Globus Medical Reports First Quarter 2020 Results

Audubon, Pennsylvania, UNITED STATES


AUDUBON, Pa., May 07, 2020 (GLOBE NEWSWIRE) -- Globus Medical, Inc. (NYSE: GMED), a leading musculoskeletal solutions company, today announced its financial results for the first quarter ended March 31, 2020.

  • Worldwide sales were $190.6 million, an increase of 4.2% as reported
  • First quarter net income was $25.9 million
  • Diluted earnings per share (EPS) was $0.25 and non-GAAP diluted EPS was $0.29
  • Non-GAAP adjusted EBITDA was 26.5% of sales

“The COVID-19 pandemic presents one of the greatest healthcare challenges we have faced in recent history. We remain diligent in our commitment to protect the health of our people, support our surgeons and patients in need, and keep our company strong,” said Dave Demski, President and CEO. As we chart a course through this extraordinary and challenging time together, we have been heartened at every turn by the understanding, cooperation and support from so many people in the Globus Medical community. We are deeply thankful to our employees, their families, surgeons, suppliers and other parties for pulling together under such trying and fluid circumstances. Globus Medical continues to work closely with federal, state and local authorities to ensure alignment with their efforts.

“Our conservative financial philosophy has positioned us well to ride out this difficult time without having to reduce our commitment to any important long-term growth initiatives. We launched three new Spine products in the first quarter, and launched two additional innovative products in April. We are seeing great uptake from several products in our HEDRON line of 3D printed interbody spacers, the most comprehensive portfolio of 3D printed spacers in the industry. During the quarter, we also launched SABLE, our fourth generation expandable MIS TLIF interbody spacer that was met with strong demand and great feedback. We look forward to bringing additional innovation to market in coming quarters as well,” said Demski.

Worldwide sales for the first quarter were $190.6 million, an increase of 4.2% over the first quarter of 2019 on an as-reported basis and 4.4% on a constant currency basis. We estimate the negative sales impact of COVID-19 to be approximately $20 million in the quarter. First quarter sales in the U.S., including robotics, increased by 7.4% compared to the first quarter of 2019. International sales decreased by 9.3% over the first quarter of 2019 on an as-reported basis and 8.3% on a constant currency basis.

First quarter GAAP net income was $25.9 million, a decrease of 21.9% over the same period last year. Diluted EPS for the first quarter was $0.25, as compared to $0.33 for the first quarter 2019. Non-GAAP diluted EPS for the first quarter was $0.29, compared to $0.36 in the first quarter of 2019, a decrease of 18.9%.

The Company generated net cash provided by operating activities of $42.3 million and non-GAAP free cash flow of $20.0 million in the first quarter, and ended the quarter with cash, cash equivalents and marketable securities of $657.0 million. The Company remains debt free.

2020 Annual Guidance

On April 16, 2020, due to the rapidly evolving environment and continued uncertainties resulting from the COVID-19 pandemic, Globus Medical withdrew previously announced full year 2020 guidance. At this time, Globus Medical cannot predict the specific extent, or duration, of the impact of COVID-19 on its financial and operating results.

Conference Call Information

Globus Medical will hold a teleconference to discuss its 2020 first quarter results with the investment community at 4:30 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 www.globusmedical.com/investors.

The call will be archived until Thursday, May 14, 2020. 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 209-4398.

About Globus Medical, Inc.

Based in Audubon, Pennsylvania, Globus Medical, Inc. 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. Additional information can be accessed at www.globusmedical.com.

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, and acquisition related costs/licensing, and net gain from the sale of assets, 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. Net gain from sale of assets represents the gain on sale of assets and the offsetting impact of costs incurred through the sale.

In addition, for the period ended March 31, 2020 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 excluding the provision for litigation, amortization of intangibles, acquisition-related costs/licensing, net gain from the sale of assets, impacts of the U.S. Tax Reform Act and the tax effects of such adjustments.  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, net gain from the sale of assets and the tax effects of such adjustments, which we believe are not reflective of underlying business trends.  Additionally, for the periods ended March 31, 2020 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.

