Globus Medical Reports Third Quarter 2017 Results

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| Source: Globus Medical

AUDUBON, Pa., Nov. 08, 2017 (GLOBE NEWSWIRE) -- Globus Medical, Inc. (NYSE:GMED), a leading musculoskeletal solutions company, today announced its financial results for the third quarter ended September 30, 2017.

  • Worldwide sales were $151.7 million, an increase of 11.9% as reported, and 11.8% in constant currency
  • Third quarter net income was $25.6 million, or 16.9% of sales
  • Diluted earnings per share (EPS) were $0.26
  • Non-GAAP diluted EPS were $0.30
  • Non-GAAP adjusted EBITDA was 35.2% of sales

"We are very pleased with our third quarter performance.  We saw further acceleration in our U.S. spinal implant business, continued growth in the Japan market, and industry leading profitability, even as we invested heavily in Emerging Technologies," said Dave Demski, CEO.

“As previously announced, we received FDA clearance during the quarter for the ExcelsiusGPS™ robotic and navigation system.  While still in the early stages of our commercial launch of this game-changing technology, we are thrilled about the unprecedented level of interest we have received so far from surgeons and hospital systems.”

Third quarter sales in the U.S. increased by 4.5% compared to the third quarter of 2016.  International sales increased by 70.1% over the third quarter of 2016 on an as reported basis and 69.7% on a constant currency basis due to the Alphatec acquisition included in the third quarter of 2017.

Third quarter GAAP net income was $25.6 million, a decrease of 2.4% over the same period last year.  Diluted EPS for the third quarter was $0.26, as compared to $0.27 for the third quarter 2016.  Non-GAAP diluted EPS for the third quarter was $0.30, compared to $0.29 in the third quarter of 2016.

The company generated net cash provided by operating activities of $35.3 million and non-GAAP free cash flow of $22.0 million in the third quarter.  Cash, cash equivalents and marketable securities ended the quarter at $396.5 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 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 passcode 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, November 15, 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 669-8937.

About Globus Medical, Inc.
Globus Medical, Inc. is a leading musculoskeletal solutions 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 September 30, 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 September 30, 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 Medical 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 Nine Months Ended
(In thousands, except per share amounts)September 30,
 2017
 September 30,
 2016
 September 30,
 2017
 September 30,
 2016
Sales$151,744  $135,651  $459,943  $412,404 
Cost of goods sold36,798  31,453  109,597  95,703 
Gross profit114,946  104,198  350,346  316,701 
        
Operating expenses:       
Research and development10,887  10,265  32,266  30,889 
Selling, general and administrative63,362  54,207  194,859  161,317 
Provision for litigation2,537    2,780  3,056 
Amortization of intangibles2,080  884  5,671  1,673 
Acquisition related costs285  1,192  1,290  1,347 
Total operating expenses79,151  66,548  236,866  198,282 
        
Operating income35,795  37,650  113,480  118,419 
Other income, net1,562  1,205  5,848  2,383 
Income before income taxes37,357  38,855  119,328  120,802 
Income tax provision11,766  12,628  36,356  40,759 
        
Net income$25,591  $26,227  $82,972  $80,043 
        
Earnings per share:       
Basic$0.27  $0.27  $0.86  $0.84 
Diluted$0.26  $0.27  $0.85  $0.83 
Weighted average shares outstanding:       
Basic96,318  95,739  96,160  95,575 
Diluted97,849  96,492  97,607  96,404 
            

  

    
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
    
(In thousands, except par value)September 30,
 2017
 December 31, 2016
ASSETS(unaudited)  
Current assets:   
Cash and cash equivalents$154,855  $132,639 
Restricted cash  477 
Short-term marketable securities182,804  157,673 
Accounts receivable, net of allowances of $3,725 and $2,771, respectively94,484  91,983 
Inventories111,462  112,692 
Prepaid expenses and other current assets9,430  14,502 
Income taxes receivable10,527  3,800 
Total current assets563,562  513,766 
Property and equipment, net of accumulated depreciation of $191,386 and $166,711, respectively134,214  124,229 
Long-term marketable securities58,884  60,444 
Note receivable29,167  30,000 
Intangible assets, net87,653  61,706 
Goodwill119,273  105,926 
Other assets8,280  928 
Deferred income taxes36,127  30,638 
Total assets$1,037,160  $927,637 
    
