GMED Globus Medical Inc

Globus Medical, Inc. (NYSE:GMED), a leading musculoskeletal implant manufacturer, today announced its financial results for the second quarter ended June 30, 2014.

• Worldwide sales were $113.6 million, a 6.1% increase over the second quarter 2013
• Second quarter net income was $20.6 million, compared to $7.4 million last year
• Earnings per diluted share (EPS) were $0.22 in the quarter, compared to $0.08 in 2013
• Non-GAAP EPS was $0.23, up from $0.21 in the second quarter of 2013
• Quarterly Non-GAAP Adjusted EBITDA was 35.4%, an increase over the 34.0% in 2013

David Paul, Chairman and CEO said, "Quarterly sales were up 6.1% over last year, and we continue to execute and produce strong profitability while maintaining our steadfast focus on product innovation. This quarter we launched five new products including CREO® Threaded, part of our growing new pedicle screw platform, CREO®. CREO® Threaded offers controlled gradual correction for complex deformity users who prefer threaded locking caps and addresses the largest segment of the spine market. We are confident in our long term growth prospects and our ability to sustain our industry leading profitability by continued execution of our business model."

Second quarter net sales were $113.6 million, as compared to $107.0 million last year, representing a 6.1% increase. Sales in the US and international grew by 3.6% and 34.1%, respectively, over the same quarter in 2013. International sales currently represent 10.5% of total sales.

Non-GAAP Adjusted EBITDA for the quarter was 35.4% of net sales, compared to 34.0% for the second quarter last year. Non-GAAP net income for the quarter, which excludes the provisions for litigation, was $21.5 million, or $0.23 per diluted share, as compared to $20.0 million, or $0.21 per diluted share, for 2013. GAAP net income for the quarter was $20.6 million, or $0.22 per diluted share, as compared to $7.4 million, or $0.08 per diluted share, in the second quarter of 2013.

Cash, cash equivalents and marketable securities ended the quarter at $313.0 million, increasing by $8.1 million during the quarter. The company remains debt free.

Revenue and Non-GAAP Diluted Earnings per Share Guidance

The company today revised its 2014 revenue guidance and now expects full year net sales to be in the range of $460 to $465 million. Full year Non-GAAP diluted earnings per share guidance remained unchanged, and is expected to be in the range of $0.90 to $0.92 per share of common stock.

Conference Call Information

Globus Medical will hold a teleconference to discuss its 2014 first 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.

If you are unable to participate during the live teleconference, the call will be archived until Tuesday, August 19, 2014. 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 pass code for the audio replay is 2863-3213.

About Globus Medical, Inc.

Globus Medical, Inc. is a leading musculoskeletal implant 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, Adjusted EBITDA, which represents net income before interest (income)/expense, net and other non-operating expenses, provision for income taxes, depreciation and amortization, stock-based compensation, changes in the fair value of acquisition-related contingent consideration, provision for litigation and provision for litigation - cost of goods sold, 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 Adjusted EBITDA for planning purposes, including the preparation of our annual operating budget and financial projections. In addition, for the periods ended June 30, 2014 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, respectively, before provisions for litigation, which is net of the tax effects of such provisions. We believe these non-GAAP measures are also useful indicators of our operating performance, and particularly as additional measures of comparative operative performance from period to period as they remove the effects of litigation, which we believe are not reflective of underlying business trends. We also define the non-GAAP measure of Free Cash Flow as the net cash provided by operating activities 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.

