Globus Medical, Inc. (NYSE:GMED), a leading musculoskeletal implant
manufacturer, today announced its financial results for the first
quarter ended March 31, 2017.
- Worldwide sales were $155.8 million, an increase of 11.9%
as reported, or 12.1% in constant currency
- First quarter net income was $28.7 million, or 18.4% of
sales
- Diluted earnings per share (EPS) were $0.30
- Non-GAAP diluted EPS were $0.32
- Non-GAAP adjusted EBITDA was 37.1% of sales
David Paul, Chairman and CEO said, “Our worldwide
sales for the first quarter were $155.8 million, an increase of
11.9% over the first quarter of 2016. Our adjusted EBITDA
margins remained at an outstanding 37.1% and we also delivered non
GAAP EPS of $0.32.
“We are very pleased with our performance during
the first quarter. We launched three new spine products,
received our first trauma 510(k) clearance, had a strong
competitive rep hiring quarter, further expanded our in-house
manufacturing capacity, and continued to run an extremely efficient
organization with best in class adjusted EBITDA margins. 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.”
First quarter sales in the U.S. increased by 1.6%
compared to the first quarter of 2016. International sales
increased by 123.4% over the first quarter of 2016 on an as
reported basis and 126.5% on a constant currency basis due to the
Alphatec acquisition included in the first quarter of 2017.
Sales from the Alphatec acquisition contributed $15.2 million in
the quarter.
First quarter GAAP net income was $28.7 million, an
increase of 2.5% over the same period last year. Diluted EPS
for the first quarter was $0.30, as compared to $0.29 for the first
quarter 2016. Non-GAAP diluted EPS for the first quarter was
$0.32, compared to $0.30 in the first quarter of 2016.
The company generated net cash provided by
operating activities of $53.4 million and non-GAAP free cash flow
of $41.9 million in the first quarter. Cash, cash equivalents
and marketable securities ended the quarter at $389.2
million. The company remains debt free.
2017 Annual GuidanceThe company
reaffirms guidance for full year 2017 sales of $625 million and
non-GAAP fully diluted earnings per share of $1.27.
Conference Call InformationGlobus
Medical will hold a teleconference to discuss its 2017 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
Participants1-720-545-0060 International ParticipantsThere 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, May 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 6940-2658.
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 MeasuresTo
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 March 31,
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 March 31, 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 StatementsAll
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 |
(In thousands,
except per share amounts) |
March 31, 2017 |
|
March 31, 2016 |
Sales |
$ |
155,809 |
|
|
$ |
139,264 |
|
Cost of goods sold |
35,600 |
|
|
31,519 |
|
Gross profit |
120,209 |
|
|
107,745 |
|
|
|
|
|
Operating
expenses: |
|
|
|
Research
and development |
10,666 |
|
|
10,030 |
|
Selling,
general and administrative |
67,059 |
|
|
53,798 |
|
Amortization of intangibles |
1,782 |
|
|
392 |
|
Acquisition related costs |
388 |
|
|
674 |
|
Total operating expenses |
79,895 |
|
|
64,894 |
|
|
|
|
|
Operating income |
40,314 |
|
|
42,851 |
|
Other
income, net |
2,100 |
|
|
760 |
|
Income before income taxes |
42,414 |
|
|
43,611 |
|
Income tax
provision |
13,700 |
|
|
15,601 |
|
|
|
|
|
Net
income |
$ |
28,714 |
|
|
$ |
28,010 |
|
|
|
|
|
Earnings per
share: |
|
|
|
Basic |
$ |
0.30 |
|
|
$ |
0.29 |
|
Diluted |
$ |
0.30 |
|
|
$ |
0.29 |
|
Weighted
average shares outstanding: |
|
|
|
Basic |
95,996 |
|
|
95,398 |
|
Diluted |
97,148 |
|
|
96,293 |
|
GLOBUS MEDICAL, INC. AND
SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE
SHEETS |
|
(In thousands,
except par value) |
March 31, 2017 |
|
December 31, 2016 |
|
|
|
|
ASSETS |
(unaudited) |
|
|
Current
assets: |
|
|
|
Cash and cash
equivalents |
$ |
182,435 |
|
|
$ |
132,639 |
|
Restricted cash |
477 |
|
|
477 |
|
Short-term marketable
securities |
143,663 |
|
|
157,673 |
|
Accounts receivable,
net of allowances of $3,627 and $2,771, respectively |
94,232 |
|
|
91,983 |
|
Inventories |
113,037 |
|
|
112,692 |
|
Prepaid expenses and
other current assets |
7,008 |
|
|
14,502 |
|
Income taxes
receivable |
47 |
|
|
3,800 |
|
Total current assets |
540,899 |
|
|
513,766 |
|
Property and equipment,
net of accumulated depreciation of $173,890 and $166,711,
respectively |
124,840 |
|
|
124,229 |
|
Long-term marketable
securities |
63,066 |
|
|
60,444 |
|
Note receivable |
30,000 |
|
|
30,000 |
|
Intangible assets,
net |