LIABILITIES AND EQUITY   
Current liabilities:   
Accounts payable$16,553  $17,472 
Accrued expenses46,609  46,401 
Income taxes payable2,023  1,911 
Business acquisition liabilities9,742  14,108 
Total current liabilities74,927  79,892 
Business acquisition liabilities, net of current portion10,778  5,972 
Deferred income taxes14,405  7,876 
Other liabilities1,786  1,819 
Total liabilities101,896  95,559 
    
Equity:   
Common stock; $0.001 par value.  Authorized 785,000 shares; issued and outstanding 96,367 and 95,930 shares at September 30, 2017 and December 31, 2016, respectively96  96 
Additional paid-in capital229,475  211,725 
Accumulated other comprehensive loss(6,178) (8,642)
Retained earnings711,871  628,899 
Total equity935,264  832,078 
Total liabilities and equity$1,037,160  $927,637 
        


        
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
        
 Nine Months Ended
(In thousands)September 30,
 2017
 September 30,
 2016
Cash flows from operating activities:       
Net income$82,972  $80,043 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization33,773  21,536 
Amortization of premium on marketable securities2,258  3,067 
Write-down for excess and obsolete inventories8,158  6,919 
Stock-based compensation expense10,659  8,437 
Allowance for doubtful accounts1,135  320 
Change in fair value of business acquisition liabilities1,011   
Change in deferred income taxes815  (1,356)
(Increase)/decrease in:   
Restricted cash477  25,642 
Accounts receivable(2,200) 3,111 
Inventories(6,956) (6,609)
Prepaid expenses and other assets(974) 7,332 
Increase/(decrease) in:   
Accounts payable(344) (3,426)
Accrued expenses and other liabilities(9,377) (30,178)
Income taxes payable/receivable(6,709) 6,643 
Net cash provided by operating activities114,698  121,481 
    
Cash flows from investing activities:   
Purchases of marketable securities(203,609) (223,623)
Maturities of marketable securities166,453  211,138 
Sales of marketable securities11,566  47,109 
Purchases of property and equipment(37,878) (26,701)
Issuance of note receivable  (25,000)
Acquisition of businesses, net of cash acquired(31,501) (76,068)
Net cash used in investing activities(94,969) (93,145)
    
Cash flows from financing activities:   
Payment of business acquisition liabilities(5,234) (400)
Proceeds from exercise of stock options6,943  4,428 
Net cash provided by financing activities1,709  4,028 
    
Effect of foreign exchange rate on cash778  (2,324)
    
Net increase in cash and cash equivalents22,216  30,040 
Cash and cash equivalents, beginning of period132,639  60,152 
Cash and cash equivalents, end of period$154,855  $90,192 
    
Supplemental disclosures of cash flow information:   
Interest paid34  23 
Income taxes paid$49,008  $37,009 
        


            
Supplemental Financial Information
            
Sales by Geographic Area:
            
(Unaudited)Three Months Ended Nine Months Ended
(In thousands)September 30,
 2017
 September 30,
 2016
 September 30,
 2017
 September 30,
 2016
United States$      125,933  $  120,473  $      381,870  $  372,749 
International25,811  15,178  78,073  39,655 
Total sales$151,744  $135,651  $459,943  $412,404 
                



    
Sales by Product Category:
    
(Unaudited)Three Months Ended Nine Months Ended
(In thousands)September 30,
 2017
 September 30,
 2016
 September 30,
 2017
 September 30,
 2016
Innovative Fusion$80,202  $68,498  $241,940  $207,985 
Disruptive Technology71,542  67,153  218,003  204,419 
Total sales$151,744  $135,651  $459,943  $412,404 
                


        
Liquidity and Capital Resources:
        
(Unaudited)September 30,
 2017
 December 31,
 2016
(In thousands)       
Cash and cash equivalents$154,855  $132,639 
Short-term marketable securities182,804  157,673 
Long-term marketable securities58,884  60,444 
Total cash, cash equivalents and marketable securities$396,543  $350,756 
    
