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Globus Medical Reports Second Quarter 2018 Results

AUDUBON, Pa., Aug. 01, 2018 (GLOBE NEWSWIRE) -- Globus Medical, Inc. (NYSE:GMED), a leading musculoskeletal solutions company, today announced its financial results for the second quarter ended June 30, 2018.

  • Worldwide sales were $173.4 million, an increase of 13.8% as reported
  • Second quarter net income was $45.0 million, an increase of 56.9%
  • Diluted earnings per share (EPS) and non-GAAP EPS were $0.44
  • Non-GAAP EPS increased 38.0% compared to second quarter of 2017
  • Non-GAAP adjusted EBITDA was 34.3% of sales

"The second quarter marks the third consecutive quarter of double-digit organic growth for Globus Medical, as our U.S. Spine business continues to take market share, growing by 4.2%; our international revenue increased by 7.2%; and Emerging Technologies contributed $13.8 million," said Dave Demski, CEO.  "We are very pleased with the strong sales of our ExcelsiusGPS™ robotic system, and more importantly, the level of adoption we are seeing by surgeons in accounts that have purchased the technology.  The synergy of this transformational technology, combined with the most innovative suite of spinal implants in the industry, is expected to provide a powerful platform for our future growth."

Worldwide sales for the second quarter were $173.4 million, an increase of 13.8% over the second quarter of 2017.  Non-GAAP diluted EPS was $0.44, an increase of 38.0%.  Revenue from Emerging Technologies was primarily due to continued demand for our ExcelsiusGPS™ robotics and navigation system.

Second quarter sales in the U.S., including robotics, increased by 15.1% compared to the second quarter of 2017.  International sales increased by 7.2% over the second quarter of 2017 on an as-reported basis and 4.3% on a constant currency basis.

Second quarter GAAP net income was $45.0 million, an increase of 56.9% over the same period last year.  Diluted EPS for the second quarter was $0.44, as compared to $0.29 for the second quarter 2017.  Non-GAAP diluted EPS for the second quarter was $0.44, compared to $0.32 in the second quarter of 2017.

The company generated net cash provided by operating activities of $33.3 million and non-GAAP free cash flow of $18.5 million in the second quarter, and ended the quarter with cash, cash equivalents and marketable securities of $516.8 million.  The company remains debt free.

2018 Annual Guidance
The company today issued new guidance for full year 2018 sales of $700 million and non-GAAP fully diluted earnings per share of $1.55.  2018 guidance was previously sales of $695 million and non-GAAP fully diluted earnings per share of $1.52.

Executive Appointment
The company also announced the promotion of Dan Scavilla to the position of Executive Vice President, Chief Commercial Officer.  In his new role, Mr. Scavilla will be responsible for all contracting and pricing; supply chain and logistics; and manufacturing operations; as well as continued oversight of all finance-related functions.  Mr. Scavilla will continue in the role of Chief Financial Officer until the company completes its search for a new CFO.

Conference Call Information
Globus Medical will hold a teleconference to discuss its 2018 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 Wednesday, August 8, 2018.  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 1012-6350.

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, technology in-licensing fee, and acquisition related costs, 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, 2018 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/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, 2018 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
(In thousands, except per share amounts)June 30,
 2018
 June 30,
 2017
 June 30,
 2018
 June 30,
 2017
Sales$173,384  $152,390  $347,795  $308,199 
Cost of goods sold37,637  37,199  75,607  72,799 
Gross profit135,747  115,191  272,188  235,400 
        
Operating expenses:       
Research and development13,523  10,713  26,210  21,379 
Selling, general and administrative77,125  64,438  152,819  131,497 
Provision for litigation  243    243 
Amortization of intangibles2,178  1,809  4,365  3,591 
Acquisition related costs782  617  1,021  1,005 
Total operating expenses93,608  77,820  184,415  157,715 
        
Operating income42,139  37,371  87,773  77,685 
Other income/(expense), net8,165  2,186  10,609  4,286 
Income before income taxes50,304  39,557  98,382  81,971 
Income tax provision5,327  10,890  13,866  24,590 
        
