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Globus Medical Reports Fourth Quarter and Full Year 2019 Results

Feb 20, 2020

AUDUBON, Pa., Feb. 20, 2020 (GLOBE NEWSWIRE) -- Globus Medical, Inc. (NYSE:GMED), a leading musculoskeletal solutions company, today announced its financial results for the fourth quarter and year ended December 31, 2019.

Fourth Quarter:

  • Worldwide sales increased 8.0% as reported to $211.7 million
  • Fourth quarter net income was $45.5 million, or 21.5% of sales
  • Diluted EPS were $0.44
  • Non-GAAP diluted EPS were $0.49
  • Non-GAAP adjusted EBITDA was 34.3% of sales.

Full Year 2019:

  • Worldwide sales increased 10.2% as reported to $785.4 million
  • Net income for the year was $155.2 million, or 19.8% of sales
  • Diluted EPS were $1.52
  • Non-GAAP diluted EPS were $1.68
  • Non-GAAP adjusted EBITDA was 32.8% of sales.

“Globus Medical capped off a great 2019 performance with strong fourth quarter results. Full year revenue was a record $785.4 million, representing a 10.2% increase over 2018, our third consecutive year of double digit growth,” said Dave Demski, CEO. “Our organic growth rate in Spine sales far exceeded the market and was the highest among the top 6 spinal implant competitors.  We sustained a strong finish in Enabling Technologies, demonstrating our ability to compete effectively against much larger players.  We showed significant improvement in adjusted EBITDA, as our second half adjusted EBITDA reached 33.9%, despite heavy investments in INR and Trauma. We launched 17 new products across Spine and Trauma in 2019 and completed significant work on several exciting enhancements to our INR portfolio that are expected to launch in 2020.”

Full year 2019 sales were $785.4 million, a 10.2% increase over 2018, and non-GAAP diluted EPS was $1.68. Worldwide sales for the fourth quarter were $211.7 million, an increase of 8.0% over the fourth quarter of 2018.  Revenue from Enabling Technology was primarily due to continued demand for the ExcelsiusGPS® robotics and navigation system.

Fourth quarter sales in the U.S., including robotics, increased by 8.3% compared to the fourth quarter of 2018. International sales increased by 6.4% over the fourth quarter of 2018 on an as-reported basis and 6.2% on a constant currency basis.

Fourth quarter GAAP net income was $45.5 million, an increase of 23.9% over the same period last year. Diluted EPS for the fourth quarter was $0.44, as compared to $0.36 for the fourth quarter 2018. Non-GAAP diluted EPS for the fourth quarter was $0.49, compared to $0.43 in the fourth quarter of 2018, an increase of 12.3%.

The company generated net cash provided by operating activities of $172.0 million and non-GAAP free cash flow of $101.2 million in 2019. The Company ended the year with cash, cash equivalents and marketable securities of $721.0 million. The company remains debt free.

2020 Annual Guidance

The Company today confirmed full year 2020 guidance with expected sales of $850 million and non-GAAP diluted earnings per share of $1.82.

Conference Call Information

Globus Medical will hold a teleconference to discuss its 2019 fourth quarter and full year 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 www.globusmedical.com/investors.

The call will be archived until Thursday, February 27, 2020. 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 377-7276.

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, and acquisition related costs/licensing, 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 December 31, 2019 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 excluding the provision for litigation, amortization of intangibles, acquisition related costs/licensing, net gain from the sale of assets, impacts of the U.S. Tax Reform Act 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 December 31, 2019 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.

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   Year Ended
  December 31,   December 31,
(In thousands, except per share amounts) 2019
  2018   2017
  2019   2018   2017
Sales $  211,667     $ 195,938     $ 176,034     $  785,368     $ 712,969     $ 635,977  
Cost of goods sold    48,760       45,954       40,856        179,975       159,410       150,453  
Gross profit    162,907       149,984       135,178        605,393       553,559       485,524  
                                           
Operating expenses:                                          
Research and development    15,496       13,758       11,413        60,073       55,496       43,679  
Selling, general and administrative    92,138       83,642       72,958        354,757       311,591       267,817  
Provision for litigation    565       5,878       (112 )      2,190       5,878       2,668  
Amortization of intangibles    3,397       3,063       2,238        13,809       9,588       7,909  
Acquisition related costs    1,331       392       321        2,575       1,681       1,611  
Total operating expenses    112,927       106,733       86,818        433,404       384,234       323,684  
                                           
