Globus Medical Reports Second Quarter 2017 Results

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| Source: Globus Medical

AUDUBON, Pa., Aug. 02, 2017 (GLOBE NEWSWIRE) -- Globus Medical, Inc. (NYSE:GMED), a leading musculoskeletal solutions manufacturer, today announced its financial results for the second quarter ended June 30, 2017.

  • Worldwide sales were $152.4 million, an increase of 10.8% as reported, or 11.0% in constant currency
  • Second quarter net income was $28.7 million, or 18.8% of sales
  • Diluted earnings per share (EPS) were $0.29
  • Non-GAAP diluted EPS were $0.32
  • Non-GAAP adjusted EBITDA was 35.1% of sales

David Paul, Chairman and CEO said, “Our worldwide sales for the second quarter were $152.4 million, an increase of 10.8% over the second quarter of 2016.  Our adjusted EBITDA margins remained at an outstanding 35.1% and we also delivered non-GAAP EPS of $0.32.

“We are pleased with our performance during the second quarter.  We made significant progress with competitive rep hiring, further expanded our in-house manufacturing capacity, and continued to run an extremely efficient organization with best in class adjusted EBITDA margins.  During the quarter we completed the acquisition of KB Medical, an innovative robotics company out of Switzerland. This acquisition significantly bolsters our development team, intellectual property, and product portfolio. KB Medical has a tremendous team of innovative developers that share our philosophy, approach, and strategy for robotic solutions in medicine.  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.”

Second quarter sales in the U.S. increased by 1.2% compared to the second quarter of 2016.  International sales increased by 104.5% over the second quarter of 2016 on an as reported basis and 106.6% on a constant currency basis due to the Alphatec acquisition included in the second quarter of 2017.  Sales from the Alphatec acquisition contributed $15.5 million in the quarter. 

Second quarter GAAP net income was $28.7 million, an increase of 11.1% over the same period last year.  Diluted EPS for the second quarter was $0.29, as compared to $0.27 for the second quarter 2016.  Non-GAAP diluted EPS for the second quarter was $0.32, compared to $0.29 in the second quarter of 2016.

The company generated net cash provided by operating activities of $26.0 million and non-GAAP free cash flow of $12.4 million in the second quarter.  Cash, cash equivalents and marketable securities ended the quarter at $373.1 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 second 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, August 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 1012-6289.

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 June 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 June 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 Six Months Ended
(In thousands, except per share amounts)June 30,
 2017
 June 30,
 2016
 June 30,
 2017
 June 30,
 2016
Sales$152,390  $137,489  $308,199  $276,753 
Cost of goods sold37,199  32,731  72,799  64,250 
Gross profit115,191  104,758  235,400  212,503 
        
Operating expenses:       
Research and development10,713  10,594  21,379  20,624 
Selling, general and administrative64,438  53,312  131,497  107,110 
Provision for litigation243  3,056  243  3,056 
Amortization of intangibles1,809  397  3,591  789 
Acquisition related costs617  (519) 1,005  155 
Total operating expenses77,820  66,840  157,715  131,734 
        
Operating income37,371  37,918  77,685  80,769 
Other income, net2,186  418  4,286  1,178 
Income before income taxes39,557  38,336  81,971  81,947 
Income tax provision10,890  12,530  24,590  28,131 
        
Net income$28,667  $25,806  $57,381  $53,816 
        
Earnings per share:       
Basic$0.30  $0.27  $0.60  $0.56 
Diluted$0.29  $0.27  $0.59  $0.56 
Weighted average shares outstanding:       
Basic96,161  95,585  96,079  95,491 
Diluted97,818  96,426  97,483  96,359 


 
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In thousands, except par value)June 30,
 2017
 December 31,
2016
    
