Globus Medical Reports Third Quarter 2016 Results

AUDUBON, Pa., Nov. 08, 2016 (GLOBE NEWSWIRE) -- Globus Medical, Inc. (NYSE:GMED), a leading musculoskeletal implant manufacturer, today announced its financial results for the third quarter ended September 30, 2016.
  • Worldwide sales decreased 1.0% as reported to $135.7 million, or a decrease of 0.7% on a constant currency basis
  • Third quarter net income was $26.2 million, or 19.3% of sales
  • Diluted earnings per share (EPS) were $0.27
  • Non-GAAP diluted EPS were $0.29
  • Non-GAAP adjusted EBITDA (AEBITDA) remained at 37.0% of sales
  • Company issues new 2016 guidance for sales of $560 million

David Paul, Chairman and CEO said, "Third quarter sales were $135.7 million, a year-over-year decrease of 1%.  Despite our increased spending in support of our pending robotics and trauma launches, our EBITDA margins remained stable with the prior year, at 37.0%. We also delivered non-GAAP EPS of $0.29, in line with the prior year.

"During the third quarter, we continued progress with product development, sales force expansion and completed the acquisition of Alphatec's international business.  We also made further progress expanding our in-house manufacturing capacity.  We launched 7 new products in the third quarter, bringing our 2016 total to 15.  We remain confident in our long term growth prospects and our ability to sustain our industry leading profitability by the continued execution of our strategy of introducing innovative products, expanding our U.S. and international sales footprint, and diligent expense control."

Third quarter sales in the U.S. decreased by 4.1% compared to the third quarter of 2015.  International sales increased by 34.1% over the third quarter of 2015 on an as reported basis and 38.0% on a constant currency basis.

Third quarter net income was $26.2 million, a decrease of 1.0% over the same period last year.  Diluted EPS for the third quarter was $0.27, as compared to $0.28 for the third quarter 2015.  Non-GAAP diluted EPS for the third quarter, was $0.29, consistent with the third quarter of 2015.

The company generated net cash provided by operating activities of $41.9 million and non-GAAP free cash flow of $24.6 million in the third quarter.  Cash, cash equivalents and marketable securities ended the quarter at $322.4 million.  The company remains debt free.

2016 and 2017 Annual GuidanceThe company today issued new guidance for full year 2016 sales of $560 million and GAAP earnings per share of approximately $1.13. Guidance for non-GAAP diluted EPS remains unchanged at $1.20 per share.  The company currently projects 2017 full year sales of $625 million and expects to provide further guidance at the fourth quarter call.

Conference Call InformationGlobus Medical will hold a teleconference to discuss its 2016 third 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 http://www.globusmedical.com/investors/.

If you are unable to participate during the live teleconference, the call will be archived until Tuesday, November 15, 2016.  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 1961965.

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, provisions 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 September 30, 2016 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.  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 September 30, 2016 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 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
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 
    Three Months Ended   Nine Months Ended
(In thousands, except per share amounts)   September 30,  2016   September 30,  2015   September 30,  2016   September 30,  2015
Sales   $ 135,651     $ 136,992     $ 412,404     $ 402,166  
Cost of goods sold   31,453     32,927     95,703     97,393  
Gross profit   104,198     104,065     316,701     304,773  
                 
Operating expenses:                
Research and development   10,265     9,250     30,889     26,640  
Selling, general and administrative   54,207     52,170     161,317     157,439  
Provision for litigation       27     3,056     433  
Amortization of intangibles   884     393     1,673     1,172  
Acquisition related costs   1,192     1,550     1,347     2,864  
Total operating expenses   66,548     63,390     198,282     188,548  
                 
Operating income   37,650     40,675     118,419     116,225  
Other income, net   1,205     253     2,383     347  
Income before income taxes   38,855     40,928     120,802     116,572  
Income tax provision   12,628     14,447     40,759     41,389  
                 
Net income   $ 26,227     $ 26,481     $ 80,043     $ 75,183  
                 
Earnings per share:                
Basic   $ 0.27     $ 0.28     $ 0.84     $ 0.79  
Diluted   $ 0.27     $ 0.28     $ 0.83     $ 0.78  
Weighted average shares outstanding:                
Basic   95,739     95,138     95,575     94,970  
Diluted   96,492     96,119     96,404     96,026  

GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
 
(In thousands, except par value)   September 30,  2016   December 31,2015
         
ASSETS        
Current assets:        
Cash and cash equivalents   $ 90,192     $ 60,152  
Restricted cash   477     26,119  
Short-term marketable securities   167,727     220,877  
Accounts receivable, net of allowances of $2,694 and $2,513,  respectively   86,708     77,681  
Inventories   115,606     105,260  
Prepaid expenses and other current assets   11,605     7,351  
Income taxes receivable   5,895     8,672  
Deferred income taxes       38,687  
Total current assets   478,210     544,799  
Property and equipment, net of accumulated depreciation of $159,314  and $139,144, respectively   127,084     114,743  
Long-term marketable securities   64,451     48,762  
Note receivable   25,000      
Intangible assets, net   67,438     33,242  
Goodwill   110,250     91,964  
Other assets   1,015     590  
Deferred income taxes   28,295      
Total assets   $ 901,743     $ 834,100  
         
LIABILITIES AND EQUITY        
Current liabilities:        
Accounts payable   $ 13,936     $ 15,971  
Accrued expenses   43,287     53,769  
Income taxes payable   3,696     763  
Business acquisition liabilities, current   4,888     12,188  
Total current liabilities   65,807     82,691  
Business acquisition liabilities, net of current portion   15,020     21,126  
Deferred income taxes   9,013     13,260  
Other liabilities   1,784     1,699  
Total liabilities   91,624     118,776  
Commitments and contingencies        
Equity:        
Common stock; $0.001 par value.  Authorized 785,000 shares; issued  and outstanding 95,806 and 95,320 shares at September 30, 2016  and December 31, 2015, respectively   96     95  
Additional paid-in capital   207,182     192,629  
Accumulated other comprehensive loss   (1,760 )   (1,958 )
Retained earnings   604,601     524,558  
Total equity   810,119     715,324  
Total liabilities and equity   $ 901,743     $ 834,100  

GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
  Nine Months Ended
(In thousands) September 30,  2016   September 30,  2015
Cash flows from operating activities:      
Net income $ 80,043     $ 75,183  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 21,536     17,669  
Amortization of premium on marketable securities 3,067     2,352  
Write-down for excess and obsolete inventories 6,919     7,122  
Stock-based compensation expense 8,437     6,935  
Excess tax benefit related to nonqualified stock options (1,484 )   (1,973 )
Allowance for doubtful accounts 320     957  
Change in deferred income taxes (1,356 )   (4,115 )
(Increase)/decrease in:      
Restricted cash 25,642     (2,015 )
Accounts receivable 3,111     (3,468 )
Inventories (6,609 )   (16,998 )
Prepaid expenses and other assets 7,332     (1,368 )
Increase/(decrease) in:      
Accounts payable (3,426 )   (2,812 )
Accounts payable to related-party     (5,359 )
Accrued expenses and other liabilities (30,178 )   6,042  
Income taxes payable/receivable 6,643     (275 )
Net cash provided by operating activities 119,997     77,877  
       
Cash flows from investing activities:      
Purchases of marketable securities (223,623 )   (207,407 )
Maturities of marketable securities 211,138     131,318  
Sales of marketable securities 47,109     46,064  
Purchases of property and equipment (26,701 )   (36,606 )
Issuance of note receivable (25,000 )    
Acquisition of businesses, net of cash acquired (76,068 )   (48,513 )
Net cash used in investing activities (93,145 )   (115,144 )
       
Cash flows from financing activities:      
Payment of business acquisition liabilities (400 )   (900 )
Proceeds from exercise of stock options 4,428     4,313  
Excess tax benefit related to nonqualified stock options 1,484     1,973  
Net cash provided by financing activities 5,512     5,386  
       
Effect of foreign exchange rate on cash (2,324 )   117  
       
Net decrease in cash and cash equivalents 30,040     (31,764 )
Cash and cash equivalents, beginning of period 60,152     82,265  
Cash and cash equivalents, end of period $ 90,192     $ 50,501  
       
Supplemental disclosures of cash flow information:      
Interest paid 23     9  
Income taxes paid $ 37,009     $ 45,955  

Supplemental Financial Information
 
Sales by Geographic Area:
 
(Unaudited)   Three Months Ended   Nine Months Ended
(In thousands)   September 30,  2016   September 30,  2015   September 30,  2016   September 30,  2015
United States   $ 120,473     $ 125,670     $ 372,749     $ 367,140  
International   15,178     11,322     39,655     35,026  
Total sales   $ 135,651     $ 136,992     $ 412,404     $ 402,166  

Sales by Product Category:
 
(Unaudited)   Three Months Ended   Nine Months Ended
(In thousands)   September 30,  2016   September 30,  2015   September 30,  2016   September 30,  2015
Innovative Fusion   $ 68,498     $ 72,490     $ 207,985     $ 214,431  
Disruptive Technology   67,153     64,502     204,419     187,735  
Total sales   $ 135,651     $ 136,992     $ 412,404     $ 402,166  

