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Globus Medical Reports Second Quarter 2019 Results

Aug 01, 2019

AUDUBON, Pa., Aug. 01, 2019 (GLOBE NEWSWIRE) -- Globus Medical, Inc. (NYSE:GMED), a leading musculoskeletal solutions company, today announced its financial results for the second quarter ended June 30, 2019.

  • Worldwide sales were $194.5 million, an increase of 12.2% as reported
  • Second quarter net income was $38.2 million
  • Diluted earnings per share (EPS) was $0.38 and non-GAAP diluted EPS was $0.41, a decrease of 6.7%
  • Non-GAAP adjusted EBITDA was 32.0% of sales

“Our strong second quarter results demonstrate solid momentum across all parts of our business," said Dave Demski, President and CEO. "Enabling Technologies contributed $12.0 million, down from last year’s $13.7 million, but up 67% over the first quarter; our International Spine business grew at 19.2%, on a constant currency basis; and our US Spine business continued to accelerate, growing at 11.7%."

Worldwide sales for the second quarter were $194.5 million, an increase of 12.2% over the second quarter of 2018 on an as-reported basis and 12.7% on a constant currency basis. Second quarter sales in the U.S., including robotics, increased by 10.0% as quarterly seasonality and longer sales cycles dampened robotic sales compared to the second quarter of 2018. International sales increased by 23.3% over the second quarter of 2018 on an as-reported basis and 26.7% on a constant currency basis.

During the second quarter, the Company acquired substantially all of the assets of StelKast, Inc., a privately held company that designs, manufactures and distributes orthopedic implants for knee and hip replacement. “The StelKast acquisition should serve as a platform to expand our products and services into the Total Joint Arthroplasty market,” said David Paul, Executive Chairman. “Globus Medical’s proven product development engine and history of innovation, when combined with our computer assisted technologies in Imaging, Navigation and Robotics, have the potential to improve clinical care for joint arthroplasty patients and create value for shareholders.”

Second quarter GAAP net income was $38.2 million, a decrease of 15.1% over the same period last year. Diluted EPS for the second quarter was $0.38, as compared to $0.44 for the second quarter 2018. Non-GAAP diluted EPS for the second quarter was $0.41, compared to $0.44 in the second quarter of 2018, a decrease of 6.7%.

The Company generated net cash provided by operating activities of $22.6 million and non-GAAP free cash flow of $7.9 million in the second quarter, and ended the quarter with cash, cash equivalents and marketable securities of $610.1 million. The Company remains debt free.

2019 Annual Guidance

The Company today increased guidance for full year 2019 sales from $770 million to $775 million to account for the StelKast acquisition and reiterated guidance for non-GAAP diluted earnings per share of $1.72.

Conference Call Information

Globus Medical will hold a teleconference to discuss its 2019 second 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 investors.globusmedical.com.

The call will be archived until Thursday, August 8, 2019. 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 646-9561.

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 June 30, 2019 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 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 June 30, 2019 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
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

                         
                         
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(In thousands, except per share amounts)   2019   2018   2019   2018
Sales   $  194,539     $  173,384   $  377,486     $  347,795
Cost of goods sold      43,990        37,637      85,828        75,607
Gross profit      150,549        135,747      291,658        272,188
                         
Operating expenses:                        
Research and development      15,746        13,523      30,069        26,210
Selling, general and administrative      88,379        77,125      174,163        152,819
Amortization of intangibles      3,449        2,178      6,792        4,365
Acquisition related costs      106        782      685        1,021
Total operating expenses      107,680        93,608      211,709        184,415
                         
Operating income      42,869        42,139      79,949        87,773
                         
Other income, net                        
Interest income/(expense), net      4,417        2,971      8,576        5,262
Foreign currency transaction gain/(loss)      (210 )      344      (22 )      339
Other income/(expense)      17        4,850      241        5,008
Total other income/(expense), net      4,224        8,165      8,795        10,609
                         
Income before income taxes      47,093        50,304      88,744        98,382
Income tax provision      8,930        5,327      17,370        13,866
                         
Net income   $  38,163     $  44,977   $  71,374     $  84,516
                         
Earnings per share:                        
Basic   $  0.39     $  0.46   $  0.72     $  0.87
Diluted   $  0.38     $  0.44   $  0.70     $  0.84
Weighted average shares outstanding:                        
Basic      99,023        97,830      98,875        97,337
Dilutive stock options      2,559        3,680      2,600        3,668
Diluted      101,582        101,510      101,475        101,005
                         