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, health epidemics, pandemics and similar outbreaks, including the COVID-19 pandemic, 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
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

       
       
  Three Months Ended
  March 31,
(In thousands, except per share amounts) 2020  2019
Sales $ 190,577  $ 182,947
Cost of goods sold   48,864    41,838
Gross profit   141,713    141,109
       
Operating expenses:      
Research and development   15,402    14,324
Selling, general and administrative   93,539    85,784
Amortization of intangibles   3,776    3,343
Acquisition related costs   548    579
Total operating expenses   113,265    104,030
       
Operating income   28,448    37,079
       
Other income, net      
Interest income/(expense), net   4,324    4,159
Foreign currency transaction gain/(loss)   (468)   189
Other income/(expense)   194    224
Total other income/(expense), net   4,050    4,572
       
Income before income taxes   32,498    41,651
Income tax provision   6,549    8,441
       
Net income $ 25,949  $ 33,210
       
Earnings per share:      
Basic $ 0.26  $ 0.34
Diluted $ 0.25  $ 0.33
Weighted average shares outstanding:      
Basic   99,635    98,727
Dilutive stock options   2,511    2,640
Diluted   102,146    101,367
       
Anti-dilutive stock options excluded from weighted average calculation   6,637    4,687



GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

       
       
  March 31, December 31,
(In thousands, except par value) 2020 2019
ASSETS      
Current assets:      
Cash, cash equivalents, and restricted cash $ 166,742  $ 195,724 
Short-term marketable securities   110,211    115,763 
Accounts receivable, net of allowances of $6,760 and $5,599, respectively   138,602    154,326 
Inventories   208,451    196,314 
Prepaid expenses and other current assets   17,713    17,243 
Income taxes receivable   81    8,098 
Total current assets   641,800    687,468 
Property and equipment, net of accumulated depreciation of $249,691 and $243,732, respectively   212,605    199,841 
Long-term marketable securities   380,061    409,514 
Intangible assets, net   88,691    78,812 
Goodwill   128,952    128,775 
Other assets   20,568    21,741 
Deferred income taxes   6,688    5,926 
Total assets $ 1,479,365  $ 1,532,077 
       
LIABILITIES AND EQUITY      
Current liabilities:      
Accounts payable $ 24,227  $ 24,614 
Accrued expenses   60,052    63,283 
Income taxes payable   898    1,057 
Business acquisition liabilities   6,333    6,727 
Deferred revenue   6,452    5,402 
Payable to broker   -    10,320 
Total current liabilities   97,962    111,403 
Business acquisition liabilities, net of current portion   3,156    2,822 
Deferred income taxes   5,860    6,023 
Other liabilities   9,021    9,377 
Total liabilities   115,999    129,625 
Commitments and contingencies      
Equity:      
Class A common stock; $0.001 par value.  Authorized 500,000 shares; issued and outstanding 75,664 and 77,395 shares at March 31, 2020 and December 31, 2019, respectively   76    77 
Class B common stock; $0.001 par value.  Authorized 275,000 shares; issued and outstanding  22,430 and 22,430 shares at March 31, 2020 and December 31, 2019, respectively   22    22 
Additional paid-in capital   369,984    357,320 
Accumulated other comprehensive loss   (6,266)   (2,898)
Retained earnings   999,550    1,047,931 
Total equity   1,363,366    1,402,452 
Total liabilities and equity $ 1,479,365  $ 1,532,077 



GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

       
       
  Three Months Ended
  March 31,
(In thousands) 2020 2019
Cash flows from operating activities:      
Net income $ 25,949  $ 33,210 
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization   14,568    12,254 
Amortization of premium (discount) on marketable securities   20    (396)
Write-down for excess and obsolete inventories   679    2,167 
Stock-based compensation expense   6,807    6,448 
Allowance for doubtful accounts   756    33 
Change in fair value of business acquisition liabilities   506    579 
Change in deferred income taxes   (2,895)   1,059 
(Gain)/loss on disposal of assets, net   207    94 
(Increase)/decrease in:      
Accounts receivable   14,131    (2,533)
Inventories   (12,108)   (13,844)
Prepaid expenses and other assets   (205)   848 
Increase/(decrease) in:      
Accounts payable   (283)   2,827 
Accrued expenses and other liabilities   (13,702)   (9,984)
Income taxes payable/receivable   7,863    6,441 
Net cash provided by operating activities   42,293    39,203 
Cash flows from investing activities:      
Purchases of marketable securities   (57,418)   (127,911)
Maturities of marketable securities   71,766    90,454 
Sales of marketable securities   5,374    11,773 
Purchases of property and equipment   (22,314)   (28,155)
Net cash used in investing activities   (2,592)   (53,839)
Cash flows from financing activities:      
Payment of business acquisition liabilities   (566)   (5,350)
Proceeds from exercise of stock options   5,763    10,255 
Repurchase of common stock   (73,864)   — 
Net cash provided by financing activities   (68,667)   4,905 
Effect of foreign exchange rate on cash   (16)   (40)
Net increase in cash, cash equivalents, and restricted cash   (28,982)   (9,771)
Cash, cash equivalents, and restricted cash at beginning of period   195,724    139,747 
Cash, cash equivalents, and restricted cash at end of period $ 166,742  $ 129,976 
Supplemental disclosures of cash flow information:      
Interest paid   1    2 
Income taxes paid $ 1,791  $ 1,450 


