UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
or
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File No.
(Exact name of registrant as specified in its charter)
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(Address of principal executive offices) (Zip Code) |
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Securities registered pursuant to Section 12(b) of the Act: | ||
Title of each class | Trading Symbols | Name of exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files):
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes No
The number of shares outstanding of the issuer’s common stock (par value $0.001 per share) as of October 26, 2020 was
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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| December 31, | ||
(In thousands, except par value) |
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ASSETS |
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Current assets: |
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Cash, cash equivalents, and restricted cash |
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Short-term marketable securities |
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Accounts receivable, net of allowances of $ |
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Inventories |
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Prepaid expenses and other current assets |
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Income taxes receivable |
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Total current assets |
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Property and equipment, net of accumulated depreciation of $ |
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Long-term marketable securities |
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Intangible assets, net |
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Goodwill |
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Other assets |
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Deferred income taxes |
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Total assets |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable |
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Accrued expenses |
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Income taxes payable |
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Business acquisition liabilities |
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Deferred revenue |
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Payable to broker |
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Total current liabilities |
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Business acquisition liabilities, net of current portion |
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Deferred income taxes |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies (Note 12) |
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Equity: |
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Class A common stock; $ |
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Class B common stock; $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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Retained earnings |
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Total equity |
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Total liabilities and equity |
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See accompanying notes to unaudited condensed consolidated financial statements.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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(In thousands, except per share amounts) |
| 2020 |
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Net sales |
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Cost of goods sold |
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Gross profit |
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Operating expenses: |
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Research and development |
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Selling, general and administrative |
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Provision for litigation |
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Amortization of intangibles |
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Acquisition related costs |
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Total operating expenses |
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Operating income/(loss) |
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Other income, net |
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Interest income/(expense), net |
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Foreign currency transaction gain/(loss) |
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Other income/(expense) |
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Total other income/(expense), net |
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Income/(loss) before income taxes |
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Income tax provision |
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Net income/(loss) |
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Earnings per share: |
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Basic |
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Diluted |
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Weighted average shares outstanding: |
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Basic |
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Dilutive stock options |
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Diluted |
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Anti-dilutive stock options excluded from weighted average calculation |
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See accompanying notes to unaudited condensed consolidated financial statements.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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| Three Months Ended |
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(In thousands) |
| 2020 |
| 2019 |
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| 2019 | ||||
Net income/(loss) |
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Other comprehensive income/(loss): |
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Unrealized gain/(loss) on marketable securities, net of tax |
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Foreign currency translation gain/(loss) |
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Total other comprehensive income/(loss) |
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Comprehensive income/(loss) |
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See accompanying notes to unaudited condensed consolidated financial statements.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
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| Class A |
| Class B |
| Additional paid-in |
| Accumulated other comprehensive |
| Retained |
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(In thousands) |
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| capital |
| income/(loss) |
| earnings |
| Total | ||||||
Balance at December 31, 2019 |
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Cumulative effects of adoption of accounting standards |
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Stock-based compensation |
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Exercise of stock options |
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Comprehensive income/(loss) |
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Repurchase and retirement of common stock |
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Balance at March 31, 2020 |
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Stock-based compensation |
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Exercise of stock options |
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Comprehensive income/(loss) |
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Repurchase and retirement of common stock |
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Balance at June 30, 2020 |
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Stock-based compensation |
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Exercise of stock options |
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Comprehensive income/(loss) |
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Balance at September 30, 2020 |
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(In thousands) |
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| earnings |
| Total | ||||||
Balance at December 31, 2018 |
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Stock-based compensation |
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Exercise of stock options |
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Comprehensive income/(loss) |
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Balance at March 31, 2019 |
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Stock-based compensation |
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Exercise of stock options |
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Comprehensive income/(loss) |
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Balance at June 30, 2019 |
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Stock-based compensation |
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Exercise of stock options |
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Comprehensive income/(loss) |
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Balance at September 30, 2019 |
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See accompanying notes to unaudited condensed consolidated financial statements.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Cash flows from operating activities: |
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Net income |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Acquired in-process research and development |
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Depreciation and amortization |
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Amortization of premium (discount) on marketable securities |
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Write-down for excess and obsolete inventories |
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Stock-based compensation expense |
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Allowance for doubtful accounts |
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Change in fair value of business acquisition liabilities |
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Change in deferred income taxes |
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(Gain)/loss on disposal of assets, net |
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Payment of business acquisition related liabilities |
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(Increase)/decrease in: |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other assets |
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Increase/(decrease) in: |
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Accounts payable |
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Accrued expenses and other liabilities |
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Income taxes payable/receivable |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Purchases of marketable securities |
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Maturities of marketable securities |
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Sales of marketable securities |
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Purchases of property and equipment |
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Acquisition of businesses, net of cash acquired, and purchases of intangible and other assets |
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Net cash used in investing activities |
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Cash flows from financing activities: |
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Payment of business acquisition related liabilities |
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Proceeds from exercise of stock options |
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Repurchase of common stock |
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Net cash used in/provided by financing activities |
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Effect of foreign exchange rate on cash |
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Net increase in cash, cash equivalents, and restricted cash |
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Cash, cash equivalents, and restricted cash at beginning of period |
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Cash, cash equivalents, and restricted cash at end of period |
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Supplemental disclosures of cash flow information: |
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Income taxes paid |
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Purchases of property and equipment included in accounts payable and accrued expenses |
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See accompanying notes to unaudited condensed consolidated financial statements.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(a) The Company
Globus Medical, Inc., together with its subsidiaries, is a medical device company that develops and commercializes healthcare solutions whose mission is to improve the quality of life of patients with musculoskeletal disorders. We are primarily focused on implants that promote healing in patients with musculoskeletal disorders, including the use of a robotic guidance and navigation system and products to treat patients who have experienced orthopedic traumas.
We are an engineering-driven company with a history of rapidly developing and commercializing advanced products and procedures to assist surgeons in effectively treating their patients and address new treatment options. With over
We are headquartered in Audubon, Pennsylvania, and market and sell our products through our exclusive sales force in the United States, as well as within North, Central & South America, Europe, Asia, Africa and Australia. The sales force consists of direct sales representatives and distributor sales representatives employed by exclusive independent distributors.
The terms the “Company,” “Globus,” “we,” “us” and “our” refer to Globus Medical, Inc. and, where applicable, our consolidated subsidiaries.
(b) COVID-19 Pandemic Impact
On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide. The pandemic has significantly impacted the economic conditions in the U.S. and globally as federal, state and local governments react to the public health crisis, creating significant uncertainties in the economy. While emergency and time-sensitive surgical procedures continue, as of the date of this filing, the Company has been impacted by temporary postponement of elective surgeries in hospitals and surgical facilities worldwide.
The Company cannot reasonably estimate the length or severity of this pandemic, however, as a result of these developments the Company expects a material adverse impact on its sales, results of operations, and cash flows in fiscal 2020, and potentially fiscal 2021.
In response to these developments, the Company will continue to monitor liquidity and cash flow. The Company has the ability to borrow from our credit facility signed on August 6, 2020, if needed, although we do not expect to do so due to our cash, cash equivalents and short-term marketable securities balances.
(c)
The accompanying interim unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in complete financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2019.
In the opinion of management, the statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of our financial position and of the results for the three and nine month periods presented. The results of operations for any interim period are not indicative of results for the full year.
(d)
The accompanying unaudited condensed consolidated financial statements include the accounts of Globus and its wholly-owned subsidiaries. All intercompany balances and transactions are eliminated in consolidation.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(e)
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates, in part, on historical experience that management believes to be reasonable under the circumstances. Actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the condensed consolidated financial statements in the period they are determined to be necessary.
Significant areas that require management’s estimates include intangible assets, business acquisition liabilities, stock-based compensation, write-down for excess and obsolete inventory, useful lives of assets, the outcome of litigation, recoverability of intangible assets and income taxes. We are subject to risks and uncertainties due to changes in the healthcare environment, regulatory oversight, competition, and legislation that may cause actual results to differ from estimated results.