Operating income    49,980       43,251       48,360        171,989       169,325       161,840  
                                           
Other income, net                                          
Interest income/(expense), net    4,452       4,167       1,863        17,406       13,278       6,608  
Foreign currency transaction gain/(loss)    (48 )     47       227        75       360       909  
Other income/(expense)    66       162       150        476       5,642       571  
Total other income/(expense), net    4,470       4,376       2,240        17,957       19,280       8,088  
                                           
Income before income taxes    54,450       47,627       50,600        189,946       188,605       169,928  
Income tax provision    8,920       10,876       26,224        34,736       32,131       62,580  
                                           
Net income $  45,530     $ 36,751     $ 24,376     $  155,210     $ 156,474     $ 107,348  
                                           
Earnings per share:                                          
Basic $  0.46     $ 0.37     $ 0.25     $  1.57     $ 1.60     $ 1.12  
Diluted $  0.44     $ 0.36     $ 0.25     $  1.52     $ 1.54     $ 1.10  
Weighted average shares outstanding:                                          
Basic    99,601       98,516       96,489        99,150       97,884       96,243  
Diluted    102,933       101,627       98,726        101,998       101,316       97,887  
                                               


 
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
             
    December 31,
(In thousands, except par value)   2019
  2018
ASSETS            
Current assets:            
Cash, cash equivalents, and restricted cash   $  195,724     $ 139,747  
Short-term marketable securities      115,763       199,937  
Accounts receivable, net of allowances of $5,599 and $4,226, respectively      154,326       137,067  
Inventories      196,314       131,254  
Prepaid expenses and other current assets      17,243       15,387  
Income taxes receivable      8,098       7,289  
Total current assets      687,468       630,681  
Property and equipment, net of accumulated depreciation of $243,732 and $216,809, respectively      199,841       171,873  
Long-term marketable securities      409,514       263,117  
Intangible assets, net      78,812       87,323  
Goodwill      128,775       123,734  
Other assets      21,741       10,364  
Deferred income taxes      5,926       13,578  
Total assets   $  1,532,077     $ 1,300,670  
             
LIABILITIES AND EQUITY            
Current liabilities:            
Accounts payable   $  24,614     $ 25,895  
Accrued expenses      63,283       59,878  
Income taxes payable      1,057       917  
Business acquisition liabilities      6,727       6,830  
Deferred revenue      5,402       2,598  
Payable to broker      10,320       -  
Total current liabilities      111,403       96,118  
Business acquisition liabilities, net of current portion      2,822       3,288  
Deferred income taxes      6,023       8,114  
Other liabilities      9,377       7,634  
Total liabilities      129,625       115,154  
Commitments and contingencies            
Equity:            
Class A common stock; $0.001 par value.  Authorized 500,000 shares; issued and outstanding 77,395 and 76,143 shares at December 31, 2019 and December 31, 2018, respectively      77       76  
Class B common stock; $0.001 par value.  Authorized 275,000 shares; issued and outstanding 22,430 and 22,430 shares at December 31, 2019 and December 31, 2018, respectively      22       22  
Additional paid-in capital      357,320       299,869  
Accumulated other comprehensive loss      (2,898 )     (7,172 )
Retained earnings      1,047,931       892,721  
Total equity      1,402,452       1,185,516  
Total liabilities and equity   $  1,532,077     $ 1,300,670  
                 