Supplemental Financial Information

Sales by Geographic Area:

       
    
  Three Months Ended
  March 31,
(In thousands) 2020 2019
United States $ 158,447 $ 147,536
International   32,130   35,411
Total Sales $ 190,577 $ 182,947

Sales by Revenue Stream:

       
    
  Three Months Ended
  March 31,
(In thousands) 2020 2019
Musculoskeletal Solutions products $ 182,542 $ 175,758
Enabling Technologies products   8,035   7,189
Total Sales $ 190,577 $ 182,947

Liquidity and Capital Resources:

       
       
  March 31, December 31,
(In thousands) 2020 2019
Cash, cash equivalents, and restricted cash $ 166,742 $ 195,724
Short-term marketable securities   110,211   115,763
Long-term marketable securities   380,061   409,514
Total cash, cash equivalents, restricted cash and marketable securities $ 657,014 $ 721,001

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

Non-GAAP Adjusted EBITDA Reconciliation Table:

       
       
  Three Months Ended
  March 31,
(In thousands, except percentages) 2020  2019 
Net income $ 25,949  $ 33,210 
Interest income, net   (4,324)   (4,159)
Provision for income taxes   6,549    8,441 
Depreciation and amortization   14,568    12,254 
EBITDA   42,742    49,746 
Stock-based compensation expense   6,807    6,448 
Acquisition related costs/licensing   957    637 
Adjusted EBITDA $ 50,506  $ 56,831 
       
Net income as a percentage of sales  13.6%  18.2%
Adjusted EBITDA as a percentage of sales  26.5%  31.1%



Non-GAAP Net Income Reconciliation Table:

       
       
  Three Months Ended
  March 31,
(In thousands) 2020  2019 
Net income $ 25,949  $ 33,210 
Amortization of intangibles   3,776    3,343 
Acquisition related costs/licensing   957    637 
Tax effect of adjusting items   (956)   (807)
Non-GAAP net income $ 29,726  $ 36,383 

Non-GAAP Diluted Earnings Per Share Reconciliation Table:

       
       
  Three Months Ended
  March 31,
(Per share amounts) 2020  2019 
Diluted earnings per share, as reported $ 0.25  $ 0.33 
Amortization of intangibles   0.04    0.03 
Acquisition related costs/licensing   0.01    0.01 
Tax effect of adjusting items   (0.01)   (0.01)
Non-GAAP diluted earnings per share $ 0.29  $ 0.36 

Non-GAAP Free Cash Flow Reconciliation Table:

       
    
  Three Months Ended
  March 31,
(In thousands) 2020  2019 
Net cash provided by operating activities $ 42,293  $ 39,203 
Purchases of property and equipment   (22,314)   (28,155)
Free cash flow $ 19,979  $ 11,048 

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

              
              
  Three Months Ended Reported Currency
Impact on 
 Constant
Currency
  March 31, Sales Current Sales
(In thousands, except percentages) 2020 2019 Growth Period Sales  Growth
United States $ 158,447 $ 147,536 7.4% $ —  7.4%
International   32,130   35,411 -9.3%   (333) -8.3%
Total Sales $ 190,577 $ 182,947 4.2% $ (333) 4.4%



Contact:
Brian Kearns
Senior Vice President, Business Development and Investor Relations
Phone: (610) 930-1800
Email: investors@globusmedical.com
www.globusmedical.com