(f)
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows:
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| September 30, |
| December 31, |
| September 30, |
| December 31, | ||||
(In thousands) |
| 2020 |
| 2019 |
| 2019 |
| 2018 | ||||
Cash and cash equivalents |
| $ | |
| $ | |
| $ | |
| $ | |
Restricted cash |
|
| — |
|
| |
|
| |
|
| |
Total cash, cash equivalents, and restricted cash as presented in the condensed consolidated statement of cash flows |
| $ | |
| $ | |
| $ | |
| $ | |
(g)
Our marketable securities include municipal bonds, corporate debt securities, commercial paper, securities of government, federal agency, and other sovereign obligations, and asset-backed securities, and are classified as available-for-sale as of September 30, 2020 and December 31, 2019. Available-for-sale securities are recorded at fair value in both short-term and long-term marketable securities on our condensed consolidated balance sheets. The change in fair value for available-for-sale securities, that do not result in recognition or reversal of an allowance for credit loss or write-down, is recorded, net of taxes, as a component of accumulated other comprehensive income or loss on our condensed consolidated balance sheets. Premiums and discounts are recognized over the life of the related security as an adjustment to yield using the straight-line method. Realized gains or losses from the sale of our marketable securities are determined on a specific identification basis. Realized gains and losses, along with interest income and the amortization/accretion of premiums/discounts are included as a component of other income/(expense), on our condensed consolidated statements of income. Interest receivable is recorded as a component of prepaid expenses and other current assets on our condensed consolidated balance sheets.
We maintain a portfolio of various holdings, types and maturities, though most of the securities in our portfolio could be liquidated at minimal cost at any time. We invest in securities that meet or exceed standards as defined in our investment policy. Our policy also limits the amount of credit exposure to any one issue, issuer or type of security. We review our securities for other-than-temporary impairment at each reporting period. If an unrealized loss for any security is expected, the loss will be recognized on an allowance basis, consistent with ASC 326-30, in our condensed consolidated statement of income in the period the determination is made.
(h)
Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis
Under the accounting for fair value measurements and disclosures, fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or the liability in an orderly transaction between market participants on the measurement date. Additionally, a fair value hierarchy was established that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. The level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Our assets and liabilities measured at fair value on a recurring basis are classified and disclosed in one of the following three categories:
Level 1—quoted prices (unadjusted) in active markets for identical assets and liabilities;
Level 2—observable inputs other than quoted prices in active markets for identical assets and liabilities; and
Level 3—unobservable inputs in which there is little or no market data available, which require the reporting entity to use significant unobservable inputs or valuation techniques.
Assets and Liabilities That Are Measured at Fair Value on a Nonrecurring Basis
The purchase price of business acquisitions is primarily allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition dates, with the excess recorded as goodwill. We utilize Level 3 inputs in the determination of the initial fair value. Non-financial assets such as goodwill, intangible assets, and property, plant, and equipment are subsequently measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment is recognized. We assess the impairment of intangible assets annually or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. The fair value of our goodwill and intangible assets is not estimated if there is no change in events or circumstances that indicate the carrying amount of an intangible asset may not be recoverable.
(i)
Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. The majority of our inventories are finished goods and we utilize both in-house manufacturing and third-party suppliers to source our products. We periodically evaluate the carrying value of our inventories in relation to our estimated forecast of product demand, which takes into consideration the estimated life cycle of product releases. When quantities on hand exceed estimated sales forecasts, we record a write-down for such excess inventories. Once inventory has been written down, it creates a new cost basis for inventory that is not subsequently written up.
(j)
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. For purposes of disclosing disaggregated revenue, we disaggregate our revenue into two categories, Musculoskeletal Solutions and Enabling Technologies. Our Musculoskeletal Solutions products consist primarily of the implantable devices, disposables, and unique instruments used in an expansive range of spine, orthopedic trauma, hip, knee and extremity procedures. The majority of our Musculoskeletal Solutions contracts have a single performance obligation and revenue is recognized at a point in time. Our Enabling Technologies products are the advanced hardware and software systems and related technologies that are designed to enhance a surgeon’s capabilities and streamline surgical procedures by making them less invasive, more accurate, and more reproducible to improve patient care. The majority of our Enabling Technologies product contracts typically contain multiple performance obligations, including maintenance and support, and revenue is recognized as we fulfill each performance obligation. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. Our policy is to classify shipping and handling costs billed to customers as sales and the related expenses as cost of goods sold.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Nature of Products and Services
A significant portion of our Musculoskeletal Solutions product revenue is generated from consigned inventory maintained at hospitals or with sales representatives. Revenue from the sale of consigned musculoskeletal products is recognized when we transfer control, which occurs at the time the product is used or implanted. For all other Musculoskeletal Solutions product transactions, we recognize revenue when we transfer title to the goods, provided there are no remaining performance obligations that will affect the customer’s final acceptance of the sale. We use an observable price to determine the stand-alone selling price for the identified performance obligation.
Revenue from the sale of Enabling Technologies products is generally recognized when control transfers to the customer which occurs at the time the product is shipped or delivered. Depending on the terms of the arrangement, we may also defer the recognition of a portion of the consideration received as we have to satisfy a future performance obligation to provide maintenance and support. We use an observable price to determine the stand-alone selling price for each separate performance obligation.
Contract Balances
Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing.
Deferred revenue is comprised mainly of unearned revenue related to the sales of certain Enabling Technologies products, which includes maintenance and support services. Deferred revenue is generally invoiced annually at the beginning of each contract period and recognized ratably over the coverage period. For the three and nine months ended September 30, 2020, there was an immaterial amount of revenue recognized from previously deferred revenue.
Disaggregation of Revenue
Net sales for the three and nine months ended September 30, 2020 and 2019, respectively included the following:
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|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
(In thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Musculoskeletal Solutions products |
| $ | |
| $ | |
| $ | |
| $ | |
Enabling Technologies products |
|
| |
|
| |
|
| |
|
| |
Total net sales |
| $ | |
| $ | |
| $ | |
| $ | |
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.
On March 12, 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is effective for all entities as of March 12, 2020, and will apply through December 31, 2022. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(l) Recently Adopted Accounting Pronouncements
In February 2016, the FASB released ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases with terms greater than 12 months, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted, and permits modified retrospective method or cumulative-effect adjustment method. We adopted the standard on January 1, 2019, using the cumulative-effect adjustment transition method. As part of the adoption, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed carry forward of historical lease classifications. The adoption of this standard did not have a material impact on our financial position and results of operations. See “Note 13. Leases” for more detail regarding our disclosures.
In February 2018, the FASB released ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). Prior to ASU 2018-02, GAAP required the remeasurement of deferred tax assets and liabilities as a result of a change in tax laws or rates to be presented in net income from continuing operations, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income. As a result, such items, referred to as stranded tax effects, did not reflect the appropriate tax rate. Under ASU 2018-02, entities are permitted, but not required, to reclassify from accumulated other comprehensive income to retained earnings those stranded tax effects resulting from the U.S. legislation commonly referred to as the Tax Cuts and Jobs Act enacted in December 2017. ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. We adopted ASU 2018-02 on January 1, 2019. Adoption of the standard did not have a material impact on our financial position, results of operations and disclosures.
