Globus Medical(GMED) - 2024 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, equity statements, cash flows, and detailed notes Condensed Consolidated Balance Sheets (Unaudited) Total assets slightly decreased to $5,086,044 thousand by September 30, 2024, driven by increased current assets and decreased liabilities due to note reclassification Balance Sheet Summary (in thousands) | Metric | Dec 31, 2023 | Sep 30, 2024 | Change | | :-------------------------- | :----------- | :----------- | :------- | | Total Assets | $5,086,083 | $5,086,044 | $(39) | | Total Current Assets | $1,915,374 | $2,056,529 | $141,155 | | Cash and cash equivalents | $467,292 | $622,766 | $155,474 | | Accounts receivable, net | $503,235 | $588,047 | $84,812 | | Inventories | $848,135 | $717,703 | $(130,432) | | Total Liabilities | $1,088,124 | $1,016,647 | $(71,477) | | Total Equity | $3,997,959 | $4,069,397 | $71,438 | Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) Net sales significantly increased for both periods due to the NuVasive Merger, with operating and net income rising in the three-month period but decreasing over nine months Three Months Ended September 30 (in thousands, except per share amounts) | Metric | 2024 | 2023 | Change | % Change | | :------------------------------------- | :------- | :------- | :------- | :------- | | Net Sales | $625,705 | $383,639 | $242,066 | 63.1% | | Cost of Sales | $270,515 | $135,390 | $135,125 | 99.8% | | Operating Income/(Loss) | $48,098 | $404 | $47,694 | 11805.4% | | Net Income/(Loss) | $51,836 | $998 | $50,838 | 5094.0% | | Basic EPS | $0.38 | $0.01 | $0.37 | 3700.0% | | Diluted EPS | $0.38 | $0.01 | $0.37 | 3700.0% | Nine Months Ended September 30 (in thousands, except per share amounts) | Metric | 2024 | 2023 | Change | % Change | | :------------------------------------- | :--------- | :--------- | :--------- | :--------- | | Net Sales | $1,862,062 | $951,942 | $910,120 | 95.6% | | Cost of Sales | $772,042 | $282,688 | $489,354 | 173.1% | | Operating Income/(Loss) | $105,717 | $123,019 | $(17,302) | -14.1% | | Net Income/(Loss) | $76,479 | $107,839 | $(31,360) | -29.1% | | Basic EPS | $0.56 | $1.03 | $(0.47) | -45.6% | | Diluted EPS | $0.56 | $0.98 | $(0.42) | -42.9% | Condensed Consolidated Statements of Equity (Unaudited) Total equity increased to $4,069,397 thousand by September 30, 2024, driven by additional paid-in capital, partially offset by share repurchases and decreased retained earnings Equity Changes (in thousands) | Metric | Dec 31, 2023 | Sep 30, 2024 | Change | | :-------------------------------- | :----------- | :----------- | :------- | | Total Equity | $3,997,959 | $4,069,397 | $71,438 | | Additional paid-in capital | $2,870,749 | $2,949,917 | $79,168 | | Retained earnings | $1,137,266 | $1,126,308 | $(10,958) | | Stock-based compensation (9 months) | N/A | $42,428 | N/A | | Repurchase and retirement of common stock (9 months) | N/A | $(87,438) | N/A | Condensed Consolidated Statements of Cash Flows (Unaudited) Operating cash flow significantly increased to $310,299 thousand, while investing activities used more cash, and financing activities shifted to cash usage due to repurchases Cash Flow Summary (Nine Months Ended September 30, in thousands) | Metric | 2024 | 2023 | Change | | :-------------------------------------- | :------- | :------- | :------- | | Net cash provided by operating activities | $310,299 | $138,825 | $171,474 | | Net cash provided by investing activities | $(71,929) | $(17,647) | $(54,282) | | Net cash provided by financing activities | $(87,429) | $5,449 | $(92,878) | Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed disclosures on financial reporting, including accounting policies, acquisitions, asset breakdowns, debt, equity, taxes, restructuring, leases, and segment/geographic information - Globus Medical acquired NuVasive on September 1, 2023, significantly impacting financial comparability and involving NuVasive share conversion into Globus Class A Common Stock[16][17] - In 2024, the company completed several acquisitions, including a biotech company for hemostasis solutions ($12,600 thousand IPR&D expensed) and other immaterial acquisitions totaling $2,000 thousand in goodwill[57][58][59][60] - The company incurred $23,800 thousand in restructuring costs for the nine months ended September 30, 2024, primarily due to employee termination benefits under the 2024 Synergy Plan[131][132][184] - The company