Adjusted EBITDA, non-GAAP net income, non-GAAP diluted earnings per share and Free Cash Flow 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 Adjusted EBITDA, non-GAAP net income, non-GAAP diluted earnings per share and Free Cash Flow 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, 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

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

    Three Months Ended   Six Months Ended June 30,   June 30, June 30,   June 30,

(In thousands, except per share amounts)

2014 2013 2014 2013 Sales $ 113,573 $ 107,009 $ 227,783 $ 212,027 Cost of goods sold 26,583 23,501 51,895 46,994 Provision for litigation - cost of goods sold   0   1,260     0   1,260 Gross profit   86,990   82,248     175,888   163,773   Operating expenses: Research and development 7,694 7,037 15,137 13,884 Selling, general and administrative 46,425 45,750 93,103 91,147 Provision for litigation   1,318   18,269     3,853   18,319 Total operating expenses   55,437   71,056     112,093   123,350   Operating income 31,553 11,192 63,795 40,423 Other income/(expense), net   325   (221 )   570   58 Income before income taxes 31,878 10,971 64,365 40,481 Income tax provision   11,231   3,545     22,579   13,164   Net income $ 20,647 $ 7,426   $ 41,786 $ 27,317   Earnings per share: Basic $ 0.22 $ 0.08   $ 0.44 $ 0.30 Diluted $ 0.22 $ 0.08   $ 0.44 $ 0.29 Weighted average shares outstanding: Basic   94,212   92,415     93,965   92,110 Diluted   95,480   93,970     95,328   93,772      

GLOBUS MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

  (In thousands, except par value) June 30, 2014 December 31, 2013 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 136,500 $ 89,962 Short-term marketable securities 139,765 148,962 Accounts receivable, net of allowances of $1,554 and $1,581, respectively 65,054 62,414 Inventories 76,362 70,350 Prepaid expenses and other current assets 5,412 5,080 Income taxes receivable 4,690 2,723 Deferred income taxes   39,317     37,317   Total current assets   467,100     416,808   Property and equipment, net of accumulated depreciation of $109,342 and $99,910, respectively 65,572 64,150 Long-term marketable securities 36,754 36,528 Intangible assets, net 29,271 29,537 Goodwill 18,372 18,372 Other assets   931     909   Total assets $ 618,000   $ 566,304     LIABILITIES AND EQUITY Current liabilities: Accounts payable 8,814 10,073 Accounts payable to related party 4,159 2,656 Accrued expenses 51,366 51,125 Income taxes payable 212 2,358 Business acquisition liabilities, current   1,419     1,730   Total current liabilities   65,970     67,942   Business acquisition liabilities, net of current portion 15,449 15,528 Deferred income taxes 4,147 6,385 Other liabilities   4,124     4,089   Total liabilities   89,690     93,944   Commitments and contingencies Equity: Common stock; $0.001 par value. Authorized 785,000 shares; issued and outstanding 94,367 and 93,443 shares at June 30, 2014 and December 31, 2013, respectively 94 93 Additional paid-in capital 168,008 153,987 Accumulated other comprehensive loss (867 ) (1,009 ) Retained earnings   361,075     319,289   Total equity   528,310     472,360   Total liabilities and equity $ 618,000   $ 566,304       GLOBUS MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