In June 2018, the FASB released ASU 2018-07, Compensation—Stock Compensation (Topic 718), (“ASU 2018-07”), which expanded the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. This update is effective for public entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. We adopted ASU 2018-07 on January 1, 2019. Adoption of the standard did not have a material impact on our financial position, results of operations, and disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 replaces the incurred loss impairment methodology for measuring and recognizing credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This amendment is effective for fiscal years beginning after December 15, 2019. We adopted the updated guidance on January 1, 2020 on a prospective basis recording $
In January 2017, the FASB released ASU 2017-04, Intangibles - Goodwill and Other (Topic 805): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which eliminates the Step 2 calculation for the implied fair value of goodwill to measure a goodwill impairment charge. Under the updated standard, an entity will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. ASU 2017-04 does not change the guidance on completing Step 1 of the goodwill impairment test and still allows an entity to perform the optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. This update is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019 with early adoption permitted for any impairment test performed on testing dates after January 1, 2017. We adopted ASU 2017-04 on January 1, 2020. Adoption of the standard did not have a material impact on our financial position, results of operations, and disclosures.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Asset Acquisitions
During the second quarter of 2020, the Company acquired Synoste Oy (“Synoste”), a Finnish engineering company that specializes in the research and development of a limb lengthening system. The fair value of the net assets acquired was $
The Company accounted for the transaction as an asset acquisition as substantially all of the estimated fair value of the gross assets acquired was concentrated in a single identified asset, in-process research and development (“IPR&D”) of the limb lengthening system, thus satisfying the requirements of the screen test in ASU 2017-1. Acquired IPR&D in the asset acquisition was accounted for in accordance with FASB ASC Topic 730, “Research and Development” (ASC 730). At the date of acquisition, the Company determined that the development of the projects underway at Synoste had not yet reached technological feasibility and that the research in process had no alternative future use. Accordingly, the acquired IPR&D of $
The transaction also provides for additional consideration contingent upon the developed product obtaining approval from the U.S. Food and Drug Administration (the “FDA”) of $
Business Combinations
During the second quarter of 2019, the Company acquired substantially all of the assets of StelKast, Inc. (the “StelKast Acquisition”), a privately held company that designs, manufactures and distributes orthopedic implants for knee and hip replacement surgeries. The Company has included the financial results from the StelKast Acquisition in our condensed financial statements from the acquisition date, and the results from the StelKast Acquisition were not material to our condensed financial statements. At the acquisition date, the fair value of the net assets acquired was $
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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|
| September 30, 2020 | |||||||
(In thousands) | Weighted Average Amortization Period (in years) |
| Gross |
| Accumulated |
| Intangible | |||
Supplier network |
| $ | |
| $ | ( |
| $ | | |
Customer relationships & other intangibles |
|
| |
|
| ( |
|
| | |
Developed technology |
|
| |
|
| ( |
|
| | |
Patents |
|
| |
|
| ( |
|
| | |
Total intangible assets |
|
| $ | |
| $ | ( |
| $ | |
Due to the completion of contractual milestones related to the 2018 acquisition of Nemaris, in the first quarter of 2020, $
Intangible assets as of December 31, 2019 included the following:
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|
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|
|
| December 31, 2019 | |||||||
(In thousands) | Weighted Average Amortization Period (in years) |
| Gross |
| Accumulated |
| Intangible | |||
Supplier network |
|
| |
|
| ( |
|
| | |
Customer relationships & other intangibles |
|
| |
|
| ( |
|
| | |
Developed technology |
|
| |
|
| ( |
|
| | |
Patents |
|
| |
|
| ( |
|
| | |
Total intangible assets |
|
| $ | |
| $ | ( |
| $ | |
The change in the carrying amount of goodwill during the twelve months ended December 31, 2019 and the nine months ended September 30, 2020, respectively included the following:
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|
|
|
|
(In thousands) |
|
|
|
December 31, 2018 |
| $ | |
Additions and adjustments |
|
| |
Foreign exchange |
|
| |
December 31, 2019 |
|
| |
Additions and adjustments |
|
| ( |
Foreign exchange |
|
| |
September 30, 2020 |
| $ | |
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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|
|
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|
|
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|
|
| September 30, 2020 | ||||||||||
(In thousands) | Contractual |
| Amortized |
| Gross |
| Gross Unrealized Losses |
| Fair | ||||
Short-term: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds | Less than |
| $ | |
| $ | |
| $ | — |
| $ | |
Corporate debt securities | Less than |
|
| |
|
| |
|
| — |
|
| |
Commercial paper | Less than |
|
| |
|
| |
|
| — |
|
| |
Asset-backed securities | Less than |
|
| |
|
| |
|
| — |
|
| |
Government, federal agency, and other sovereign obligations | Less than |
|
| |
|
| |
|
| — |
|
| |
Total short-term marketable securities |
|
| $ | |
| $ | |
| $ | — |
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds |
| $ | |
| $ | |
| $ | — |
| $ | | |
Corporate debt securities |
|
| |
|
| |
|
| — |
|
| | |
Asset-backed securities |
|
| |
|
| |
|
| — |
|
| | |
Total long-term marketable securities |
|
| $ | |
| $ | |
| $ | — |
| $ | |
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
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|
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|
|
|
| December 31, 2019 | ||||||||||
(In thousands) | Contractual |
| Amortized |
| Gross |
| Gross |
| Fair | ||||
Short-term: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds | Less than |
| $ | |
| $ | |
| $ | ( |
| $ | |
Corporate debt securities | Less than |
|
| |
|
| |
|
| ( |
|
| |
Commercial paper | Less than |
|
| |
|
| |
|
| ( |
|
| |
Asset-backed securities | Less than |
|
| |
|
| |
|
| — |
|
| |
Total short-term marketable securities |
|
| $ | |
| $ | |
| $ | ( |
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds |
| $ | |
| $ | |
| $ | ( |
| $ | | |
Corporate debt securities |
|
| |
|
| |
|
| ( |
|
| | |
Asset-backed securities |
|
| |
|
| |
|
| ( |
|
| | |
Government, federal agency, and other sovereign obligations |
|
| |
|
| |
|
| — |
|
| | |
Total long-term marketable securities |
|
| $ | |
| $ | |
| $ | ( |
| $ | |
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019, respectively included the following:
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|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
| Balance at September 30, 2020 |
| Level 1 |
| Level 2 |
| Level 3 | ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
| $ | |
| $ | |
| $ | — |
| $ | — |
Municipal bonds |
|
| |
|
| — |
|
| |
|
| — |
Corporate debt securities |
|
| |
|
| — |
|
| |
|
| — |
Commercial paper |
|
| |
|
| — |
|
| |
|
| — |
Asset-backed securities |
|
| |
|
| — |
|
| |
|
| — |
Government, federal agency, and other sovereign obligations |
|
| |
|
| — |
|
| |
|
| — |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisition liabilities |
|
| |
|
| — |
|
| — |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
| Balance at December 31, 2019 |
| Level 1 |
| Level 2 |
| Level 3 | ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
| $ | |
| $ | |
| $ | |
| $ | — |
Municipal bonds |
|
| |
|
| — |
|
| |
|
| — |
Corporate debt securities |
|
| |
|
| — |
|
| |
|
| — |
Commercial paper |
|
| |
|
| — |
|
| |
|
| — |
Asset-backed securities |
|
| |
|
| — |
|
| |
|
| — |
Government, federal agency, and other sovereign obligations |
|
| |
|
| — |
|
| |
|
| — |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisition liabilities |
|
| |
|
| — |
|
| — |
|
| |
Our marketable securities are classified as Level 2 within the fair value hierarchy, as we measure their fair value using market prices for similar instruments and inputs such as actual trade data, benchmark yields, broker/dealer quotes and other similar data obtained from quoted market prices or independent pricing vendors.
Assets and Liabilities That Are Measured at Fair Value on a Nonrecurring Basis
The recurring Level 3 fair value measurements of our business acquisition liabilities include the following significant unobservable inputs, which have not materially changed since December 31, 2019, exclusive of the contractual payable reclassification to Accrued Expenses in the Condensed Consolidated Balance Sheet:
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|
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|
|
|
|
|
|
(In thousands) |
| Fair Value at September 30, 2020 |
| Valuation technique |
| Unobservable input |
| Range | |||
|
|
|
|
|
|
| Discount rate |
| |||
Revenue-based payments |
| $ | |
| Discounted cash flow |
| Probability of payment |
| - | ||
|
|
|
|
|
|
| Projected year of payment |
| - |
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The change in the carrying value of the business acquisition liabilities during the three and nine months ended September 30, 2020 and 2019, respectively included the following:
|
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|
|
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|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
(In thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Beginning balance |
| $ | |
| $ | |
| $ | |
| $ | |
Purchase price contingent consideration |
|
| — |
|
| — |
|
| — |
|
| |
Changes resulting from foreign currency fluctuations |
|
| — |
|
| — |
|
| — |
|
| ( |
Contingent payments |
|
| ( |
|
| ( |
|
| ( |
|
| ( |
Changes in fair value of business acquisition liabilities |
|
| |
|
| |
|
| |
|
| |
Contractual payable reclassification |
|
| — |
|
| — |
|
| ( |
|
| — |
Ending balance |
| $ | |
| $ | |
| $ | |
| $ | |
Inventories as of September 30, 2020 and December 31, 2019, respectively included the following:
|
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|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
(In thousands) |
| 2020 |
| 2019 | ||
Raw materials |
| $ | |
| $ | |
Work in process |
|
| |
|
| |
Finished goods |
|
| |
|
| |
Total inventories |
| $ | |
| $ | |
During the three months ended September 30, 2020 and 2019, net adjustments to cost of sales related to excess and obsolete inventory were $
During the nine months ended September 30, 2020 and 2019, net adjustments to cost of sales related to excess and obsolete inventory were $
During the third quarter of 2020, the Company initiated a voluntary Class II recall of specific lots of ALTERA® Spacers. This recall was initiated because specific lots of ALTERA® implants have internal components that were manufactured using stainless steel rather than the specified cobalt chromium molybdenum alloy. Only devices made after February 12, 2020 from specific lots were affected, and some parts in some lots may not be affected. No reports of adverse reactions related to the affected ALTERA® implants have been received to date. A recall notification was issued to all relevant parties and Globus has collected and replaced impacted field inventory. The Company recorded an accrual in the second quarter of approximately $
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Accrued expense as of September 30, 2020 and December 31, 2019, respectively included the following:
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|
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| September 30, |
| December 31, | ||
(In thousands) |
| 2020 |
| 2019 | ||
Compensation and other employee-related costs |
| $ | |
| $ | |
Legal and other settlements and expenses |
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| |
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| |
Accrued non-income taxes |
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| |
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| |
Royalties |
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| |
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Other |
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| |
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Total accrued expenses |
| $ | |
| $ | |
Line of Credit
On August 6, 2020, we entered into a credit agreement with Citizens Bank, N.A. (the “Credit Agreement”) that provides a revolving credit facility permitting borrowings up to $
In May 2011, we entered into a credit agreement with Wells Fargo Bank related to a revolving credit facility that provided for borrowings up to $
Stock Repurchases
Under the current stock repurchase plan, announced on March 11, 2020, the Company is authorized to repurchase up to $
Shares repurchased by the Company are accounted for under the constructive retirement method, in which the shares repurchased, are immediately retired, as there is no plan to reissue. The Company made an accounting policy election to charge the excess of repurchase price over par value entirely to retained earnings.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following table summarizes the activity related to share repurchases:
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Period |
| Total number of shares repurchased |
| Average Price Paid per Share |
| Dollar amount of shares repurchased (1) |
| Approximate dollar value of shares that may yet be purchased under the plan | |||
January 1, 2020 - March 31, 2020 |
| |
| $ | |
| $ | |
| $ | |
April 1, 2020 - June 30, 2020 |
| |
|
| |
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| |
|
| |
July 1, 2020 - September 30,2020 |
| — |
|
| — |
|
| — |
|
| |
January 1, 2020 - September 30, 2020 |
| |
| $ | |
| $ | |
|
|
|
(1)
Common Stock
Our amended and restated Certificate of Incorporation provides for a total of
Each share of our Class B common stock is convertible at any time at the option of the holder into one share of our Class A common stock. In addition, each share of our Class B common stock will convert automatically into one share of our Class A common stock upon any transfer, whether or not for value, except for permitted transfers. For more details relating to the conversion of our Class B common stock please see “Exhibit 4.2, Description of Securities of the Registrant filed with our amended Form 10-K on March 2, 2020.”