Anti-dilutive stock options excluded from weighted average calculation      5,021        1,809      4,854        1,863



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

             
             
    June 30,   December 31,
(In thousands, except par value)   2019   2018
ASSETS            
Current assets:            
Cash, cash equivalents, and restricted cash   $  117,790     $  139,747  
Short-term marketable securities      122,637        199,937  
Accounts receivable, net of allowances of $5,410 and $4,226, respectively      144,681        137,067  
Inventories      173,040        131,254  
Prepaid expenses and other current assets      13,512        15,387  
Income taxes receivable      12,273        7,289  
Total current assets      583,933        630,681  
Property and equipment, net of accumulated depreciation of $231,003 and $216,809, respectively      194,133        171,873  
Long-term marketable securities      369,665        263,117  
Intangible assets, net      85,465        87,323  
Goodwill      129,901        123,734  
Other assets      15,671        10,364  
Deferred income taxes      11,978        13,578  
Total assets   $  1,390,746     $  1,300,670  
             
LIABILITIES AND EQUITY            
Current liabilities:            
Accounts payable   $  23,745     $  25,895  
Accrued expenses      50,607        59,878  
Income taxes payable      431        917  
Business acquisition liabilities      6,016        6,830  
Deferred revenue      3,385        2,598  
Total current liabilities      84,184        96,118  
Business acquisition liabilities, net of current portion      3,288        3,288  
Deferred income taxes      8,097        8,114  
Other liabilities      7,651        7,634  
Total liabilities      103,220        115,154  
Commitments and contingencies (Note 13)            
Equity:            
Class A common stock; $0.001 par value.  Authorized 500,000 shares; issued and outstanding 76,647 and 76,143 shares at June 30, 2019 and December 31, 2018, respectively      77        76  
Class B common stock; $0.001 par value.  Authorized 275,000 shares; issued and outstanding 22,430 and 22,430 shares at June 30, 2019 and December 31, 2018, respectively      22        22  
Additional paid-in capital      325,061        299,869  
Accumulated other comprehensive loss      (1,728 )      (7,172 )
Retained earnings      964,094        892,721  
Total equity      1,287,526        1,185,516  
Total liabilities and equity   $  1,390,746     $  1,300,670  



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

             
             
    Six Months Ended
    June 30,
(In thousands)   2019   2018
Cash flows from operating activities:            
Net income   $  71,374     $  84,516  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization      25,113        19,233  
Amortization of premium (discount) on marketable securities      (736 )      1,477  
Write-down for excess and obsolete inventories      2,468        5,406  
Stock-based compensation expense      12,749        11,533  
Allowance for doubtful accounts      1,229        312  
Change in fair value of business acquisition liabilities      579        416  
Change in deferred income taxes      1,424        1,429  
(Gain)/loss on disposal of assets, net      295        (3,947 )
(Increase)/decrease in:            
Accounts receivable      (6,532 )      (2,257 )
Inventories      (28,094 )      (11,120 )
Prepaid expenses and other assets      (2,933 )      (3,303 )
Increase/(decrease) in:            
Accounts payable      (901 )      (5,751 )
Accrued expenses and other liabilities      (8,744 )      (2,104 )
Income taxes payable/receivable      (5,491 )      (10,276 )
Net cash provided by operating activities      61,800        85,564  
Cash flows from investing activities:            
Purchases of marketable securities      (210,606 )      (309,223 )
Maturities of marketable securities      161,568        158,102  
Sales of marketable securities      25,490        63,741  
Purchases of property and equipment      (42,895 )      (27,167 )
Proceeds from sale of assets      —        3,000  
Acquisition of businesses, net of cash acquired and purchases of intangible and other assets      (24,135 )      —  
Net cash used in investing activities      (90,578 )      (111,547 )
Cash flows from financing activities:            
Payment of business acquisition liabilities      (5,633 )      (5,950 )
Proceeds from exercise of stock options      12,268        33,131  
Net cash provided by financing activities      6,635        27,181  
Effect of foreign exchange rate on cash      186        (71 )
Net increase in cash, cash equivalents, and restricted cash      (21,957 )      1,127  
Cash, cash equivalents, and restricted cash at beginning of period      139,747        118,817  
Cash, cash equivalents, and restricted cash at end of period   $  117,790     $  119,944  
Supplemental disclosures of cash flow information:            
Interest paid      4        —  
Income taxes paid   $  23,975     $  22,667  



Supplemental Financial Information

Sales by Geographic Area:

                         
                   