Net income$44,977  $28,667  $84,516  $57,381 
        
Earnings per share:       
Basic$0.46  $0.30  $0.87  $0.60 
Diluted$0.44  $0.29  $0.84  $0.59 
Weighted average shares outstanding:       
Basic97,830  96,161  97,337  96,079 
Diluted101,510  97,818  101,005  97,483 
 


 
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In thousands, except par value)June 30,
2018
 December 31,
2017
    
ASSETS(unaudited)  
Current assets:   
Cash and cash equivalents$119,944  $118,817 
Short-term marketable securities240,976  254,890 
Accounts receivable, net of allowances of $3,924 and $3,963,
   respectively
118,561  116,676 
Inventories114,758  108,409 
Prepaid expenses and other current assets16,943  11,166 
Current portion of note receivable3,333  1,667 
Income taxes receivable18,709  8,717 
Total current assets633,224  620,342 
Property and equipment, net of accumulated depreciation of $204,760
   and $191,760, respectively
154,342  143,167 
Long-term marketable securities155,859  56,133 
Note receivable26,667  28,333 
Intangible assets, net74,973  78,659 
Goodwill123,750  123,890 
Other assets7,202  7,947 
Deferred income taxes17,816  20,031 
Total assets$1,193,833  $1,078,502 
    
LIABILITIES AND EQUITY   
Current liabilities:   
Accounts payable$20,727  $25,039 
Accrued expenses47,978  52,594 
Income taxes payable2,979  3,274 
Business acquisition liabilities6,507  11,411 
Deferred revenue2,089  755 
Total current liabilities80,280  93,073 
Business acquisition liabilities, net of current portion3,815  4,508 
Deferred income taxes9,991  10,669 
Other liabilities2,561  2,474 
Total liabilities96,647  110,724 
Commitments and contingencies   
Equity:   
Common stock; $0.001 par value.  Authorized 785,000 shares; issued
   and outstanding 98,248 and 96,658 shares at June 30, 2018 and
   December 31, 2017, respectively
98  97 
Additional paid-in capital283,132  238,341 
Accumulated other comprehensive loss(6,807) (6,907)
Retained earnings820,763  736,247 
Total equity1,097,186  967,778 
Total liabilities and equity$1,193,833  $1,078,502 
 


 
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 Six Months Ended
(In thousands)June 30,
2018
 June 30,
2017
Cash flows from operating activities:   
Net income$84,516  $57,381 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization19,233  22,935 
Amortization of premium on marketable securities1,477  1,855 
Write-down for excess and obsolete inventories5,406  4,962 
Stock-based compensation expense11,533  7,062 
Allowance for doubtful accounts312  958 
Change in fair value of business acquisition liabilities416  811 
Change in deferred income taxes1,429  (4,238)
(Gain)/loss on disposal of assets, net(3,947)  
(Increase)/decrease in:   
 Accounts receivable(2,257) (3,172)
 Inventories(11,120) (4,652)
 Prepaid expenses and other assets(3,303) 8,506 
Increase/(decrease) in:   
 Accounts payable(5,751) (1,660)
 Accrued expenses and other liabilities(2,104) (4,497)
 Income taxes payable/receivable(10,276) (6,825)
Net cash provided by operating activities85,564  79,426 
    
Cash flows from investing activities:   
Purchases of marketable securities(309,223) (138,286)
Maturities of marketable securities158,102  103,398 
Sales of marketable securities63,741  32,688 
Purchases of property and equipment(27,167) (25,061)
Proceeds from sale of assets3,000   
Acquisition of businesses, net of cash acquired  (31,501)
Net cash used in investing activities(111,547) (58,762)
    
Cash flows from financing activities:   
Payment of business acquisition liabilities(5,950) (5,234)
Proceeds from exercise of stock options33,131  5,911 
Net cash (used in)/provided by financing activities27,181  677 
    
Effect of foreign exchange rate on cash(71) 450 
    
Net increase in cash, cash equivalents, and restricted cash1,127  21,791 
Cash, cash equivalents, and restricted cash, beginning of period118,817  67,431 
Cash, cash equivalents, and restricted cash, end of period$119,944  $89,222 
    
Supplemental disclosures of cash flow information:   
Interest paid  21 
Income taxes paid$22,667  $35,475 
        


 
Supplemental Financial Information

Sales by Geographic Area:
 