Accumulated Other Comprehensive Income (Loss)
The tables below present the changes in each component of accumulated other comprehensive income/(loss), including current period other comprehensive income/(loss) and reclassifications out of accumulated other comprehensive income/(loss) for the nine months ended September 30, 2020 and 2019, respectively:
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(In thousands) |
| Unrealized |
| Foreign |
| Accumulated | |||
Accumulated other comprehensive loss, net of tax, at December 31, 2019 |
| $ | |
| $ | ( |
| $ | ( |
Other comprehensive (loss)/income before reclassifications |
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| |
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| |
|
| |
Amounts reclassified from accumulated other comprehensive income, net of tax |
|
| ( |
|
| — |
|
| ( |
Other comprehensive (loss)/income, net of tax |
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| |
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| |
Accumulated other comprehensive loss, net of tax, at September 30, 2020 |
| $ | |
| $ | ( |
| $ | |
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(In thousands) |
| Unrealized |
| Foreign |
| Accumulated | |||
Accumulated other comprehensive loss, net of tax, at December 31, 2018 |
| $ | ( |
| $ | ( |
| $ | ( |
Other comprehensive (loss)/income before reclassifications |
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| |
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| |
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| |
Amounts reclassified from accumulated other comprehensive income, net of tax |
|
| ( |
|
| — |
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| ( |
Other comprehensive (loss)/income, net of tax |
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| |
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| |
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| |
Accumulated other comprehensive loss, net of tax, at September 30, 2019 |
| $ | |
| $ | ( |
| $ | ( |
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
We have
The 2012 Plan was approved by our Board in March 2012, and by our stockholders in June 2012. Under the 2012 Plan, the aggregate number of shares of Class A Common stock that may be issued subject to options and other awards is equal to the sum of (i)
As of September 30, 2020, pursuant to the 2012 Plan, there were
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Weighted average grant date fair value per share |
| $ | |
| $ | |
| $ | |
| $ | |
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| Option |
| Weighted |
| Weighted |
| Aggregate | ||
Outstanding at December 31, 2019 |
| |
| $ | |
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Granted |
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Exercised |
| ( |
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Forfeited |
| ( |
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Outstanding at September 30, 2020 |
| |
| $ | |
| |
| $ | |
Exercisable at September 30, 2020 |
| |
| $ | |
| |
| $ | |
Expected to vest at September 30, 2020 |
| |
| $ | |
| |
| $ | |
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The intrinsic value of stock options exercised and the compensation cost related to stock options granted to employees and non-employees under our stock plans for the three and nine months ended September 30, 2020 and 2019, respectively was as follows:
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
(In thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Intrinsic value of stock options exercised |
| $ | |
| $ | |
| $ | |
| $ | |
|
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Stock-based compensation expense |
| $ | |
| $ | |
| $ | |
| $ | |
Net stock-based compensation capitalized into inventory |
|
| ( |
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| |
|
| |
|
| |
Total stock-based compensation cost |
| $ | |
| $ | |
| $ | |
| $ | |
As of September 30, 2020, there was $
In computing our income tax provision, we make certain estimates and management judgments, such as estimated annual taxable income or loss, annual effective tax rate, the nature and timing of permanent and temporary differences between taxable income for financial reporting and tax reporting, and the recoverability of deferred tax assets. Our estimates and assumptions may change as new events occur, additional information is obtained, or as the tax environment changes. Should facts and circumstances change during a quarter causing a material change to the estimated effective income tax rate, a cumulative adjustment is recorded.
The following table provides a summary of our effective tax rate for the three and nine months ended September 30, 2020 and 2019, respectively:
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| Three Months Ended |
| Nine Months Ended | ||||
|
| September 30, |
| September 30, | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
Effective income tax rate |
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|
The change in the effective income tax rates for the three month period ended September 30, 2020 and 2019 is primarily a result of tax benefits due to an increase in stock option exercises in the current year. The change in the effective income tax rates for the nine month period ended September 30, 2020 and 2019 is primarily driven by the non-deductible expense of acquired IPR&D of $
We are involved in a number of proceedings, legal actions, and claims arising in the ordinary course of business. Such matters are subject to many uncertainties, and the outcomes of these matters are not within our control and may not be known for prolonged periods of time. In some actions, the claimants seek damages, as well as other relief, including injunctions prohibiting us from engaging in certain activities, which, if granted, could require significant expenditures and/or result in lost revenues. We record a liability in the condensed consolidated financial statements for these actions when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded. While it is not possible to predict the outcome for most of the matters discussed, we believe it is possible that costs associated with them could have a material adverse impact on our consolidated earnings, financial position or cash flows.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
L5 Litigation
In December 2009, we filed suit in the Court of Common Pleas of Montgomery County, Pennsylvania against our former exclusive independent distributor L5 Surgical, LLC and its principals, seeking an injunction and declaratory judgment concerning certain restrictive covenants made to L5 by its sales representatives. L5 brought counterclaims against us alleging tortious interference, unfair competition and conspiracy. The injunction phase was resolved in September 2010 and the remaining claims were fully resolved through settlement by the parties on February 6, 2019.
Moskowitz Family LLC Litigation
On November 20, 2019, Moskowitz Family LLC filed suit against us in the U.S. District Court for the Western District of Texas for patent infringement. Moskowitz, a non-practicing entity, alleges that Globus willfully infringes one or more claims of eight patents by making, using, offering for sale or selling the COALITION®, COALITION MIS®, COALITION AGX®, MONUMENT®, MAGNIFY®-S, HEDRON IATM, HEDRON ICTM, INDEPENDENCE®, INDEPENDENCE MIS®, FORTIFY® and XPAND® families, SABLETM, RISE®, RISE® INTRALIF, RISE®-L, ELSA®, ELSA® ATP, RASS, ALTERA®, ARIEL®, LATIS®, CALIBER® and CALIBER®-L products. Moskowitz seeks an unspecified amount in damages and injunctive relief. On July 2, 2020, this suit was transferred from the U.S. District Court for the Western District of Texas to the U.S. District Court for the Eastern District of Pennsylvania and was stayed on September 25, 2020 pending the outcome of earlier filed Inter Partes Reviews. The probable outcome of this litigation cannot be determined, nor can we estimate a range of potential loss. Therefore, in accordance with authoritative guidance on the evaluation of loss contingencies, we have not recorded an accrual related to this litigation.
The Company leases certain equipment, vehicles, and facilities under operating leases. Certain leases contain options to extend terms beyond the lease termination date. In these leases, we use judgment to determine whether it is reasonably possible that we will extend the lease beyond the initial term and for how long. Leases that have terms of less than
The Company classifies right-of-use assets as Other assets, short-term lease liabilities as Accrued expenses, and long-term lease liabilities as Other liabilities on the Condensed Consolidated Balance Sheet. Lease expense is recognized, on a straight-line basis over the term of the lease, as a component of operating income on the Condensed Consolidated Statement of Income.