61,343 |
|
|
61,706 |
|
Goodwill |
106,215 |
|
|
105,926 |
|
Other assets |
954 |
|
|
928 |
|
Deferred income
taxes |
33,104 |
|
|
30,638 |
|
Total assets |
$ |
960,421 |
|
|
$ |
927,637 |
|
|
|
|
|
LIABILITIES AND
EQUITY |
|
|
|
Current
liabilities: |
|
|
|
Accounts payable |
$ |
17,013 |
|
|
$ |
17,472 |
|
Accrued expenses |
37,409 |
|
|
46,401 |
|
Income taxes
payable |
11,708 |
|
|
1,911 |
|
Business acquisition
liabilities, current |
9,239 |
|
|
14,108 |
|
Total current liabilities |
75,369 |
|
|
79,892 |
|
Business acquisition
liabilities, net of current portion |
6,087 |
|
|
5,972 |
|
Deferred income
taxes |
8,261 |
|
|
7,876 |
|
Other liabilities |
1,819 |
|
|
1,819 |
|
Total liabilities |
91,536 |
|
|
95,559 |
|
Commitments and
contingencies |
|
|
|
Equity: |
|
|
|
Common stock; $0.001
par value. Authorized 785,000 shares; issued and outstanding
96,077 and 95,930 shares at March 31, 2017 and December 31, 2016,
respectively |
96 |
|
|
96 |
|
Additional paid-in
capital |
217,257 |
|
|
211,725 |
|
Accumulated other
comprehensive loss |
(6,081 |
) |
|
(8,642 |
) |
Retained earnings |
657,613 |
|
|
628,899 |
|
Total equity |
868,885 |
|
|
832,078 |
|
Total liabilities and equity |
$ |
960,421 |
|
|
$ |
927,637 |
|
GLOBUS MEDICAL, INC. AND
SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS |
(unaudited) |
|
|
Three Months Ended |
(In
thousands) |
March 31, 2017 |
|
March 31, 2016 |
Cash flows from
operating activities: |
|
|
|
Net income |
$ |
28,714 |
|
|
$ |
28,010 |
|
Adjustments to
reconcile net income to net cash provided by operating
activities: |
|
|
|
Depreciation and amortization |
12,240 |
|
|
6,676 |
|
Amortization of premium on marketable securities |
1,008 |
|
|
953 |
|
Write-down for excess and obsolete inventories |
1,671 |
|
|
2,225 |
|
Stock-based compensation expense |
3,491 |
|
|
2,770 |
|
Allowance
for doubtful accounts |
794 |
|
|
88 |
|
Change in
fair value of contingent consideration |
478 |
|
|
— |
|
Change in
deferred income taxes |
(2,399 |
) |
|
391 |
|
(Increase)/decrease in: |
|
|
|
Restricted cash |
— |
|
|
15,668 |
|
Accounts
receivable |
(2,225 |
) |
|
2,201 |
|
Inventories |
(2,102 |
) |
|
(2,252 |
) |
Prepaid
expenses and other assets |
8,628 |
|
|
1,209 |
|
Increase/(decrease) in: |
|
|
|
Accounts
payable |
(172 |
) |
|
(1,238 |
) |
Accrued
expenses and other liabilities |
(10,170 |
) |
|
(15,661 |
) |
Income
taxes payable/receivable |
13,493 |
|
|
14,517 |
|
Net cash
provided by operating activities |
53,449 |
|
|
55,557 |
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
Purchases
of marketable securities |
(51,215 |
) |
|
(104,208 |
) |
Maturities of marketable securities |
55,280 |
|
|
69,656 |
|
Sales of
marketable securities |
6,505 |
|
|
7,798 |
|
Purchases
of property and equipment |
(11,533 |
) |
|
(9,366 |
) |
Net cash used
in investing activities |
(963 |
) |
|
(36,120 |
) |
|
|
|
|
Cash flows from
financing activities: |
|
|
|
Payment
of business acquisition liabilities |
(5,001 |
) |
|
(300 |
) |
Proceeds
from exercise of stock options |
1,990 |
|
|
1,895 |
|
Net cash (used
in)/provided by financing activities |
(3,011 |
) |
|
1,595 |
|
|
|
|
|
Effect of foreign
exchange rate on cash |
321 |
|
|
91 |
|
|
|
|
|
Net increase in
cash and cash equivalents |
49,796 |
|
|
21,123 |
|
Cash and cash
equivalents, beginning of period |
132,639 |
|
|
60,152 |
|
Cash and cash
equivalents, end of period |
$ |
182,435 |
|
|
$ |
81,275 |
|
|
|
|
|
Supplemental
disclosures of cash flow information: |
|
|
|
Interest
paid |
8 |
|
|
1 |
|
Income
taxes paid |
$ |
2,656 |
|
|
$ |
774 |
|
Supplemental Financial
Information |
|
Sales by Geographic Area: |
|
(Unaudited) |
Three Months Ended |
(In
thousands) |
March 31, 2017 |
|
March 31, 2016 |
United States |
$ |
129,663 |
|
|
$ |
127,560 |
|
International |
26,146 |
|
|
11,704 |
|
Total sales |
$ |
155,809 |
|
|
$ |
139,264 |
|
Sales by Product Category: |
|
(Unaudited) |
Three Months Ended |
(In
thousands) |
March 31, 2017 |
|
March 31, 2016 |
Innovative Fusion |
$ |
81,872 |
|
|
$ |
70,046 |
|
Disruptive
Technology |
73,937 |
|
|
69,218 |
|
Total sales |
$ |
155,809 |
|
|
$ |
139,264 |
|
Liquidity and Capital Resources: |
|
(Unaudited) |
March 31, 2017 |
|
December 31, 2016 |
(In
thousands) |
|
|
|
Cash and cash
equivalents |
$ |
182,435 |
|
|
$ |
132,639 |
|
Short-term marketable
securities |
143,663 |
|
|
157,673 |
|
Long-term marketable
securities |
63,066 |
|
|
60,444 |
|
Total cash, cash
equivalents and marketable securities |
$ |
389,164 |
|
|
$ |
350,756 |
|
|
|
|
|
Available borrowing
capacity under revolving credit facility |
50,000 |
|
|
50,000 |
|
Working capital |
$ |
465,530 |
|
|
$ |
433,874 |
|
The following tables reconcile GAAP to Non-GAAP
financial measures.