Liquidity and Capital Resources:
 
(Unaudited)   September 30,  2016   December 31,  2015
(In thousands)        
Cash and cash equivalents   $ 90,192     $ 60,152  
Short-term marketable securities   167,727     220,877  
Long-term marketable securities   64,451     48,762  
Total cash, cash equivalents and marketable securities   $ 322,370     $ 329,791  
         
Available borrowing capacity under revolving credit facility   50,000     50,000  
Working capital   $ 412,403     $ 462,108  
                 

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,  2016   September 30,  2015   September 30,  2016   September 30,  2015
Net income   $ 26,227     $ 26,481     $ 80,043     $ 75,183  
Interest income, net   (795 )   (342 )   (1,893 )   (898 )
Provision for income taxes   12,628     14,447     40,759     41,389  
Depreciation and amortization   7,838     6,090     21,536     17,669  
EBITDA   45,898     46,676     140,445     133,343  
Stock-based compensation expense   2,747     2,266     8,437     6,935  
Provision for litigation       27     3,056     433  
Acquisition related costs, COGS   304         304     225  
Acquisition related costs   1,192     1,550     1,347     2,864  
Adjusted EBITDA   $ 50,141     $ 50,519     $ 153,589     $ 143,800  
                 
Net income as a percentage of sales   19.3 %   19.3 %   19.4 %   18.7 %
Adjusted EBITDA as a percentage of sales   37.0 %   36.9 %   37.2 %   35.8 %

Non-GAAP Net Income Reconciliation Table:
 
(Unaudited)   Three Months Ended   Nine Months Ended
(In thousands)   September 30,  2016   September 30,  2015   September 30,  2016   September 30,  2015
Net income   $ 26,227     $ 26,481     $ 80,043     $ 75,183  
Provision for litigation       27     3,056     433  
Amortization of intangibles   884     393     1,673     1,172  
Acquisition related items   1,496     1,550     1,651     3,089  
Tax effect of adjusting items   (776 )   (784 )   (2,112 )   (1,676 )
Non-GAAP net income   $ 27,831     $ 27,667     $ 84,311     $ 78,201  

Non-GAAP Diluted Earnings Per Share Reconciliation Table:
 
(Unaudited)   Three Months Ended   Nine Months Ended
(Per share amounts)   September 30,  2016   September 30,  2015   September 30,  2016   September 30,  2015
Diluted earnings per share, as reported   $ 0.27     $ 0.28     $ 0.83     $ 0.78  
Provision for litigation           0.03      
Amortization of intangibles   0.01         0.02     0.01  
Acquisition related items   0.02     0.02     0.02     0.03  
Tax effect of adjusting items   (0.01 )   (0.01 )   (0.02 )   (0.02 )
Non-GAAP diluted earnings per share*   $ 0.29     $ 0.29     $ 0.87     $ 0.81  
* amounts might not add due to rounding                

Non-GAAP Free Cash Flow Reconciliation Table:
 
(Unaudited)   Three Months Ended   Nine Months Ended
(In thousands)   September 30,  2016   September 30,  2015   September 30,  2016   September 30,  2015
Net cash provided by operating activities   $ 41,934     $ 30,046     $ 119,997     $ 77,877  
Adjustment for impact of restricted cash   (10,758 )   703     (25,642 )   2,015  
Purchases of property and equipment   (6,559 )   (11,480 )   (26,701 )   (36,606 )
Non-GAAP free cash flow   $ 24,617     $ 19,269     $ 67,654     $ 43,286  

Non-GAAP Sales on a Constant Currency Basis Comparative Table:
 
(Unaudited)   Three Months Ended   ReportedGrowth   CurrencyImpact onCurrent Period   ConstantCurrencyGrowth
(In thousands, except percentages)   September 30,  2016   September 30,  2015      
United States   $ 120,473     $ 125,670     (4.1 )%       (4.1 )%
International   15,178     11,322     34.1 %   $ (445 )   38.0 %
Total sales   $ 135,651     $ 136,992     (1.0 )%   $ (445 )   (0.7 )%

(Unaudited)   Nine Months Ended   ReportedGrowth   CurrencyImpact onCurrent Period   ConstantCurrencyGrowth
(In thousands, except percentages)   September 30,  2016   September 30,  2015      
United States   $ 372,749     $ 367,140     1.5 %       1.5 %
International   39,655     35,026     13.2 %   $ (1,268 )   16.8 %
Total sales   $ 412,404     $ 402,166     2.5 %   $ (1,268 )   2.9 %

 
Contact:Daniel ScavillaSenior Vice President, Chief Financial OfficerPhone: (610) 930-1800Email: investors@globusmedical.comwww.globusmedical.com

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