ASSETS(unaudited)  
Current assets:   
Cash and cash equivalents$149,669  $132,639 
Restricted cash478  477 
Short-term marketable securities162,520  157,673 
Accounts receivable, net of allowances of $3,645 and $2,771, respectively95,489  91,983 
Inventories111,108  112,692 
Prepaid expenses and other current assets5,879  14,502 
Income taxes receivable9,986  3,800 
Total current assets535,129  513,766 
Property and equipment, net of accumulated depreciation of $181,223 and $166,711, respectively130,123  124,229 
Long-term marketable securities60,932  60,444 
Note receivable30,000  30,000 
Intangible assets, net90,036  61,706 
Goodwill112,769  105,926 
Other assets1,051  928 
Deferred income taxes34,974  30,638 
Total assets$995,014  $927,637 
    
LIABILITIES AND EQUITY   
Current liabilities:   
Accounts payable$16,291  $17,472 
Accrued expenses41,707  46,401 
Income taxes payable1,400  1,911 
Business acquisition liabilities, current9,663  14,108 
Total current liabilities69,061  79,892 
Business acquisition liabilities, net of current portion10,676  5,972 
Deferred income taxes8,175  7,876 
Other liabilities1,802  1,819 
Total liabilities89,714  95,559 
Commitments and contingencies   
Equity:   
Common stock; $0.001 par value.  Authorized 785,000 shares; issued     
  and outstanding 96,289 and 95,930 shares at June 30, 2017 and December 31, 2016, respectively96  96 
Additional paid-in capital224,796  211,725 
Accumulated other comprehensive loss(5,872) (8,642)
Retained earnings686,280  628,899 
Total equity905,300  832,078 
Total liabilities and equity$995,014  $927,637 


 
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 Six Months Ended
(In thousands)June 30,
 2017
 June 30,
 2016
Cash flows from operating activities:   
Net income$57,381  $53,816 
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation and amortization22,935  13,698 
Amortization of premium on marketable securities1,855  2,085 
Write-down for excess and obsolete inventories4,962  4,536 
Stock-based compensation expense7,062  5,690 
Allowance for doubtful accounts958  148 
Change in fair value of contingent consideration811   
Change in deferred income taxes(4,238) 1,625 
(Increase)/decrease in:   
Restricted cash(1) 14,884 
Accounts receivable(3,172) 2,624 
Inventories(4,652) (3,812)
Prepaid expenses and other assets8,506  1,114 
Increase/(decrease) in:   
Accounts payable(1,660) (1,707)
Accrued expenses and other liabilities(4,497) (10,078)
Income taxes payable/receivable(6,825) (5,796)
Net cash provided by operating activities79,425  78,827 
    
Cash flows from investing activities:   
Purchases of marketable securities(119,196) (172,886)
Maturities of marketable securities102,733  129,495 
Sales of marketable securities9,503  16,602 
Purchases of property and equipment(25,061) (20,142)
Acquisition of businesses(31,501)  
Net cash used in investing activities(63,522) (46,931)
    
Cash flows from financing activities:   
Payment of business acquisition liabilities(5,234) (400)
Proceeds from exercise of stock options5,911  3,575 
Net cash provided by financing activities677  3,175 
    
Effect of foreign exchange rate on cash450  119 
    
Net increase in cash and cash equivalents17,030  35,190 
Cash and cash equivalents, beginning of period132,639  60,152 
Cash and cash equivalents, end of period$149,669  $95,342 
    
Supplemental disclosures of cash flow information:   
Interest paid21  2 
Income taxes paid$35,475  $32,214 


 
Supplemental Financial Information
 
Sales by Geographic Area:
 
(Unaudited) Three Months Ended Six Months Ended
(In thousands) June 30,
 2017
 June 30,
 2016
 June 30,
 2017
 June 30,
 2016
United States $126,271  $124,716  $255,934  $252,276 
International 26,119  12,773  52,265  24,477 
Total sales $152,390  $137,489  $308,199  $276,753 


Sales by Product Category:
 
(Unaudited) Three Months Ended Six Months Ended
(In thousands) June 30,
 2017
 June 30,
 2016
 June 30,
 2017
 June 30,
 2016
Innovative Fusion $79,866  $69,442  $161,738  $139,488 
Disruptive Technology 72,524  68,047  146,461  137,265 
Total sales $152,390  $137,489  $308,199  $276,753 


Liquidity and Capital Resources:
 