Non-GAAP Adjusted EBITDA Reconciliation
Table: |
|
(Unaudited) |
Three Months Ended |
(In thousands,
except percentages) |
March 31, 2017 |
|
March 31, 2016 |
Net income |
$ |
28,714 |
|
|
$ |
28,010 |
|
Interest income,
net |
(1,418 |
) |
|
(496 |
) |
Provision for income
taxes |
13,700 |
|
|
15,601 |
|
Depreciation and
amortization |
12,240 |
|
|
6,676 |
|
EBITDA |
53,236 |
|
|
49,791 |
|
Stock-based
compensation expense |
3,491 |
|
|
2,770 |
|
Acquisition related
costs |
1,086 |
|
|
674 |
|
Adjusted EBITDA |
$ |
57,813 |
|
|
$ |
53,235 |
|
|
|
|
|
Net income as a
percentage of sales |
18.4 |
% |
|
20.1 |
% |
Adjusted EBITDA as a
percentage of sales |
37.1 |
% |
|
38.2 |
% |
Non-GAAP Net Income Reconciliation
Table: |
|
(Unaudited) |
Three Months Ended |
(In
thousands) |
March 31, 2017 |
|
March 31, 2016 |
Net income |
$ |
28,714 |
|
|
$ |
28,010 |
|
Amortization of
intangibles |
1,782 |
|
|
392 |
|
Acquisition related
costs |
1,086 |
|
|
674 |
|
Tax effect of adjusting
items |
(926 |
) |
|
(382 |
) |
Non-GAAP net
income |
$ |
30,656 |
|
|
$ |
28,694 |
|
Non-GAAP Diluted Earnings Per Share
Reconciliation Table: |
|
(Unaudited) |
Three Months Ended |
(Per share
amounts) |
March 31, 2017 |
|
March 31, 2016 |
Diluted earnings per
share, as reported |
$ |
0.30 |
|
|
$ |
0.29 |
|
Amortization of
intangibles |
0.02 |
|
|
— |
|
Acquisition related
costs |
0.01 |
|
|
0.01 |
|
Tax effect of adjusting
items |
(0.01 |
) |
|
— |
|
Non-GAAP diluted
earnings per share |
$ |
0.32 |
|
|
$ |
0.30 |
|
Non-GAAP Free Cash Flow Reconciliation
Table: |
|
(Unaudited) |
Three Months Ended |
(In
thousands) |
March 31, 2017 |
|
March 31, 2016 |
Net cash provided by
operating activities |
$ |
53,449 |
|
|
$ |
55,557 |
|
Adjustment for impact
of restricted cash |
— |
|
|
(15,668 |
) |
Purchases of property
and equipment |
(11,533 |
) |
|
(9,366 |
) |
Non-GAAP free cash
flow |
$ |
41,916 |
|
|
$ |
30,523 |
|
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) |
March 31, 2017 |
|
March 31, 2016 |
|
|
|
United States |
$ |
129,663 |
|
|
$ |
127,560 |
|
|
1.6 |
% |
|
— |
|
|
1.6 |
% |
International |
26,146 |
|
|
11,704 |
|
|
123.4 |
% |
|
$ |
(364 |
) |
|
126.5 |
% |
Total sales |
$ |
155,809 |
|
|
$ |
139,264 |
|
|
11.9 |
% |
|
$ |
(364 |
) |
|
12.1 |
% |
Contact:
Daniel Scavilla
Senior Vice President, Chief Financial Officer
Phone: (610) 930-1800
Email: investors@globusmedical.com
www.globusmedical.com
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