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(In thousands, except weighted average lease term and discount rate) |
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Operating leases: |
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Right of use assets |
| $ | |
|
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|
Lease liability - short term |
|
| |
Lease liability - long term |
|
| |
Total operating lease liability |
| $ | |
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Lease expense as of September 30, 2020 |
| $ | |
|
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|
Weighted-average remaining lease term - operating leases (in years) |
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| |
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|
|
Weighted-average discount rate |
|
|
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Future minimum lease payments under non-cancellable leases as of September 30, 2020 are as follows:
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(In thousands) |
| Operating | |
2020 (excluding the nine months ended September 30, 2020) |
| $ | |
2021 |
|
| |
2022 |
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| |
2023 |
|
| |
2024 |
|
| |
2025 |
|
| |
Total undiscounted leases payments |
| $ | |
Less: imputed interest |
|
| |
Total lease liabilities |
| $ | |
Operating segments are defined as components of an enterprise for which separate discrete financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. We globally manage the business within
The following table represents total net sales by geographic area, based on the location of the customer for the three and nine months ended September 30, 2020 and 2019, respectively:
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
(In thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
United States |
| $ | |
| $ | |
| $ | |
| $ | |
International |
|
| |
|
| |
|
| |
|
| |
Total net sales |
| $ | |
| $ | |
| $ | |
| $ | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes for the year ended December 31, 2019, which are included in our Annual Report on Form 10-K filed with the SEC on February 20, 2020.
Overview
Globus Medical, Inc. (together with its consolidated subsidiaries, “Globus,” “we,” “us” or “our”), headquartered in Audubon, Pennsylvania, is a medical device company that develops and commercializes healthcare solutions whose mission is to improve the quality of life of patients with musculoskeletal disorders. Founded in 2003, Globus is committed to medical device innovation and delivering exceptional service to hospitals and physicians to advance patient care and improve efficiency. Since inception, Globus has listened to the voice of the surgeon to develop practical solutions and products to help surgeons effectively treat patients and improve lives. With over 210 products on the market, we offer a comprehensive portfolio of innovative and differentiated technologies that treat a variety of musculoskeletal conditions of the spine, extremities, pelvis, hip and knee. Although we manage our business globally within one operating segment, we separate our products into two major categories: Musculoskeletal Solutions and Enabling Technologies.
COVID-19 Update
We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities and may need to make changes to our business based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, the Company cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future. However, while the government mandated restrictions, including elective surgeries, are in place, we do expect that it could continue to have a material adverse impact on our revenue growth, operating profit and cash flow and may lead to higher than normal inventory levels, revised payment terms with certain of our customers, and a change in effective tax rate driven by changes in the mix of earnings across the Company's jurisdictions.
We are focused on navigating these recent challenges presented by COVID-19 and believe we are in a strong position to continue to not only sustain, but grow our business once the restrictions are lifted and elective surgeries fully resume. To date, COVID-19 has not materially affected our supply chain or production schedule, although delays may be possible in the future due to the dynamic nature of the situation.
Product Categories
While we group our products into two categories, they are not limited to a particular technology, platform or surgical approach. Instead, our goal is to offer a comprehensive product suite that can be used to effectively treat patients based on their specific anatomy and condition, and is customized to the surgeon’s training and surgical preference.
Musculoskeletal Solutions
Our Musculoskeletal Solutions consist primarily of implantable devices, biologics, accessories, and unique surgical instruments used in an expansive range of spinal, orthopedic and neurosurgical procedures.
Our broad spectrum of spine products addresses the vast majority of conditions affecting the spine including degenerative conditions, deformity, tumors, and trauma. With more than fifteen years in this competitive market, we provide comprehensive solutions that facilitate both open and minimally invasive surgery (“MIS”) techniques. This includes traditional fusion implants such as pedicle screw and rod systems, plating systems, intervertebral spacers and corpectomy devices. We believe we pioneered innovative expandable solutions for interbody fusion, corpectomy and interspinous fixation that allow intraoperative customization of our devices to the patient’s anatomy and save surgical time by eliminating sequential trialing. We have also developed treatment options for motion preservation technologies, such as dynamic stabilization, total disc replacement and interspinous distraction devices; as well as interventional pain management solutions to treat vertebral compression fractures. Our biologic solutions include regenerative biologic products such as allografts and synthetic alternatives, which are adjunctive treatments typically used in combination with stabilizing implant hardware.
Our orthopedic trauma solutions are designed to treat a wide variety of orthopedic fracture patterns and patient anatomies in the upper and lower extremities as well as the hip. To date, Globus has received 510(k) clearance from the U.S. Food and Drug Administration (the “FDA”) for numerous orthopedic trauma and extremity products covering four major segments of the orthopedic trauma market - fracture plates, compression screws, intramedullary nails, and external fixation. We began marketing these products in 2018 and intend to grow our presence in this field. Fracture plating includes proximal humerus, distal radius, proximal tibia, distal fibula, small fragment, mini-fragment and clavicle plates. Intramedullary nailing includes tibial, trochanteric, and femoral nail systems. Regenerative biologic products such as bone void fillers and allograft struts are also used in orthopedic procedures where applicable.
Our hip and knee joint solutions for the treatment of degenerative conditions or failed previous reconstruction have a long history of clinical use with StelKast, Inc. Over 13 different implants have been marketed to date, including modular hip stems and acetabular cups for total hip arthroplasty as well as posterior stabilizing and cruciate retaining knee arthroplasty implants.
Enabling Technologies
Our Enabling Technologies are comprised of imaging, navigation and robotic (“INR”) assisted surgery solutions which are advanced computer-assisted intelligent systems designed to enhance a surgeon’s capabilities, and ultimately improve patient care and reduce radiation exposure for all involved, by streamlining surgical procedures to be safer, less invasive, more accurate, and more reproducible.
These include the ExcelsiusGPS® platform which is a robotic guidance and navigation system that supports minimally invasive and open procedures with screw placement applications. The ExcelsiusGPS® platform has a modular design that can be used for a variety of screw placement applications, and we expect that it will serve as a foundation for future clinical applications using artificial intelligence and augmented reality.
Globus’ innovative Enabling Technologies products offer surgeons more information about patient anatomy and surgical options to help them to make well-informed surgical decisions. We believe the advantages of pre-planning implant position and viewing patient anatomy during surgery are self-evident, and also create significant secondary gains such as eliminating radiation exposure altogether.
Geographic Information
To date, the primary market for our products has been the United States, where we sell our products through a combination of direct sales representatives employed by us and distributor sales representatives employed by exclusive independent distributors, who distribute our products for a commission that is generally based on a percentage of sales. We believe there is significant opportunity to strengthen our position in the U.S. market by increasing the size of our U.S. sales force and we intend to add additional direct and distributor sales representatives in the future.
During the nine months ended September 30, 2020, our international net sales accounted for approximately 16% of our total net sales. We have sold our products in approximately 50 countries outside the United States through a combination of sales representatives employed by us and exclusive international distributors. We believe there are significant opportunities for us to increase our presence in both existing and new international markets through the continued expansion of our direct and distributor sales forces and through the commercialization of additional products.
Seasonality
Our business is generally not seasonal in nature. However, our sales of Musculoskeletal Solutions products may be influenced by summer vacation and winter holiday periods during which we have experienced fewer surgeries taking place, as well as more surgeries taking place later in the year when patients have met the deductibles under insurance plans. Our sales of Enabling Technologies products may be influenced by longer capital purchase cycles and the timing of budget approvals for major capital purchases.
Results of Operations
Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019
Net Sales
The following table sets forth, for the periods indicated, our net sales by geography expressed as dollar amounts and the changes in net sales between the specified periods expressed in dollar amounts and as percentages:
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| Three Months Ended |
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| ||||
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| September 30, |
| Change | |||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| $ |
| % | |||
United States |
| $ | 182,104 |
| $ | 162,697 |
| $ | 19,407 |
| 11.9% |
International |
|
| 33,994 |
|
| 33,518 |
|
| 476 |
| 1.4% |
Total net sales |
| $ | 216,098 |
| $ | 196,215 |
| $ | 19,883 |
| 10.1% |
In the United States, the increase in net sales of $19.4 million was due primarily to increased spine product sales resulting from penetration in existing territories.
International net sales increased by $0.5 million, which was due primarily to increased spine product sales resulting from penetration in existing territories, partially offset by the postponement of elective surgeries at hospitals and surgical centers due to the COVID-19 pandemic, particularly in Japan, the U.K. and India.