  Six Months Ended (In thousands) June 30, 2014   June 30, 2013 Cash flows from operating activities: Net income $ 41,786 $ 27,317 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,684 9,352 Amortization of premium on marketable securities 1,566 755 Provision for excess and obsolete inventories 3,535 3,463 Stock-based compensation 3,550 2,478 Allowance for doubtful accounts 112 89 Change in deferred income taxes (4,231 ) (5,806 ) (Increase)/decrease in: Accounts receivable (2,491 ) (4,410 ) Inventories (9,494 ) (12,955 ) Prepaid expenses and other assets (384 ) (2,501 ) Increase/(decrease) in: Accounts payable (821 ) 243 Accounts payable to related party 1,503 2,645 Accrued expenses and other liabilities 385 15,824 Income taxes payable/receivable (4,118 ) (9,238 ) Net cash provided by operating activities 41,582   27,256     Cash flows from investing activities: Purchases of marketable securities (105,015 ) (144,062 ) Maturities of marketable securities 95,292 3,900 Sales of marketable securities 17,155 — Purchases of property and equipment (12,231 ) (12,956 ) Net cash used in investing activities (4,799 ) (153,118 )   Cash flows from financing activities: Payment of business acquisition liabilities (600 ) (700 ) Proceeds from issuance of common stock 6,631 4,254 Excess tax benefit related to nonqualified stock options 3,841   2,187   Net cash provided by financing activities 9,872   5,741     Effect of foreign exchange rate on cash (117 ) 35     Net increase/(decrease) in cash and cash equivalents 46,538 (120,086 ) Cash and cash equivalents, beginning of period 89,962   212,400   Cash and cash equivalents, end of period $ 136,500   $ 92,314     Supplemental disclosures of cash flow information: Interest paid 25 30 Income taxes paid $ 27,122 $ 25,891       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, 2014   June 30, 2013 June 30, 2014   June 30, 2013 Net income $ 20,647 $ 7,426 $ 41,786 $ 27,317 Interest income, net (195 ) (144 ) (396 ) (190 ) Provision for income taxes 11,231 3,545 22,579 13,164 Depreciation and amortization 5,387   4,742   10,684   9,352   EBITDA 37,070 15,569 74,653 49,643 Stock-based compensation 1,623 1,166 3,550 2,478 Provision for litigation 1,318 18,269 3,853 18,319 Provision for litigation - cost of goods sold — 1,260 — 1,260 Change in fair value of acquisition-related contingent consideration 143   74   153   144   Adjusted EBITDA $ 40,154   $ 36,338   $ 82,209   $ 71,844   Adjusted EBITDA as a percentage of sales 35.4 % 34.0 % 36.1 % 33.9 %      

 Non-GAAP Net Income Reconciliation Table:

  (Unaudited) Three Months Ended Six Months Ended (In thousands) June 30, 2014   June 30, 2013 June 30, 2014   June 30, 2013 Net income $ 20,647 $ 7,426 $ 41,786 $ 27,317 Provision for litigation, net of taxes 854 11,802 2,497 11,834 Provision for litigation - cost of goods sold, net of taxes —   814   —   814   Non-GAAP Net Income $ 21,501   $ 20,042   $ 44,283   $ 39,965        

Non-GAAP Diluted Earnings Per Share Reconciliation Table:

  (Unaudited) Three Months Ended Six Months Ended (Per share amounts) June 30, 2014   June 30, 2013 June 30, 2014   June 30, 2013 Diluted earnings per share, as reported $ 0.22 $ 0.08 $ 0.44 $ 0.29 Provision for litigation, net of taxes 0.01 0.12 0.02 0.13 Provision for litigation - cost of goods sold, net of taxes —   0.01   —   0.01   Non-GAAP diluted earnings per share $ 0.23   $ 0.21   $ 0.46   $ 0.43        

Non-GAAP Free Cash Flow Reconciliation Table:

  (Unaudited) Three Months Ended Six Months Ended (In thousands) June 30, 2014   June 30, 2013 June 30, 2014   June 30, 2013 Net cash provided by operating activities $ 12,350 $ 8,980 $ 41,582 $ 27,256 Purchases of property and equipment (6,067 ) (6,184 ) (12,231 ) (12,956 ) Non-GAAP free cash flow $ 6,283   $ 2,796   $ 29,351   $ 14,300        

The following table highlights certain information related to our liquidity and capital resources:

  (In thousands) June 30, 2014 December 31, 2013 (unaudited)   Cash and cash equivalents $ 136,500 $ 89,962 Short-term marketable securities 139,765 148,962 Long-term marketable securities 36,754   36,528   Total cash, cash equivalents and marketable securities $ 313,019   $ 275,452     Available borrowing capacity under revolving credit facility 50,000 50,000 Working capital $ 401,130 $ 348,866  

Globus Medical, Inc.Ed JoyceDirector, Investor Relations610-930-1800investors@globusmedical.comwww.globusmedical.com