Globus Medical Reports 2013 Third Quarter Results

Record Quarterly Sales

AUDUBON, Pa.--(BUSINESS WIRE)--Globus Medical, Inc. (NYSE:GMED), a leading musculoskeletal implant manufacturer, today announced its financial results for the quarter ended September 30, 2013.

• Worldwide sales were $107.2 million, a 13.1% increase from the third quarter of 2012
• Net income was $20.3 million or $0.22 per diluted share
• Non-GAAP Adjusted EBITDA was 33.4% of sales

“We are very pleased with our industry leading top line growth and profitability this quarter. Our growth this quarter is again attributable to the increased adoption and success of newer, more disruptive products, which are designed to provide better treatment for the patient, and are safer and easier to use for the surgeon,” commented David Paul, Chairman and CEO. “During the quarter we launched CREO™, our next generation pedicle screw platform, one of the most significant projects in our history. CREO™ offers surgeons significant intraoperative adaptability to tailor the construct to best meet individual patients’ needs in treating complex spinal pathologies.”

Mr. Paul continued, “This quarter, we also continued our trend from the first half of the year in attracting and retaining key sales force talent. Our excellent product development execution and robust sales force expansion have us well positioned to continue to take share in the spine market into 2014 and beyond.”

Third quarter net sales were $107.2 million, compared to $94.8 million last year, representing a 13.1% increase. US and international sales grew by 12.6% and 19.1%, respectively, over the same quarter in 2012. International sales represented 8.5% of worldwide third quarter sales.

Net income for the quarter was $20.3 million, or $0.22 per diluted share, as compared to $16.5 million, or $0.18 per diluted share, for the third quarter of 2012. Non-GAAP Adjusted EBITDA for the quarter was 33.4% of net sales, compared to 35.1% for the same period last year. The Medical Device Excise Tax, which was not in effect in 2012, reduced Adjusted EBITDA by 1.8% for the third quarter of 2013.

Free cash flow for the quarter was $28.0 million, and cash, cash equivalents and marketable securities for the quarter increased by $32.1 million, ending the third quarter of 2013 at $263.8 million. The company remains debt free.

Revenue and Non-GAAP Diluted Earnings per Share Guidance

The company today reiterated its annual revenue guidance of approximately $432 million. The Company now expects Non-GAAP earnings per share for the full year to be 83 to 85 cents per share of common stock.

Conference Call Information

Globus Medical will hold a teleconference to discuss its performance with the investment community at 5:30 p.m. Eastern Time today. Globus invites all interested parties to join the call by dialing:

1-855-533-7141       United States Participants
1-720-545-0060       International Participants
There is no pass code for the teleconference.

For interested parties who do not wish to ask questions, the teleconference will be webcast live and may be accessed through a link on the Globus Medical website at www.globusmedical.com/investors.

If you are unable to participate during the live teleconference, the call will be archived until November 14, 2013. The audio archive can be accessed by calling 1-855-859-2056 in the U.S. or 1-404-537-3406 from outside the U.S. The pass code for the audio replay is 8797-3902.

About Globus Medical, Inc.

Globus Medical, Inc. is a leading musculoskeletal implant company based in Audubon, PA. The company was founded in 2003 by an experienced team of professionals with a shared vision to create products that enable surgeons to promote healing in patients with musculoskeletal disorders. Additional information can be accessed at www.globusmedical.com.

Non-GAAP Financial Measures

To supplement our financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), management uses certain non-GAAP financial measures. For example, Adjusted EBITDA, which represents net income before interest (income)/expense, net and other non-operating expenses, provision for income taxes, depreciation and amortization, stock-based compensation, changes in the fair value of contingent consideration in connection with business acquisitions and provision for litigation loss/(income) and provision for litigation loss - cost of goods sold, is useful as an additional measure of operating performance, and particularly as a measure of comparative operating performance from period to period, as it is reflective of changes in pricing decisions, cost controls and other factors that affect operating performance, and it removes the effect of our capital structure (primarily interest expense), asset base (primarily depreciation and amortization), income taxes and interest income and expense. Our management also uses Adjusted EBITDA for planning purposes, including the preparation of our annual operating budget and financial projections. In addition, for the quarter ended September 30, 2013 and for other comparative periods, we are presenting a non-GAAP measure of diluted earnings per share, which represents diluted earnings per share before provision for litigation loss/(income) and provision for litigation loss - cost of goods sold, net of the tax effects of such provisions. We believe this non-GAAP measure is also a useful indicator of our operating performance, and particularly as an additional measure of comparative operative performance from period to period as it removes the effects of litigation, and specifically the litigation brought against us by DePuy Synthes Products, LLC, in which a jury verdict was returned in June 2013, which we believe is not reflective of underlying business trends. We also define Free Cash Flow as the net cash flows provided by operating activities, less the cash impact of purchases of property and equipment. We believe that this financial measure provides meaningful information for evaluating our overall financial performance for the quarter ended September 30, 2013 as it facilitates an assessment of funds available to satisfy current and future obligations and fund acquisitions.