Cost of Goods Sold
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| Three Months Ended |
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| ||||
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| September 30, |
| Change | |||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| $ |
| % | |||
Cost of goods sold |
| $ | 57,097 |
| $ | 45,387 |
| $ | 11,710 |
| 25.8% |
Percentage of net sales |
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| 26.4% |
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| 23.1% |
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The $11.7 million increase in cost of goods sold was primarily due to higher write-downs of excess and obsolete inventory on less frequently used product sizes, non-recurring inventory write-offs and other manufacturing expense, depreciation, and increased product costs as a result of higher product sales.
Research and Development Expenses
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| Three Months Ended |
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| ||||
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| September 30, |
| Change | |||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| $ |
| % | |||
Research and development |
| $ | 14,421 |
| $ | 14,508 |
| $ | (87) |
| -0.6% |
Percentage of net sales |
|
| 6.7% |
|
| 7.4% |
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Research and development expenses remained consistent with the three months ended September 30, 2019.
Selling, General and Administrative Expenses
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| Three Months Ended |
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| September 30, |
| Change | |||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| $ |
| % | |||
Selling, general and administrative |
| $ | 89,152 |
| $ | 88,455 |
| $ | 697 |
| 0.8% |
Percentage of net sales |
|
| 41.3% |
|
| 45.1% |
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|
|
The increase in selling, general and administrative expenses was primarily due to an increase in commission expenses resulting from higher product sales and by the continued build out of the spine, INR technology, joints and orthopedic trauma sales forces. These increases were partially offset by decreased travel and surgeon educational activities as a result of COVID-19 restrictions.
Provision for Litigation
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| Three Months Ended |
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| September 30, |
| Change | |||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| $ |
| % | |||
Provision for litigation |
| $ | — |
| $ | 1,625 |
| $ | (1,625) |
| 100.0% |
Percentage of net sales |
|
| 0.0% |
|
| 0.8% |
|
|
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|
|
There was no provision for litigation for the three month period ending September 30, 2020. The provision for litigation for the three month period ending September 30, 2019 includes settlement and verdict costs.
Amortization of Intangibles
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| Three Months Ended |
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| ||||
|
| September 30, |
| Change | |||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| $ |
| % | |||
Amortization of intangibles |
| $ | 4,152 |
| $ | 3,620 |
| $ | 532 |
| 14.7% |
Percentage of net sales |
|
| 1.9% |
|
| 1.8% |
|
|
|
|
|
The increase in the amortization of intangibles is primarily due to the developed technology intangible asset acquired in connection with the Nemaris acquisition.
Acquisition Related Costs
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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| Three Months Ended |
|
|
|
|
| ||||
|
| September 30, |
| Change | |||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| $ |
| % | |||
Acquisition related costs |
| $ | 1,263 |
| $ | 559 |
| $ | 704 |
| 125.9% |
Percentage of net sales |
|
| 0.6% |
|
| 0.3% |
|
|
|
|
|
Acquisition related costs increased due to business development-related activities.
Other Income/(expense), Net
|
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|
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| Three Months Ended |
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| ||||
|
| September 30, |
| Change | |||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| $ |
| % | |||
Other income/(expense), net |
| $ | 3,117 |
| $ | 4,691 |
| $ | (1,574) |
| -33.6% |
Percentage of net sales |
|
| 1.4% |
|
| 2.4% |
|
|
|
|
|
The decrease in other income/(expense), net was primarily the result of lower interest income from lower yields on marketable securities during the three month period ended September 30, 2020.
Income Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
| ||||
|
| September 30, |
| Change | |||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| $ |
| % | |||
Income tax provision |
| $ | 8,914 |
| $ | 8,445 |
| $ | 469 |
| 5.6% |
Effective income tax rate |
|
| 16.8% |
|
| 18.1% |
|
|
|
|
|
The change in the effective income tax rates between the current year and prior year periods is primarily a result of higher tax benefits resulting from an increase in stock option exercises in the current year period.
Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019
Net Sales
The following table sets forth, for the periods indicated, our net sales by geography expressed as dollar amounts and the changes in net sales between the specified periods expressed in dollar amounts and as percentages:
|
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
| ||||
|
| September 30, |
| Change | |||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| $ |
| % | |||
United States |
| $ | 465,705 |
| $ | 470,224 |
| $ | (4,519) |
| -1.0% |
International |
|
| 89,892 |
|
| 103,477 |
|
| (13,585) |
| -13.1% |
Total net sales |
| $ | 555,597 |
| $ | 573,701 |
| $ | (18,104) |
| -3.2% |
In the United States, the decrease in net sales of $4.5 million was due to the postponement of elective surgeries at hospitals and surgical centers and longer selling cycles for INR capital equipment due to the COVID-19 pandemic.
International net sales decreased by $13.6 million, and was due primarily to the postponement of elective surgeries at hospitals and surgical centers and longer selling cycles for INR capital equipment due to the COVID-19 pandemic as well as a one-time distributor stocking order in the period ended March 31, 2019.
Cost of Goods Sold
|
|
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|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
| ||||
|
| September 30, |
| Change | |||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| $ |
| % | |||
Cost of goods sold |
| $ | 156,604 |
| $ | 131,214 |
| $ | 25,390 |
| 19.4% |
Percentage of net sales |
|
| 28.2% |
|
| 22.9% |
|
|
|
|
|
The $25.4 million increase in cost of goods sold was primarily due to higher write-downs of excess and obsolete inventory on less frequently used product sizes, non-recurring inventory write-offs and other manufacturing expenses, and depreciation.
Research and Development Expenses
|
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|
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|
|
|
|
|
|
|
|
|
|
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|
|
| Nine Months Ended |
|
|
|
|
| ||||
|
| September 30, |
| Change | |||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| $ |
| % | |||
Research and development |
| $ | 69,278 |
| $ | 44,577 |
| $ | 24,701 |
| 55.4% |
Percentage of net sales |
|
| 12.5% |
|
| 7.8% |
|
|
|
|
|
The increase in research and development expenses was due primarily to $24.4 million of in-process research and development (“IPR&D”) from the acquisition of Synoste Oy (“Synoste”) which was expensed because we determined that it did not have an alternative future use.
Selling, General and Administrative Expenses
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
| Nine Months Ended |
|
|
|
|
| ||||
|
| September 30, |
| Change | |||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| $ |
| % | |||
Selling, general and administrative |
| $ | 262,710 |
| $ | 262,618 |
| $ | 92 |
| 0.0% |
Percentage of net sales |
|
| 47.3% |
|
| 45.8% |
|
|
|
|
|
Selling, general and administrative expenses remained consistent with the nine months ended September 30, 2019.
Provision for Litigation
|
|
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|
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|
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|
|
|
|
|
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|
|
| Nine Months Ended |
|
|
|
|
| ||||
|
| September 30, |
| Change | |||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| $ |
| % | |||
Provision for litigation |
| $ | 197 |
| $ | 1,625 |
| $ | (1,428) |
| 100.0% |
Percentage of net sales |
|
| 0.0% |
|
| 0.3% |
|
|
|
|
|
Provision for litigation was immaterial for the nine month period ending September 30, 2020. The provision for litigation for the nine month period ending September 30, 2019 includes settlement and verdict costs.
Amortization of Intangibles
|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
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|
|
| Nine Months Ended |
|
|
|
|
| ||||
|
| September 30, |
| Change | |||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| $ |
| % | |||
Amortization of intangibles |
| $ | 12,043 |
| $ | 10,412 |
| $ | 1,631 |
| 15.7% |
Percentage of net sales |
|
| 2.2% |
|
| 1.8% |
|
|
|
|
|
The increase in the amortization of intangibles is primarily due to the developed technology intangible assets acquired in connection with the Nemaris and StelKast acquisitions.
Acquisition Related Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
| Nine Months Ended |
|
|
|
|
| ||||
|
| September 30, |
| Change | |||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| $ |
| % | |||
Acquisition related costs |
| $ | 1,867 |
| $ | 1,245 |
| $ | 622 |
| 50.0% |
Percentage of net sales |
|
| 0.3% |
|
| 0.2% |
|
|
|
|
|
Acquisition related costs increased due to business development-related activities.
Other Income/(expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
| Nine Months Ended |
|
|
|
|
| ||||
|
| September 30, |
| Change | |||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| $ |
| % | |||
Other income/(expense), net |
| $ | 10,788 |
| $ | 13,487 |
| $ | (2,699) |
| -20.0% |
Percentage of net sales |
|
| 1.9% |
|
| 2.4% |
|
|
|
|
|
The decrease in other income, net was due primarily to lower interest income from lower yields on marketable securities during the nine month period ended September 30, 2020.
Income Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
| ||||
|
| September 30, |
| Change | |||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| $ |
| % | |||
Income tax provision |
| $ | 14,358 |
| $ | 25,816 |
| $ | (11,458) |
| -44.4% |
Effective income tax rate |
|
| 22.5% |
|
| 19.1% |
|
|
|
|
|
The change in the effective income tax rates between the current year and prior year periods is primarily the result of the non-deductible expense of acquired IPR&D of $24.4 million, partially offset by higher tax benefits resulting from an increase in stock option exercises in the current year period.