(Unaudited)June 30,
 2017
 December 31,
 2016
(In thousands)   
Cash and cash equivalents$149,669  $132,639 
Short-term marketable securities162,520  157,673 
Long-term marketable securities60,932  60,444 
Total cash, cash equivalents and marketable securities$373,121  $350,756 
    
Available borrowing capacity under revolving credit facility50,000  50,000 
Working capital$466,068  $433,874 
        


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

Non-GAAP Adjusted EBITDA Reconciliation Table:
 
(Unaudited)Three Months Ended Six Months Ended
(In thousands, except percentages)June 30,
 2017
 June 30,
 2016
 June 30,
 2017
 June 30,
 2016
Net income$28,667  $25,806  $57,381  $53,816 
Interest income, net(1,590) (602) (3,008) (1,098)
Provision for income taxes10,890  12,530  24,590  28,131 
Depreciation and amortization10,695  7,022  22,935  13,698 
EBITDA48,662  44,756  101,898  94,547 
Provision for litigation243  3,056  243  3,056 
Stock-based compensation expense3,571  2,920  7,062  5,690 
Acquisition related costs968  (519) 2,054  155 
Adjusted EBITDA$53,444  $50,213  $111,257  $103,448 
        
Net income as a percentage of sales18.8% 18.8% 18.6% 19.4%
Adjusted EBITDA as a percentage of sales35.1% 36.5% 36.1% 37.4%


Non-GAAP Net Income Reconciliation Table:
 
(Unaudited) Three Months Ended Six Months Ended
(In thousands) June 30,
 2017
 June 30,
 2016
 June 30,
 2017
 June 30,
 2016
Net income $28,667  $25,806  $57,381  $53,816 
Provision for litigation 243  3,056  243  3,056 
Amortization of intangibles 1,809  397  3,591  789 
Acquisition related costs 968  (519) 2,054  155 
Tax effect of adjusting items (840) (990) (1,766) (1,372)
Non-GAAP net income $30,847  $27,750  $61,503  $56,444 


Non-GAAP Diluted Earnings Per Share Reconciliation Table:
 
(Unaudited) Three Months Ended Six Months Ended
(Per share amounts) June 30,
 2017
 June 30,
 2016
 June 30,
 2017
 June 30,
 2016
Diluted earnings per share, as reported $0.29  $0.27  $0.59  $0.56 
Provision for litigation   0.03    0.03 
Amortization of intangibles 0.02    0.04  0.01 
Acquisition related costs 0.01  (0.01) 0.02   
Tax effect of adjusting items (0.01) (0.01) (0.02) (0.01)
Non-GAAP diluted earnings per share* $0.32  $0.29  $0.63  $0.59 
* amounts might not add due to rounding        


Non-GAAP Free Cash Flow Reconciliation Table:
 
(Unaudited) Three Months EndedSix Months Ended
(In thousands) June 30,
 2017
 June 30,
 2016
June 30,
 2017
 June 30,
 2016
Net cash provided by operating activities $25,976  $23,270 $79,425  $78,827 
Adjustment for impact of restricted cash 1  784 1  (14,884)
Purchases of property and equipment (13,528) (10,776)(25,061) (20,142)
Non-GAAP free cash flow $12,449  $13,278 $54,365  $43,801 


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)June 30,
 2017
 June 30,
 2016
   
United States$126,271  $124,716  1.2%   1.2%
International26,119  12,773  104.5% $(275) 106.6%
Total sales$152,390  $137,489  10.8% $(275) 11.0%


 
(Unaudited)Six Months Ended Reported
Growth
 Currency
Impact on
Current Period
 Constant
Currency
Growth
(In thousands, except percentages)June 30,
 2017
 June 30,
 2016
   
United States$255,934  $252,276  1.4%   1.4%
International52,265  24,477  113.5% $(639) 116.1%
Total sales$308,199  $276,753  11.4% $(639) 11.6%
                  
Contact:
Daniel Scavilla
Senior Vice President, Chief Financial Officer
Phone: (610) 930-1800
Email: investors@globusmedical.com
www.globusmedical.com