Adjusted EBITDA, non-GAAP Diluted Earnings Per Share and Free Cash Flow are not calculated in conformity with U.S. GAAP within the meaning of Item 10 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 Adjusted EBITDA, non-GAAP Diluted Earnings Per Share and Free Cash Flow may differ from that of other companies and therefore may not be comparable.

Safe Harbor Statements

All statements included in this press release other than statements of historical fact are forward-looking statements and may be identified by their use of words such as “believe,” “may,” “might,” “could,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “plan” and other similar terms. These forward-looking statements are based on our current assumptions, expectations and estimates of future events and trends. Forward-looking statements are only predictions and are subject to many risks, uncertainties and other factors that may affect our businesses and operations and could cause actual results to differ materially from those predicted. These risks and uncertainties include, but are not limited to, factors affecting our quarterly results, our ability to manage our growth, our ability to sustain our profitability, demand for our products, our ability to compete successfully (including without limitation our ability to convince surgeons to use our products and our ability to attract and retain sales and other personnel), our ability to rapidly develop and introduce new products, our ability to develop and execute on successful business strategies, our ability to comply with changing 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, general economic conditions, and other risks. For a discussion of these and other risks, uncertainties and other factors that could affect our results, you should refer to the disclosure contained in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission, including the sections labeled “Risk Factors” and “Cautionary Note Concerning Forward-Looking Statements,” and in our Forms 10-Q, Forms 8-K and other filings with the Securities and Exchange Commission. These documents are available at www.sec.gov. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for us to predict all risk factors and uncertainties, nor can we assess the impact of all factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements contained in this press release speak only as of the date of this press release. We undertake no obligation to update any forward-looking statements as a result of new information, events or circumstances or other factors arising or coming to our attention after the date hereof.

GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
		Three Months Ended				Nine Months Ended
(In thousands, except per share amounts)		September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
Sales	$	107,187	$	94,764	$	319,214	$	285,458
Cost of goods sold		25,315		18,872		72,309		55,642
Provision for litigation loss		—		—		1,260		—
Gross profit		81,872		75,892		245,645		229,816
Operating expenses:
Research and development		6,568		7,022		20,452		20,698
Selling, general and administrative		45,702		41,780		136,849		124,236
Provision for litigation loss/(income)		99		30		18,418		(801)
Total operating expenses		52,369		48,832		175,719		144,133
Operating income		29,503		27,060		69,926		85,683
Other income/(expense), net		197		(45)		255		(124)
Income before income taxes		29,700		27,015		70,181		85,559
Income tax provision		9,390		10,528		22,554		32,495
Net income	$	20,310	$	16,487	$	47,627	$	53,064
Earnings per share:
Basic	$	0.22	$	0.18	$	0.52	$	0.60
Diluted	$	0.22	$	0.18	$	0.51	$	0.58
Weighted average shares outstanding:
Basic		93,028		90,111		92,418		88,900
Diluted		94,422		92,697		94,044		91,563

GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)		September 30, 2013		December 31, 2012
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	101,907	$	212,400
Short-term marketable securities		111,239		—
Accounts receivable, net of allowances of $1,238 and $961, respectively		55,274		53,496
Inventories		71,199		62,310
Prepaid expenses and other current assets		6,086		3,020
Income taxes receivable		6,660		5,105
Deferred income taxes		32,399		23,779
Total current assets		384,764		360,110
Property and equipment, net		63,614		61,089
Long-term marketable securities		50,653		—
Intangible assets, net		9,189		9,585
Goodwill		15,372		15,372
Other assets		1,080		977
Total assets	$	524,672	$	447,133
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	8,876	$	9,991
Accounts payable to related party		3,286		2,556
Accrued expenses		44,411		25,003
Income taxes payable		255		523
Business acquisition liabilities, current		1,652		1,435
Total current liabilities		58,480		39,508
Business acquisition liabilities, net of current portion		9,055		9,909
Deferred income taxes		5,191		7,714
Other liabilities		3,570		3,500
Total liabilities		76,296		60,631
Commitments and contingencies
Equity:
Common stock; $0.001 par value. Authorized 785,000 shares; issued and outstanding 93,225 and 91,270 shares at September 30, 2013 and December 31, 2012		93		91
Additional paid-in capital		151,104		136,501
Accumulated other comprehensive loss		(1,125)		(767)
Retained earnings		298,304		250,677
Total equity		448,376		386,502
Total liabilities and equity	$	524,672	$	447,133

GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
		Nine Months Ended
(In thousands)		September 30, 2013		September 30, 2012 *
Cash flows from operating activities:
Net income	$	47,627	$	53,064
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		14,211		13,500
Provision for excess and obsolete inventories		6,405		5,386
Stock-based compensation		3,865		3,682
Allowance for doubtful accounts		234		336
Deferred income taxes		(11,138)		(5,057)
(Increase)/decrease in:
Accounts receivable		(2,143)		(5,277)
Inventories		(15,715)		(14,587)
Prepaid expenses and other assets		(2,111)		(326)
Increase/(decrease) in:
Accounts payable		1,022		34
Accounts payable to related party		730		3,659
Accrued expenses and other liabilities		19,639		(707)
Income taxes payable/receivable		(1,813)		(1,926)
Net cash provided by operating activities		60,813		51,781
Cash flows from investing activities:
Purchases of marketable securities		(186,748)		—
Maturities of marketable securities		19,000		—
Sales of marketable securities		4,979		—
Purchases of property and equipment		(18,475)		(17,032)
Acquisition of business		—		(6,031)
Net cash used in investing activities		(181,244)		(23,063)
Cash flows from financing activities:
Payment of business acquisition liabilities		(1,000)		(800)
Net proceeds from initial public offering		—		20,963
Net proceeds from issuance of common stock		6,221		1,046
Excess tax benefit related to nonqualified stock options		4,519		2,644
Net cash provided by financing activities		9,740		23,853
Effect of foreign exchange rate on cash		198		(83)
Net increase/(decrease) in cash and cash equivalents		(110,493)		52,488
Cash and cash equivalents, beginning of period		212,400		142,668
Cash and cash equivalents, end of period	$	101,907	$	195,156
Supplemental disclosures of cash flow information:
Interest paid		42		39
Income taxes paid	$	30,956	$	36,317

* During the three months ended September 30, 2013, we identified a $5.3 million error in connection with reporting of cash flows for excess tax benefit related to nonqualified stock options and income taxes payable/receivable for the nine months ended September 30, 2012. The error resulted in the understatement of net cash provided by financing activities by $5.3 million and the offsetting overstatement of net cash provided by operating activities by $5.3 million. There was no impact to our results of operations, financial position, or overall cash flows for our previously filed quarterly financial statements. Accordingly, the Consolidated Statement of Cash Flows for the nine months ended September 30, 2012 included herein has been revised to correct this error.

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

Non-GAAP Adjusted EBITDA Reconciliation Table:
(Unaudited)	Three Months Ended						Nine Months Ended
(In thousands, except percentages)	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012
Net Income	$	20,310		$	16,487		$	47,627		$	53,064
Interest income, net	(146		)	(13		)	(336		)	(75		)
Provision for income taxes	9,390			10,528			22,554			32,495
Depreciation and amortization	4,859			4,612			14,211			13,500
EBITDA	34,413			31,614			84,056			98,984
Stock-based compensation	1,387			1,545			3,865			3,682
Provision for litigation loss/(income)	99			30			18,418			(801		)
Provision for litigation loss - cost of goods sold	—			—			1,260			—
Change in fair value of contingent consideration	(134		)	63			10			23
Adjusted EBITDA	$	35,765		$	33,252		$	107,609		$	101,888
Adjusted EBITDA as a percentage of sales	33.4		%	35.1		%	33.7		%	35.7		%

Non-GAAP Diluted Earnings Per Share Reconciliation Table:
(Unaudited)	Three Months Ended				Nine Months Ended
(Per share amounts)	September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
Diluted earnings per share, as reported	$	0.22	$	0.18	$	0.51	$	0.58
Provision for litigation loss/(income), net of taxes	—		—		0.12		(0.01		)
Provision for litigation loss - cost of goods sold, net of taxes	—		—		0.01		—
Non-GAAP diluted earnings per share	$	0.22	$	0.18	$	0.64	$	0.57

Free Cash Flows:
(Unaudited)	Three Months Ended						Nine Months Ended
(In thousands)	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012
Net cash provided by operating activities	$	33,557		$	16,901		$	60,813		$	51,781
Purchases of property and equipment	(5,519		)	(5,183		)	(18,475		)	(17,032		)
Free cash flow	$	28,038		$	11,718		$	42,338		$	34,749

The following table highlights certain information related to our liquidity and capital resources:

(In thousands)	September 30, 2013		December 31, 2012
	(unaudited)
Cash and cash equivalents	$	101,907	$	212,400
Short-term marketable securities	111,239		—
Long-term marketable securities	50,653		—
Total cash, cash equivalents and marketable securities	$	263,799	$	212,400
Available borrowing capacity under revolving credit facility	50,000		50,000
Working capital	$	326,284	$	320,602