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 expense, provision for litigation, acquisition related costs/licensing, acquisition of in-process research and development, 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. Acquisition of in-process research and development represents the expensing of acquired assets with no alternative future use and related fees.
The following is a reconciliation of net income to Adjusted EBITDA for the periods presented:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net income/(loss) |
| $ | 44,216 |
| $ | 38,307 |
| $ | 49,328 |
| $ | 109,681 |
Interest income/(expense), net |
|
| (3,085) |
|
| (4,377) |
|
| (10,999) |
|
| (12,954) |
Provision for income taxes |
|
| 8,914 |
|
| 8,445 |
|
| 14,358 |
|
| 25,816 |
Depreciation and amortization |
|
| 16,301 |
|
| 13,575 |
|
| 45,970 |
|
| 38,688 |
EBITDA |
|
| 66,346 |
|
| 55,950 |
|
| 98,657 |
|
| 161,231 |
Stock-based compensation expense |
|
| 7,020 |
|
| 6,898 |
|
| 21,138 |
|
| 19,647 |
Provision for litigation |
|
| — |
|
| 1,625 |
|
| 197 |
|
| 1,625 |
Acquisition related costs/licensing |
|
| 1,753 |
|
| 1,040 |
|
| 3,179 |
|
| 2,011 |
Acquisition of in-process research and development |
|
| — |
|
| — |
|
| 24,418 |
|
| — |
Adjusted EBITDA |
| $ | 75,119 |
| $ | 65,513 |
| $ | 147,589 |
| $ | 184,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income as a percentage of net sales |
|
| 20.5% |
|
| 19.5% |
|
| 8.9% |
|
| 19.1% |
Adjusted EBITDA as a percentage of net sales |
|
| 34.8% |
|
| 33.4% |
|
| 26.6% |
|
| 32.2% |
In addition, for the period ended September 30, 2020 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/licensing, acquisition of in-process research and development, and the tax effects of all of the foregoing adjustments. The tax effect adjustment represents the tax effect of the pre-tax non-GAAP adjustments excluded from non-GAAP net income. The tax impact of the 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/licensing, acquisition of in-process research and development, and the tax effects of all of the foregoing adjustments, which we believe are not reflective of underlying business trends.
The following is a reconciliation of net income computed in accordance with U.S. GAAP to non-GAAP net income for the periods presented:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
(In thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net income/(loss) |
| $ | 44,216 |
| $ | 38,307 |
| $ | 49,328 |
| $ | 109,681 |
Provision for litigation |
|
| — |
|
| 1,625 |
|
| 197 |
|
| 1,625 |
Amortization of intangibles |
|
| 4,152 |
|
| 3,620 |
|
| 12,043 |
|
| 10,412 |
Acquisition related costs/licensing |
|
| 1,753 |
|
| 1,040 |
|
| 3,179 |
|
| 2,011 |
Acquisition of in-process research and development |
|
| — |
|
| — |
|
| 24,418 |
|
| — |
Tax effect of adjusting items |
|
| (992) |
|
| (1,135) |
|
| (3,418) |
|
| (2,659) |
Non-GAAP net income |
| $ | 49,129 |
| $ | 43,457 |
| $ | 85,747 |
| $ | 121,070 |
The following is a reconciliation of Diluted Earnings Per Share as computed in accordance with U.S. GAAP to non-GAAP Diluted Earnings Per Share for the periods presented:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
(Per share amounts) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Diluted earnings per share, as reported |
| $ | 0.44 |
| $ | 0.38 |
| $ | 0.49 |
| $ | 1.08 |
Provision for litigation |
|
| — |
|
| 0.02 |
|
| — |
|
| 0.02 |
Amortization of intangibles |
|
| 0.04 |
|
| 0.04 |
|
| 0.12 |
|
| 0.10 |
Acquisition related costs/licensing |
|
| 0.02 |
|
| 0.01 |
|
| 0.03 |
|
| 0.02 |
Acquisition of in-process research and development |
|
| — |
|
| — |
|
| 0.24 |
|
| — |
Tax effect of adjusting items |
|
| (0.01) |
|
| (0.01) |
|
| (0.03) |
|
| (0.03) |
Non-GAAP diluted earnings per share |
| $ | 0.49 |
| $ | 0.43 |
| $ | 0.85 |
| $ | 1.19 |
* Amounts might not add due to rounding
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 liquidity for comparative periods as it facilitates an assessment of funds available to satisfy current and future obligations and fund acquisitions.
Below is a reconciliation of net cash provided by operating activities as computed in accordance with U.S. GAAP to Free Cash Flow for the periods presented:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
(In thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net cash provided by operating activities |
| $ | 53,248 |
| $ | 55,866 |
| $ | 118,609 |
| $ | 117,666 |
Purchases of property and equipment |
|
| (17,325) |
|
| (12,062) |
|
| (49,595) |
|
| (54,957) |
Free cash flow |
| $ | 35,923 |
| $ | 43,804 |
| $ | 69,014 |
| $ | 62,709 |
Furthermore, the non-GAAP measure of constant currency net sales growth is calculated by translating current year net sales at the same average exchange rates in effect during the applicable prior year period. We believe constant currency net sales growth provides insight to the comparative increase or decrease in period net sales, in dollar and percentage terms, excluding the effects of fluctuations in foreign currency exchange rates.
Below is a reconciliation of net sales growth as reported in accordance with U.S. GAAP compared to constant currency reflected net sales growth for the periods presented:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Reported |
| Currency |
| Constant | |||||
|
| September 30, |
| Net Sales |
| Current |
| Net Sales | |||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| Growth |
| Period Net Sales |
| Growth | |||
United States |
| $ | 182,104 |
| $ | 162,697 |
| 11.9% |
| $ | — |
| 11.9% |
International |
|
| 33,994 |
|
| 33,518 |
| 1.4% |
|
| 348 |
| 0.4% |
Total net sales |
| $ | 216,098 |
| $ | 196,215 |
| 10.1% |
| $ | 348 |
| 10.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| Reported |
| Currency |
| Constant | |||||
|
| September 30, |
| Net Sales |
| Current |
| Net Sales | |||||
(In thousands, except percentages) |
| 2020 |
| 2019 |
| Growth |
| Period Net Sales |
| Growth | |||
United States |
| $ | 465,705 |
| $ | 470,224 |
| -1.0% |
| $ | — |
| -1.0% |
International |
|
| 89,892 |
|
| 103,477 |
| -13.1% |
|
| (215) |
| -12.9% |
Total net sales |
| $ | 555,597 |
| $ | 573,701 |
| -3.2% |
| $ | (215) |
| -3.1% |
Non-GAAP Adjusted EBITDA, non-GAAP net income, non-GAAP Diluted Earnings Per Share, Free Cash Flow and constant currency reflected net 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 reflected net sales growth may differ from that of other companies and therefore may not be comparable.
Liquidity and Capital Resources
The following table highlights certain information related to our liquidity and capital resources:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
(In thousands) |
| 2020 |
| 2019 | ||
Cash, cash equivalents, and restricted cash |
| $ | 250,607 |
| $ | 195,724 |
Short-term marketable securities |
|
| 159,030 |
|
| 115,763 |
Long-term marketable securities |
|
| 275,587 |
|
| 409,514 |
Total cash, cash equivalents, restricted cash and marketable securities |
| $ | 685,224 |
| $ | 721,001 |
On August 6, 2020, we entered into a credit agreement with Citizens Bank, N.A. (the “Credit Agreement”) that provides a revolving credit facility permitting borrowings up to $125.0 million (the “Revolving Credit Facility”), and has a termination date of August 5, 2021. The Revolving Credit Facility includes up to a $25.0 million sub limit for letters of credit.
In addition to our existing cash and marketable securities balances, our principal sources of liquidity are our cash flows from operating activities and our revolving credit facility. We believe these sources will provide sufficient liquidity for us to meet our liquidity requirements for the foreseeable future. Our principal liquidity requirements are to meet our working capital, research and development, including clinical trials, and capital expenditure needs, principally for our surgical sets required to maintain and expand our business and potential future business or intellectual property acquisitions. We expect to continue to make investments in surgical sets as we launch new products, increase the size of our U.S. sales force, and expand into international markets. We may, however, require additional liquidity as we continue to execute our business strategy. Our liquidity may be negatively impacted as a result of a decline in sales of our products, including declines due to changes in our customers’ ability to obtain third-party coverage and reimbursement for procedures that use our products, increased pricing pressures resulting from intensifying competition, cost increases and slower product development cycles resulting from a changing regulatory environment; and unfavorable results from litigation which will affect our cash flow. We anticipate that to the extent that we require additional liquidity, it will be funded through the incurrence of other indebtedness, additional equity financings or a combination of these potential sources of liquidity. The sale of additional equity may result in dilution to our stockholders. There is no assurance that we will be able to secure such additional funding on terms acceptable to us, or at all.