assumed $450,000 thousand in 0.375% Senior Convertible Notes due 2025 as part of the NuVasive Merger, with an effective interest rate of 6.5% for the nine months ended September 30, 2024[101][102][104] - The share repurchase program was expanded by $350,000 thousand on September 27, 2023, with $190,300 thousand remaining authorization as of September 30, 2024, and $84,800 thousand of Class A common stock repurchased during the nine months ended September 30, 2024[109] - The effective income tax rate decreased to 20.4% for the nine months ended September 30, 2024, from 23.2% in the prior year, primarily due to a $3,700 thousand release of tax reserves and a $2,100 thousand higher stock compensation windfall benefit[130][186] - The company operates in two segments, Musculoskeletal Solutions and Enabling Technologies, but aggregates them into one reportable segment due to economic similarity[144] Geographic Net Sales (Nine Months Ended September 30, in thousands) | Region | 2024 | 2023 | Change | % Change | | :------------- | :--------- | :--------- | :--------- | :--------- | | United States | $1,478,174 | $788,924 | $689,250 | 87.4% | | International | $383,888 | $163,018 | $220,870 | 135.5% | | Total Net Sales | $1,862,062 | $951,942 | $910,120 | 95.6% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial condition, operations, NuVasive Merger impact, product categories, geographic performance, accounting policies, and liquidity Overview Globus Medical, Inc. is an engineering-driven medical device company developing innovative healthcare solutions for musculoskeletal disorders across two product categories - Globus Medical is a medical device company developing and commercializing healthcare solutions for musculoskeletal disorders[148] - The company is engineering-driven, with a history of rapidly developing and commercializing advanced products and procedures[149] - Products and services are categorized into Musculoskeletal Solutions and Enabling Technologies[149] NuVasive Merger Globus Medical completed its merger with NuVasive, Inc. on September 1, 2023, making NuVasive a wholly-owned subsidiary and converting its common stock - Merger with NuVasive, Inc. completed on September 1, 2023[150] - NuVasive became a wholly-owned subsidiary of Globus Medical[150] - NuVasive common stock was converted into 0.75 shares of Globus Medical Class A common stock per share[150] Product & Service Categories Globus Medical offers Musculoskeletal Solutions, including implantable devices and neuromonitoring, and Enabling Technologies, which are advanced imaging, navigation, and robotics solutions - Musculoskeletal Solutions primarily consist of implantable devices, biologics, accessories, unique surgical instruments, and neuromonitoring services for spine, orthopedic, and neurosurgical procedures[152] - Enabling Technologies are advanced imaging, navigation, and robotics (INR) solutions designed to enhance surgeon capabilities, improve patient care, and reduce radiation exposure[153] - The market for Enabling Technologies in spine and orthopedic surgery is in its infancy, with expected growth as these technologies integrate with Musculoskeletal Solutions and new innovations like augmented reality and AI are introduced[153] Geographic Information The United States is the primary market, with international sales accounting for approximately 20.6% of total net sales across 65 countries for the nine months ended September 30, 2024 - United States is the primary market, with sales through direct and distributor representatives[154] - International net sales were approximately 20.6% of total net sales for the nine months ended September 30, 2024[155] - Products are sold in approximately 65 countries internationally[155] Seasonality The business is generally not seasonal, though Musculoskeletal Solutions sales are influenced by holidays, and Enabling Technologies sales by capital purchase cycles - Business is generally not seasonal[156] - Musculoskeletal Solutions sales may be influenced by summer vacation and winter holiday periods, and patient insurance deductibles[156] - Enabling Technologies sales are influenced by longer capital purchase cycles and budget approvals[156] Critical Accounting Policies and Estimates Financial statements rely on significant assumptions and estimates, with no material changes to critical accounting policies except for NuVasive Merger updates - Financial statements rely on