Available borrowing capacity under revolving credit facility50,000  50,000 
Working capital$488,635  $433,874 
        

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,
 2017
 September 30,
 2016
 September 30,
 2017
 September 30,
 2016
Net income$     25,591  $  26,227  $      82,972  $  80,043 
Interest income, net(1,738) (795) (4,746) (1,893)
Provision for income taxes11,766  12,628  36,356  40,759 
Depreciation and amortization10,838  7,838  33,773  21,536 
EBITDA46,457  45,898  148,355  140,445 
Provision for litigation2,537    2,780  3,056 
Stock-based compensation expense3,596  2,747  10,659  8,437 
Acquisition related costs784  1,496  2,838  1,651 
Adjusted EBITDA$53,374  $50,141  $164,632  $153,589 
        
Net income as a percentage of sales16.9% 19.3% 18.0% 19.4%
Adjusted EBITDA as a percentage of sales35.2% 37.0% 35.8% 37.2%
            


            
Non-GAAP Net Income Reconciliation Table:
            
(Unaudited)Three Months Ended Nine Months Ended
(In thousands)September 30,
 2017
 September 30,
 2016
 September 30,
 2017
 September 30,
 2016
Net income$      25,591  $  26,227  $      82,972  $  80,043 
Provision for litigation2,537    2,780  3,056 
Amortization of intangibles2,080  884  5,671  1,673 
Acquisition related costs784  1,496  2,838  1,651 
Tax effect of adjusting items(1,677) (776) (3,443) (2,112)
Non-GAAP net income$29,315  $27,831  $90,818  $84,311 
                


            
Non-GAAP Diluted Earnings Per Share Reconciliation Table:
            
(Unaudited)Three Months Ended Nine Months Ended
(Per share amounts)September 30,
 2017
 September 30,
 2016
 September 30,
 2017
 September 30,
 2016
Diluted earnings per share, as reported$      0.26  $  0.27  $      0.85  $  0.83 
Provision for litigation0.03    0.03  0.03 
Amortization of intangibles0.02  0.01  0.06  0.02 
Acquisition related costs0.01  0.02  0.03  0.02 
Tax effect of adjusting items(0.02) (0.01) (0.04) (0.02)
Non-GAAP diluted earnings per share*$0.30  $0.29  $0.93  $0.87 
* amounts might not add due to rounding       
        


            
Non-GAAP Free Cash Flow Reconciliation Table:
            
(Unaudited)Three Months Ended Nine Months Ended
(In thousands)September 30,
 2017
 September 30,
 2016
 September 30,
 2017
 September 30,
 2016
Net cash provided by operating activities$      35,273  $  42,654  $      114,698  $  121,481 
Adjustment for impact of restricted cash(478) (10,758) (477) (25,642)
Purchases of property and equipment(12,817) (6,559) (37,878) (26,701)
Non-GAAP free cash flow$21,978  $25,337  $76,343  $69,138 
                


        
Non-GAAP Constant Currency Sales Growth Comparative Table:
        
(Unaudited)Three Months Ended Reported
Growth
 Currency
Impact on
Current Period
 Constant
Currency
Growth
(In thousands, except percentages)September 30,
 2017
 September 30,
 2016
   
United States$125,933  $120,473  4.5%   4.5%
International25,811  15,178  70.1% $47  69.7%
Total sales$151,744  $135,651  11.9% $47  11.8%
                  


        
(Unaudited)Nine Months Ended Reported
Growth
 Currency
Impact on
Current Period
 Constant
Currency
Growth
(In thousands, except percentages)September 30,
 2017
 September 30,
 2016
   
United States$381,870  $372,749  2.4%   2.4%
International78,073  39,655  96.9% $(592) 98.4%
Total sales$459,943  $412,404  11.5% $(592) 11.7%
                  


Contact
:
Daniel Scavilla
Senior Vice President, Chief Financial Officer
Phone: (610) 930-1800
Email: investors@globusmedical.com
www.globusmedical.com