(Unaudited)Three Months Ended Six Months Ended
(In thousands)June 30,
2018
 June 30,
2017
 June 30,
2018
 June 30,
2017
United States$145,381  $126,271  $290,997  $255,934 
International28,003  26,119  56,798  52,265 
Total sales$173,384  $152,390  $347,795  $308,199 
 


Sales by Revenue Stream:
 
(Unaudited)Three Months Ended Six Months Ended
(In thousands)June 30,
2018
 June 30,
2017
 June 30,
2018
 June 30,
2017
Spine products$159,569  $152,390  $321,197  $308,199 
Emerging Technology products13,815    26,598   
Total sales$173,384  $152,390  $347,795  $308,199 
 


Liquidity and Capital Resources:
 
(Unaudited)June 30,
2018
 December 31,
2017
(In thousands)   
Cash and cash equivalents$119,944  $118,817 
Short-term marketable securities240,976  254,890 
Long-term marketable securities155,859  56,133 
Total cash, cash equivalents and marketable securities$516,779  $429,840 
 

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,
2018
 June 30,
2017
 June 30,
2018
 June 30,
2017
Net income$44,977  $28,667  $84,516  $57,381 
Interest income, net(2,971) (1,590) (5,262) (3,008)
Provision for income taxes5,327  10,890  13,866  24,590 
Depreciation and amortization9,757  10,695  19,233  22,935 
EBITDA57,090  48,662  112,353  101,898 
Stock-based compensation expense5,480  3,571  11,533  7,062 
Provision for litigation  243    243 
Acquisition related costs1,285  968  1,677  2,054 
Net gain from sale of assets(4,357)   (4,357)  
Adjusted EBITDA$59,498  $53,444  $121,206  $111,257 
        
Net income as a percentage of sales25.9% 18.8% 24.3% 18.6%
Adjusted EBITDA as a percentage of sales34.3% 35.1% 34.8% 36.1%
            


Non-GAAP Net Income Reconciliation Table:
 
(Unaudited)Three Months Ended Six Months Ended
(In thousands)June 30,
2018
 June 30,
2017
 June 30,
2018
 June 30,
2017
Net income$44,977  $28,667  $84,516  $57,381 
Provision for litigation  243    243 
Amortization of intangibles2,178  1,809  4,365  3,591 
Acquisition related costs1,285  968  1,677  2,054 
Net gain from sale of assets(4,357)   (4,357)  
Tax effect of adjusting items95  (840) (238) (1,766)
Non-GAAP net income$44,178  $30,847  $85,963  $61,503 
 


Non-GAAP Diluted Earnings Per Share Reconciliation Table:
 
(Unaudited)Three Months Ended Six Months Ended
(Per share amounts)June 30,
2018
 June 30,
2017
 June 30,
2018
 June 30,
2017
Diluted earnings per share, as reported$0.44  $0.29  $0.84  $0.59 
Provision for litigation       
Amortization of intangibles0.02  0.02  0.04  0.04 
Acquisition related costs0.01  0.01  0.02  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$0.44  $0.32  $0.85  $0.63 
* amounts might not add due to rounding       


Non-GAAP Free Cash Flow Reconciliation Table:
 
(Unaudited)Three Months Ended Six Months Ended
(In thousands)June 30,
2018
 June 30,
2017
 June 30,
2018
 June 30,
2017
Net cash provided by operating activities$33,269  $25,976  $85,564  $79,425 
Adjustment for impact of restricted cash  1    1 
Purchases of property and equipment(14,793) (13,528) (27,167) (25,061)
Non-GAAP free cash flow$18,476  $12,449  $58,397  $54,365 
 


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)June 30,
2018
 June 30,
2017
   
United States$145,381  $126,271  15.1%   15.1%
International28,003  26,119  7.2% $771  4.3%
Total sales$173,384  $152,390  13.8% $771  13.3%
 


(Unaudited)Six Months Ended Reported
Growth
 Currency
Impact on
Current Period
 Constant
Currency
Growth
(In thousands, except percentages)June 30,
2018
 June 30,
2017
   
United States$290,997  $255,934  13.7%   13.7%
International56,798  52,265  8.7% $2,497  3.9%
Total sales$347,795  $308,199  12.8% $2,497  12.0%


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

Wednesday, August 1, 2018 - 16:15