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(In thousands)   2019   2018   2019   2018
United States   $  159,989   $  145,381   $  307,527   $  290,997
International      34,550      28,003      69,959      56,798
Total Sales   $  194,539   $  173,384   $  377,486   $  347,795


Sales by Revenue Stream:

                         
                   
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(In thousands)   2019   2018   2019   2018
Musculoskeletal Solutions products   $  182,538   $  159,644   $  358,296   $  321,333
Enabling Technologies products      12,001      13,740      19,190      26,462
Total Sales   $  194,539   $  173,384   $  377,486   $  347,795


Liquidity and Capital Resources:

             
             
    June 30,   December 31,
(In thousands)   2019   2018
Cash, cash equivalents, and restricted cash   $  117,790   $  139,747
Short-term marketable securities      122,637      199,937
Long-term marketable securities      369,665      263,117
Total cash, cash equivalents, restricted cash and marketable securities   $  610,092   $  602,801

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


Non-GAAP Adjusted EBITDA Reconciliation Table:

                         
                         
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(In thousands, except percentages)   2019   2018   2019   2018
Net income   $  38,163     $  44,977     $  71,374     $  84,516  
Interest income, net      (4,417 )      (2,971 )      (8,576 )      (5,262 )
Provision for income taxes      8,930        5,327        17,370        13,866  
Depreciation and amortization      12,858        9,757        25,113        19,233  
EBITDA      55,534        57,090        105,281        112,353  
Stock-based compensation expense      6,297        5,480        12,749        11,533  
Acquisition related costs/licensing      335        1,285        971        1,677  
Net gain from sale of assets      —        (4,357 )      —        (4,357 )
Adjusted EBITDA   $  62,166     $  59,498     $  119,001     $  121,206  
                         
Net income as a percentage of sales     19.6 %     25.9 %     18.9 %     24.3 %
Adjusted EBITDA as a percentage of sales     32.0 %     34.3 %     31.5 %     34.8 %



Non-GAAP Net Income Reconciliation Table:

                         
                         
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(In thousands)   2019   2018   2019   2018
Net income   $  38,163     $  44,977     $  71,374     $  84,516  
Amortization of intangibles      3,449        2,178        6,792        4,365  
Acquisition related costs/licensing      335        1,285        971        1,677  
Net gain from sale of assets      —        (4,357 )      —        (4,357 )
Tax effect of adjusting items      (717 )      95        (1,524 )      (238 )
Non-GAAP net income   $  41,230     $  44,178     $  77,613     $  85,963  


Non-GAAP Diluted Earnings Per Share Reconciliation Table:

                         
                         
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(In thousands)   2019   2018   2019   2018
Diluted earnings per share, as reported   $  0.38     $  0.44     $  0.70     $  0.84  
Amortization of intangibles      0.03        0.02        0.07        0.04  
Acquisition related costs/licensing      —        0.01        0.01        0.02  
Net gain from sale of assets      —        (0.04 )      —        (0.04 )
Tax effect of adjusting items      (0.01 )      —        (0.02 )      —  
Non-GAAP diluted earnings per share   $  0.41     $  0.44     $  0.76     $  0.85  


Non-GAAP Free Cash Flow Reconciliation Table:

                         
                   
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(In thousands)   2019   2018   2019   2018
Net cash provided by operating activities   $  22,597     $  33,269     $  61,800     $  85,564  
Purchases of property and equipment      (14,740 )      (14,793 )      (42,895 )      (27,167 )
Free cash flow   $  7,857     $  18,476     $  18,905     $  58,397  


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

                           
                           
    Three Months Ended   Reported   Currency
Impact on 
  Constant
Currency
    June 30,   Sales   Current   Sales
(In thousands, except percentages)   2019   2018   Growth   Period Sales    Growth
United States   $  159,989   $  145,381   10.0 %   $  —     10.0 %
International      34,550      28,003   23.3 %      (945 )   26.7 %
Total Sales   $  194,539   $  173,384   12.2 %   $  (945 )   12.7 %


                           
                           
    Six Months Ended   Reported   Currency
Impact on 
  Constant
Currency
    June 30,   Sales   Current   Sales
(In thousands, except percentages)   2019   2018   Growth   Period Sales    Growth
United States   $  307,527   $  290,997   5.7 %   $  —     5.7 %
International      69,959      56,798   23.2 %      (2,371 )   27.3 %
Total Sales   $  377,486   $  347,795   8.5 %   $  (2,371 )   9.2 %



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

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Source: Globus Medical

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