 
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
                   
    Year Ended
    December 31,
(In thousands)   2019
  2018
  2017
Cash flows from operating activities:                  
Net income   $  155,210     $ 156,474     $ 107,348  
Adjustments to reconcile net income to net cash provided by operating activities:                  
Depreciation and amortization      52,734       41,630       42,067  
Amortization of premium (discount) on marketable securities      (1,089 )     1,677       2,671  
Write-down for excess and obsolete inventories, net      2,498       10,475       11,519  
Stock-based compensation expense      26,085       21,899       14,686  
Allowance for doubtful accounts      3,026       957       1,718  
Change in fair value of business acquisition liabilities      1,787       985       1,240  
Impairment of intangible assets                 516  
Change in deferred income taxes      4,302       971       8,292  
(Gain)/loss on disposal of assets, net      866       (3,557 )      
(Increase)/decrease in:                  
Accounts receivable      (18,306 )     (21,789 )     (24,955 )
Inventories      (50,018 )     (31,382 )     (5,277 )
Prepaid expenses and other assets      (12,263 )     (7,496 )     (4,774 )
Increase/(decrease) in:                  
Accounts payable      773       (3,008 )     9,843  
Accrued expenses and other liabilities      7,043       14,728       (2,064 )
Income taxes payable/receivable      (673 )     (921 )     (3,772 )
Net cash provided by operating activities      171,975       181,643       159,058  
Cash flows from investing activities:                  
Purchases of marketable securities      (346,526 )     (537,942 )     (392,895 )
Maturities of marketable securities      247,008       278,049       240,353  
Sales of marketable securities      53,786       106,388       122,512  
Purchases of property and equipment      (70,750 )     (59,697 )     (51,303 )
Collections/(issuance) of note receivable           30,000        
Proceeds from sale of assets      —       5,000        
Acquisition of businesses, net of cash acquired and purchases of intangible and other assets      (23,799 )     (14,825 )     (29,944 )
Net cash used in investing activities      (140,281 )     (193,027 )     (111,277 )
Cash flows from financing activities:                  
Payment of business acquisition liabilities      (6,597 )     (6,739 )     (10,109 )
Proceeds from exercise of stock options      31,036       39,309       11,735  
Net cash provided by financing activities      24,439       32,570       1,626  
Effect of foreign exchange rate on cash      (156 )     (256 )     1,979  
Net increase in cash, cash equivalents, and restricted cash     55,977       20,930       51,386  
Cash, cash equivalents, and restricted cash at beginning of period      139,747       118,817       67,431  
Cash, cash equivalents, and restricted cash at end of period   $  195,724     $ 139,747     $ 118,817  
Supplemental disclosures of cash flow information:                  
Interest paid      79       6       3  
Income taxes paid   $  34,139     $ 30,552     $ 59,111  
                         


                                                 
Supplemental Financial Information
 
 
Sales by Geographic Area:
                               
    Three Months Ended   Year Ended
    December 31,   December 31,
(In thousands)   2019   2018   2017   2019   2018   2017
United States   $ 177,459     $ 163,788     $ 148,012     $ 647,683     $ 593,878     $ 529,882  
International     34,208       32,150       28,022       137,685       119,091       106,095  
Total Sales   $ 211,667     $ 195,938     $ 176,034     $ 785,368     $ 712,969     $ 635,977  
                                                 


                                                 
Sales by Revenue Stream:
                               
    Three Months Ended   Year Ended
    December 31,   December 31,
(In thousands)   2019   2018   2017   2019   2018   2017
Musculoskeletal Solutions products   $ 197,757     $ 181,638     $ 165,114     $ 738,377     $ 666,040     $ 625,057  
Enabling Technologies products     13,910       14,300       10,920       46,991       46,929       10,920  
Total Sales   $ 211,667     $ 195,938     $ 176,034     $ 785,368     $ 712,969     $ 635,977  
                                                 


 
Liquidity and Capital Resources:
                 
    December 31,   December 31,
(In thousands)   2019   2018
Cash, cash equivalents, and restricted cash   $ 195,724     $ 139,747  
Short-term marketable securities     115,763       199,937  
Long-term marketable securities     409,514       263,117  
Total cash, cash equivalents, restricted cash and marketable securities   $ 721,001     $ 602,801  
                 

The following tables reconcile GAAP to Non-GAAP financial measures.

 
Non-GAAP Adjusted EBITDA Reconciliation Table:
                                   
  Three Months Ended   Year Ended
  December 31,   December 31,
(In thousands, except percentages) 2019
  2018
  2017
  2019
  2018
  2017
Net income $  45,529     $ 36,751     $ 24,376     $  155,210     $ 156,474     $ 107,348  
Interest income, net    (4,452 )     (4,164 )     (1,862 )      (17,406 )     (13,278 )     (6,608 )
Provision for income taxes    8,920       10,876       26,224        34,736       32,131       62,580  
Depreciation and amortization    14,046       11,936       8,294        52,734       41,630       42,067  
EBITDA    64,043       55,399       57,032        225,274       216,957       205,387  
Stock-based compensation expense    6,437       4,821       4,027        26,085       21,899       14,686  
Provision for litigation    565       5,878       (112 )      2,190       5,878       2,668  
Acquisition related costs/licensing    1,652       641       553        3,664       4,488       3,391  
Net (gain) loss from sale of assets    —                    —       (3,593 )      
Adjusted EBITDA $  72,697     $ 66,739     $ 61,500     $  257,213     $ 245,629     $ 226,132  
                                   
