GMED Globus Medical Inc

Record Sales and Profits

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

• Worldwide sales were $117.8 million, a 9.9% increase over the third quarter of 2013
• Third quarter net income was $23.1 million, compared to $20.3 million in the third quarter of 2013
• Fully diluted earnings per share (EPS) were $0.24 in the quarter, compared to $0.22 in 2013
• Quarterly Non-GAAP Adjusted EBITDA was 35.6% of sales, an increase over the 33.4% in 2013

David Paul, Chairman and CEO said, "We are very pleased with our record sales in the third quarter. This result can be attributed to consistent, steady execution of our growth strategy over the past several quarters, primarily the introduction of innovative technology and the expansion of our sales footprint, both in the U.S. and abroad. EPS was also a record this quarter, as we continue to see operating leverage in all facets of the business, while maintaining our disciplined approach to spending. Lastly, we are excited by the potential of our recently announced acquisition of Transplant Technologies of Texas."

Third quarter net sales were $117.8 million, as compared to $107.2 million last year, representing a 9.9% increase. Sales in the US and international grew by 8.7% and 23.2%, respectively, over the same quarter in 2013. Third quarter International sales represent 9.5% of total sales.

Non-GAAP Adjusted EBITDA for the quarter was 35.6% of net sales, compared to 33.4% for the third quarter last year. GAAP net income for the quarter was $23.1 million, or $0.24 per diluted share, as compared to $20.3 million, or $0.22 per diluted share, in the third quarter of 2013.

Cash, cash equivalents and marketable securities ended the quarter at $345.8 million, increasing by $32.8 million during the quarter. The company remains debt free.

The Company also announced the resignation of Rick Baron, Senior Vice President and Chief Financial Officer. Mr. Baron, who is resigning to pursue other interests, will remain with the Company to assist with the transition during the search for his replacement. As part of the Company’s transition plan, Mr. Baron will step down as the Company’s Chief Financial Officer, effective on November 3, 2014, to allow him to focus on issues related to the transition. Dave Demski, the Company’s President and Chief Operating Officer, will also assume the role of the Company’s Chief Financial Officer on an interim basis until the new Chief Financial Officer is hired. Mr. Demski previously served as the Company’s Chief Financial Officer from 2003 until his promotion to President and Chief Operating Officer in 2008.

Conference Call Information

Globus Medical will hold a teleconference to discuss its 2014 third quarter results and the recently announced acquisition 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 Thursday, November 13, 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 2863-3214.

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 September 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 Nine Months Ended (In thousands, except per share amounts) September 30, 2014   September 30, 2013 September 30, 2014   September 30, 2013 Sales $ 117,787 $ 107,187 $ 345,570 $ 319,214 Cost of goods sold 27,686 25,315 79,581 72,309 Provision for litigation - cost of goods sold —   —   —   1,260 Gross profit 90,101   81,872   265,989   245,645   Operating expenses: Research and development 8,146 6,568 23,283 20,452 Selling, general and administrative 46,986 45,702 140,089 136,849 Provision for litigation 46   99   3,899   18,418 Total operating expenses 55,178   52,369   167,271   175,719   Operating income 34,923 29,503 98,718 69,926 Other income/(expense), net (124 ) 197   446   255 Income before income taxes 34,799 29,700 99,164 70,181 Income tax provision 11,738   9,390   34,317   22,554   Net income $ 23,061   $ 20,310   $ 64,847   $ 47,627   Earnings per share: Basic $ 0.24   $ 0.22   $ 0.69   $ 0.52 Diluted $ 0.24   $ 0.22   $ 0.68   $ 0.51 Weighted average shares outstanding: Basic 94,399   93,028   94,111   92,418 Diluted 95,475   94,422   95,378   94,044     GLOBUS MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS   (In thousands, except par value) September 30, 2014 December 31, 2013 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 169,449 $ 89,962 Short-term marketable securities 129,302 148,962 Accounts receivable, net of allowances of $1,733 and $1,581, respectively 62,598 62,414 Inventories 77,430 70,350 Prepaid expenses and other current assets 6,183 5,080 Income taxes receivable 2,101 2,723 Deferred income taxes 37,750   37,317   Total current assets 484,813   416,808   Property and equipment, net of accumulated depreciation of $113,868 and $99,910, respectively 66,062 64,150 Long-term marketable securities 47,028 36,528 Intangible assets, net 29,139 29,537 Goodwill 18,372 18,372 Other assets 1,025   909   Total assets $ 646,439   $ 566,304     LIABILITIES AND EQUITY Current liabilities: Accounts payable 9,703 10,073 Accounts payable to related party 3,945 2,656 Accrued expenses 55,606 51,125 Income taxes payable 2,062 2,358 Business acquisition liabilities, current 1,443   1,730   Total current liabilities 72,759   67,942   Business acquisition liabilities, net of current portion 15,348 15,528 Deferred income taxes 1,734 6,385 Other liabilities 2,790   4,089   Total liabilities 92,631   93,944   Commitments and contingencies Equity: Common stock; $0.001 par value. Authorized 785,000 shares; issued and outstanding 94,464 and 93,443 shares at September 30, 2014 and December 31, 2013, respectively 94 93 Additional paid-in capital 170,885 153,987 Accumulated other comprehensive loss (1,307 ) (1,009 ) Retained earnings 384,136   319,289   Total equity 553,808   472,360   Total liabilities and equity $ 646,439   $ 566,304     GLOBUS MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)   Nine Months Ended (In thousands) September 30, 2014   September 30, 2013 Cash flows from operating activities: Net income $ 64,847 $ 47,627 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 16,057 14,211 Amortization of premium on marketable securities 2,073 1,476 Provision for excess and obsolete inventories 5,439 6,405 Stock-based compensation 5,211 3,865 Allowance for doubtful accounts 236 234 Change in deferred income taxes (5,115 ) (11,138 ) (Increase)/decrease in: Accounts receivable (886 ) (2,143 ) Inventories (12,535 ) (15,715 ) Prepaid expenses and other assets (1,325 ) (3,587 ) Increase/(decrease) in: Accounts payable (2,253 ) 1,022 Accounts payable to related party 1,289 730 Accrued expenses and other liabilities 3,855 19,639 Income taxes payable/receivable 334   (1,813 ) Net cash provided by operating activities 77,227   60,813     Cash flows from investing activities: Purchases of marketable securities (161,149 ) (186,748 ) Maturities of marketable securities 144,207 19,000 Sales of marketable securities 24,028 4,979 Purchases of property and equipment (15,659 ) (18,475 ) Net cash used in investing activities (8,573 ) (181,244 )   Cash flows from financing activities: Payment of business acquisition liabilities (900 ) (1,000 ) Proceeds from issuance of common stock 7,644 6,221 Excess tax benefit related to nonqualified stock options 4,044   4,519   Net cash provided by financing activities 10,788   9,740     Effect of foreign exchange rate on cash 45   198     Net increase/(decrease) in cash and cash equivalents 79,487 (110,493 ) Cash and cash equivalents, beginning of period 89,962   212,400   Cash and cash equivalents, end of period $ 169,449   $ 101,907     Supplemental disclosures of cash flow information: Interest paid 32 42 Income taxes paid $ 36,362 $ 30,956    