Cash Flows
The following table summarizes, for the periods indicated, cash flows from operating, investing and financing activities:
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| Nine Months Ended |
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| September 30, |
| Change | |||||
(In thousands) |
| 2020 |
| 2019 |
| $ | |||
Net cash provided by operating activities |
| $ | 118,609 |
| $ | 117,666 |
| $ | 943 |
Net cash used in investing activities |
|
| 1,770 |
|
| (104,246) |
|
| 106,016 |
Net cash used in/provided by financing activities |
|
| (65,875) |
|
| 13,254 |
|
| (79,129) |
Effect of foreign exchange rate changes on cash |
|
| 379 |
|
| (231) |
|
| 610 |
Increase (decrease) in cash, cash equivalents, and restricted cash |
| $ | 54,883 |
| $ | 26,443 |
| $ | 28,440 |
Cash Provided by Operating Activities
The increase in net cash provided by operating activities for the nine months ended September 30, 2020 was primarily due to the increase of cash flow from net income and cash flow from accounts receivable as a result of improved collections. These were partially offset by cash outflows for inventories.
The decrease in net cash provided by operating activities for the nine months ended September 30, 2019 was primarily due to the decrease of cash flow from inventories and lower net income, which were offset partially by the increase of cash flow from accounts payable and accrued expenses.
Cash Used in Investing Activities
The increase in net cash provided by investing activities for the nine months ended September 30, 2020 was due primarily to the net inflows of purchases, maturities and sales of marketable securities, which was partially offset by increased purchases of property and equipment and payments related to asset acquisitions.
The decrease in net cash used in investing activities for the nine months ended September 30, 2019 was due primarily to the decrease in net impact of purchases, maturities and sales of marketable securities, partially offset by increased purchases of property and equipment.
Cash Used in Financing Activities
The increase in net cash used in financing activities for the nine months ended September 30, 2020 was primarily the result of the repurchase of common stock and payments for business acquisition related liabilities, partially offset by the increase in proceeds from option exercises.
The decrease in cash provided by financing activities for the nine months ended September 30, 2019 was the result of the decrease in proceeds from option exercises.
Contractual Obligations and Commitments
During the three months ended September 30, 2020 there was a material change in our contractual obligations related to the purchase obligation payables within less than one year. In connection with the Nemaris and StelKast acquisitions completed in 2018 and 2019, respectively, we paid the contingent consideration obligation payables of $10.0 million and $5.0 million, respectively, during the three months ended September 30, 2020.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Backlog
We work closely with our suppliers to ensure that our inventory needs are met while maintaining high quality and reliability. To date, we have not experienced significant difficulty in locating and obtaining the materials necessary to fulfill our production requirements, and we have not experienced a meaningful backlog of sales orders.
The COVID-19 pandemic may lead to higher than normal inventory levels, as there has not been a material effect to our supply chain or production schedule and we may experience decreased revenues while government mandated restrictions on elective surgeries are in place.
Recently Issued Accounting Pronouncements
For further details on recently issued accounting pronouncements, please refer to “Part I; Item 1. Financial Statements; Notes to Condensed Consolidated Financial Statements (Unaudited); Note 1. Background and Summary of Significant Accounting Policies; (k) Recently Issued Accounting Pronouncements” above.
Cautionary Note Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are forward-looking statements. We have tried to identify forward-looking statements by using words such as “believe,” “may,” “might,” “could,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “plan” and similar words. 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, health epidemics, pandemics and similar outbreaks, including the COVID-19 pandemic, 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 changes and applicable laws and regulations that are 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, and general economic conditions, and other risks set forth throughout our Annual Report on Form 10-K for the year ended December 31, 2019 (the “Form 10-K”), particularly those set forth under “Item 1A, Risk Factors” of the Form 10-K, and those discussed in other documents we file with the Securities and Exchange Commission (the “SEC”). 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 Quarterly Report speak only as of the date of this Quarterly Report. 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.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
We have evaluated the information required under this item that was disclosed under Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2019 and there have been no significant changes to this information.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation of our disclosure controls and procedures as of September 30, 2020, our CEO and CFO concluded that, as of such date, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our CEO and CFO, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. For example, these inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in a number of proceedings, legal actions and claims. Such matters are subject to many uncertainties, and the outcomes of these matters are not within our control and may not be known for prolonged periods of time. In some actions, the claimants seek damages, as well as other relief, including injunctions prohibiting us from engaging in certain activities, which, if granted, could require significant expenditures and/or result in lost revenues. For further details on the material legal proceedings to which we are currently a party, please refer to “Part I; Item 1. Financial Statements; Notes to Condensed Consolidated Financial Statements (Unaudited); Note 12. Commitments and Contingencies” above.
In addition, we are subject to legal proceedings arising in the ordinary course of business.
Item 1A. Risk Factors
The following represents a material change in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
The widespread outbreak of a communicable disease, or any other public health crisis, could adversely affect our financial condition and results of operations.
We could be negatively affected by the widespread outbreak of a communicable disease, or any other public health crisis that results in disruptions to hospitals and other healthcare facilities.
A novel strain of coronavirus was first identified in Wuhan, China in December 2019, and the disease caused by it, COVID-19, was subsequently declared a pandemic by the World Health Organization in March 2020. The pandemic has significantly impacted the economic conditions in the U.S. and globally, accelerating during March and April, as federal, state and local governments have reacted to the public health crisis, creating significant uncertainties in the economy. While emergency and time-sensitive surgical procedures continue, the outbreak and preventive measures taken to help curb the spread of COVID-19 has negatively impacted the markets we serve, in particular, hospitals and surgical centers globally where elective surgeries have been temporarily postponed. We believe that certain of these patient volume declines reflect a deferral of elective surgeries to a later period, rather than a permanent reduction in demand; however, there is no assurance that will occur. We are considered a provider of “Life-sustaining” goods and services in Pennsylvania and an essential business in other areas. To date, COVID-19 has not materially affected our supply chain or production schedule, although delays may be possible in the future due to the dynamic nature of the situation.
Given the dynamic nature of this situation, the Company cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future. However, while the government mandated restrictions, including elective surgeries, are in place, we do expect that it could continue to have a material adverse impact on our future revenue growth, operating profit and cash flow and may lead to higher than normal inventory levels, revised payment terms with certain of our customers, and a change in effective tax rate driven by changes in the mix of earnings across the Company’s jurisdictions.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q. Where so indicated, exhibits that were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated in parentheses.
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Exhibit No. |
| Item |
10.1 |
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10.2 |
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10.3 |
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31.1* |
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31.2* |
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32** |
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101.INS* |
| XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH* |
| XBRL Taxonomy Extension Schema Document |
101.CAL* |
| XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB* |
| XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* |
| XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF* |
| XBRL Taxonomy Extension Definition Linkbase Document |
104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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* |
| Filed herewith. |
** |
| Furnished herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| GLOBUS MEDICAL, INC. |
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Dated: | October 28, 2020 | /s/ DAVID M. DEMSKI |
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| David M. Demski |
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| Chief Executive Officer |
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| President |
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| (Principal Executive Officer) |
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Dated: | October 28, 2020 | /s/ KEITH PFEIL |
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| Keith Pfeil |
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| Senior Vice President |
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| Chief Financial Officer Chief Accounting Officer |
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| (Principal Financial Officer) |
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Certification By Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, David M. Demski, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of Globus Medical, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and |
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: |
October 28, 2020 |
/s/ DAVID M. DEMSKI |
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David M. Demski |
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Chief Executive Officer |
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President |
Certification By Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Keith Pfeil, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of Globus Medical, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and |
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: |
October 28, 2020 |
/s/ KEITH PFEIL |
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Keith Pfeil |
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Senior Vice President |
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Chief Financial Officer |
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Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), David M. Demski, Chief Executive Officer, and Keith Pfeil, Senior Vice President and Chief Financial Officer of Globus Medical, Inc. (the “Company”), each certifies with respect to the Quarterly Report of the Company on Form 10-Q for the period ended September 30, 2020 (the “Report”) that, to the best of his knowledge:
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: |
October 28, 2020 |
/s/ DAVID M. DEMSKI |
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David M. Demski |
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Chief Executive Officer |
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President |
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Date: |
October 28, 2020 |
/s/ KEITH PFEIL |
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Keith Pfeil |
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Senior Vice President |
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Chief Financial Officer |
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The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.