Net income as a percentage of sales   21.5 %     18.8 %     13.8 %     19.8 %     21.9 %     16.9 %
Adjusted EBITDA as a percentage of sales   34.3 %     34.1 %     34.9 %     32.8 %     34.5 %     35.6 %
                                               


 
Non-GAAP Net Income Reconciliation Table:
                                   
  Three Months Ended   Year Ended
  December 31,   December 31,
(In thousands) 2019
  2018
  2017
  2019
  2018
  2017
Net income $  45,529     $ 36,751     $ 24,376     $  155,210     $ 156,474     $ 107,348  
Provision for litigation    565       5,878       (112 )      2,190       5,878       2,668  
Amortization of intangibles    3,397       3,063       2,238        13,809       9,588       7,909  
Acquisition related costs/licensing    1,652       641       553        3,664       4,488       3,391  
Net (gain) loss from sale of assets    —                    —       (3,593 )      
Tax reform impact    —             11,014        —             11,014  
Tax effect of adjusting items    (920 )     (2,189 )     (796 )      (3,581 )     (3,437 )     (4,239 )
Non-GAAP net income $  50,223     $ 44,144     $ 37,273     $  171,292     $ 169,398     $ 128,091  
                                               


 
Non-GAAP Diluted Earnings Per Share Reconciliation Table:
                                   
  Three Months Ended   Year Ended
  December 31,   December 31,
(In thousands) 2019
  2018
  2017
  2019
  2018
  2017
Diluted earnings per share, as reported $  0.44     $ 0.36     $ 0.25     $  1.52     $ 1.54     $ 1.10  
Provision for litigation    0.01       0.06              0.02       0.06       0.03  
Amortization of intangibles    0.03       0.03       0.02        0.14       0.09       0.08  
Acquisition related costs/licensing    0.02       0.01       0.01        0.04       0.05       0.03  
Net (gain) loss from sale of assets    —                    —       (0.04 )      
Tax reform impact    —             0.11        —             0.11  
Tax effect of adjusting items    (0.01 )     (0.02 )     (0.01 )      (0.04 )     (0.03 )     (0.04 )
Non-GAAP diluted earnings per share $  0.49     $ 0.43     $ 0.38     $  1.68     $ 1.67     $ 1.31  
                                               

*amounts might not add due to rounding

 
Non-GAAP Free Cash Flow Reconciliation Table:
                                   
  Three Months Ended   Year Ended
  December 31,   December 31,
(In thousands) 2019
  2018
  2017
  2019
  2018
  2017
Net cash provided by operating activities $  54,266     $ 44,291     $ 44,837     $  171,975     $ 181,643     $ 159,058  
Purchases of property and equipment    (15,793 )     (17,159 )     (13,425 )      (70,750 )     (59,697 )     (51,303 )
Free cash flow $  38,473     $ 27,132     $ 31,412     $  101,225     $ 121,946     $ 107,755  
                                   


 
Non-GAAP Sales on a Constant Currency Basis Comparative Table:
                               
    Three Months Ended   Reported   Currency
Impact on 
  Constant
Currency
    December 31,   Sales   Current   Sales
(In thousands, except percentages)   2019   2018   Growth   Period Sales    Growth
United States   $  177,459     $ 163,788     8.3 %   $     8.3 %
International      34,208       32,150     6.4 %     (49 )   6.2 %
Total Sales   $  211,667     $ 195,938     8.0 %   $ (49 )   8.0 %
                               
                               
                               
    Year Ended   Reported   Currency
Impact on 
  Constant
Currency
    December 31,   Sales   Current   Sales
(In thousands, except percentages)   2019   2018   Growth   Period Sales    Growth
United States   $  647,683     $ 593,878     9.1 %   $     9.1 %
International      137,685       119,091     15.6 %     2,359     17.6 %
Total Sales   $  785,368     $ 712,969     10.2 %   $ 2,359     10.5 %
                                     

Contact:

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

globus medical.jpg

Source: Globus Medical

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