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, 2014   September 30, 2013 September 30, 2014   September 30, 2013 Net income $ 23,061 $ 20,310 $ 64,847 $ 47,627 Interest income, net (181 ) (146 ) (577 ) (336 ) Provision for income taxes 11,738 9,390 34,317 22,554 Depreciation and amortization 5,373   4,859   16,057   14,211   EBITDA 39,991 34,413 114,644 84,056 Stock-based compensation 1,661 1,387 5,211 3,865 Provision for litigation 46 99 3,899 18,418 Provision for litigation - cost of goods sold — — — 1,260 Change in fair value of acquisition-related contingent consideration 263   (134 ) 416   10   Adjusted EBITDA $ 41,961   $ 35,765   $ 124,170   $ 107,609   Adjusted EBITDA as a percentage of sales 35.6 % 33.4 % 35.9 % 33.7 %    

Non-GAAP Net Income Reconciliation Table:

  (Unaudited) Three Months Ended Nine Months Ended (In thousands) September 30, 2014   September 30, 2013 September 30, 2014   September 30, 2013 Net income $ 23,061 $ 20,310 $ 64,847 $ 47,627 Provision for litigation, net of taxes 30 65 2,527 11,897 Provision for litigation - cost of goods sold, net of taxes —   —   —   816 Non-GAAP Net Income $ 23,091   $ 20,375   $ 67,374   $ 60,340    

Non-GAAP Diluted Earnings Per Share Reconciliation Table:

  (Unaudited) Three Months Ended Nine Months Ended (Per share amounts) September 30, 2014   September 30, 2013 September 30, 2014   September 30, 2013 Diluted earnings per share, as reported $ 0.24 $ 0.22 $ 0.68 $ 0.51 Provision for litigation, net of taxes — — 0.03 0.12 Provision for litigation - cost of goods sold, net of taxes —   —   —   0.01 Non-GAAP diluted earnings per share $ 0.24   $ 0.22   $ 0.71   $ 0.64    

Non-GAAP Free Cash Flow Reconciliation Table:

  (Unaudited) Three Months Ended Nine Months Ended (In thousands) September 30, 2014   September 30, 2013 September 30, 2014   September 30, 2013 Net cash provided by operating activities $ 35,645 $ 33,557 $ 77,227 $ 60,813 Purchases of property and equipment (3,428 ) (5,519 ) (15,659 ) (18,475 ) Non-GAAP free cash flow $ 32,217   $ 28,038   $ 61,568   $ 42,338      

Liquidity and Capital Resources:

  (In thousands) September 30, 2014 December 31, 2013 (unaudited) Cash and cash equivalents $ 169,449 $ 89,962 Short-term marketable securities 129,302 148,962 Long-term marketable securities 47,028   36,528 Total cash, cash equivalents and marketable securities $ 345,779   $ 275,452   Available borrowing capacity under revolving credit facility 50,000 50,000 Working capital $ 412,054 $ 348,866

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