 2017
 March 31,
 2016
Diluted earnings per share, as reported$0.30  $0.29 
Amortization of intangibles0.02   
Acquisition related costs0.01  0.01 
Tax effect of adjusting items(0.01)  
Non-GAAP diluted earnings per share$0.32  $0.30 


Non-GAAP Free Cash Flow Reconciliation Table:
 
(Unaudited)Three Months Ended
(In thousands)March 31,
 2017
 March 31,
 2016
Net cash provided by operating activities$53,449  $55,557 
Adjustment for impact of restricted cash  (15,668)
Purchases of property and equipment(11,533) (9,366)
Non-GAAP free cash flow$41,916  $30,523 


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)March 31,
 2017
 March 31,
 2016
   
United States$129,663  $127,560  1.6%   1.6%
International26,146  11,704  123.4% $(364) 126.5%
Total sales$155,809  $139,264  11.9% $(364) 12.1%

 


        

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