assumptions, estimates, and judgments[157] - No material changes to critical accounting policies and estimates, except for those related to the NuVasive Merger[157] Results of Operations The company manages two operating segments, aggregated into one reportable segment, with financial performance for the three and nine months significantly impacted by the NuVasive Merger - Business is managed within two operating segments: Musculoskeletal Solutions and Enabling Technologies, aggregated into one reportable segment[159] - Financial performance for the three and nine months ended September 30, 2024, is significantly impacted by the NuVasive Merger[160][161][173][174] Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023 Net sales increased by 63.1% to $625,705 thousand due to the NuVasive Merger, leading to higher costs and expenses but also a dramatic rise in operating and net income Net Sales (in thousands) | Region | 2024 | 2023 | Change | % Change | | :------------- | :------- | :------- | :------- | :------- | | United States | $495,789 | $309,315 | $186,474 | 60.3% | | International | $129,916 | $74,324 | $55,592 | 74.8% | | Total Net Sales | $625,705 | $383,639 | $242,066 | 63.1% | - Cost of Sales increased by 99.8% to $270,515 thousand, driven by increased volume from the Merger and higher amortization of inventory fair value step-up[162] Operating Expenses (in thousands) | Expense Category | 2024 | 2023 | Change | % Change | | :------------------------------------- | :------- | :------- | :------- | :------- | | Research and Development | $35,380 | $29,329 | $6,051 | 20.6% | | Selling, General and Administrative | $240,738 | $156,206 | $84,532 | 54.1% | | Provision for Litigation, net | $(676) | $2,924 | $(3,600) | -123.1% | | Amortization of Intangibles | $30,076 | $13,761 | $16,315 | 118.6% | | Acquisition-Related Costs | $(3,617) | $45,625 | $(49,242) | -107.9% | | Restructuring Costs | $5,191 | $0 | $5,191 | N/A | - Other Income/(expense), Net increased by $6,800 thousand, primarily due to a $15,600 thousand foreign currency gain, partially offset by higher interest expense[170] - Income Tax Provision decreased effective tax rate to 9.1% from 60.7%, mainly due to a $2,900 thousand release of tax reserves and a $1,500 thousand stock compensation windfall benefit[171] Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023 Total net sales nearly doubled to $1,862,062 thousand, a 95.6% increase, largely due to the NuVasive Merger, leading to decreased operating and net income despite higher sales Net Sales (in thousands) | Region | 2024 | 2023 | Change | % Change | | :------------- | :--------- | :--------- | :--------- | :--------- |\ | United States | $1,478,174 | $788,924 | $689,250 | 87.4% | | International | $383,888 | $163,018 | $220,870 | 135.5% | | Total Net Sales | $1,862,062 | $951,942 | $910,120 | 95.6% | - Cost of Sales increased by 173% to $772,042 thousand, driven by increased volume from the Merger and $149,000 thousand in amortization of inventory fair value step-up[176] Operating Expenses (in thousands) | Expense Category | 2024 | 2023 | Change | % Change | | :------------------------------------- | :--------- | :--------- | :--------- | :--------- | | Research and Development | $130,346 | $71,758 | $58,588 | 81.6% | | Selling, General and Administrative | $727,567 | $398,691 | $328,876 | 82.5% | | Provision for Litigation, net | $628 | $184 | $444 | 241.3% | | Amortization of Intangibles | $89,461 | $22,909 | $66,552 | 290.5% | | Acquisition-Related Costs | $12,535 | $52,693 | $(40,158) | -76.2% | | Restructuring Costs | $23,766 | $0 | $23,766 | N/A | - Other Income/(expense), Net decreased by $27,000 thousand, primarily due to higher interest expense and lower interest income[185] - Income Tax Provision decreased effective tax rate to 20.4% from 23.2%, mainly due to a $3,700 thousand release of tax reserves and a $2,100 thousand stock compensation windfall benefit[186] Liquidity and Capital Resources Liquidity is supported by operating cash flow, cash, and marketable securities, meeting needs for working capital, R&D, capital expenditures, and debt servicing, with an undrawn $400,000 thousand revolving credit facility - Primary liquidity sources include cash flow from operating activities, cash and cash equivalents, and marketable securities[189] - Principal liquidity requirements include working capital, R&D, capital expenditures, contingent consideration, and servicing $450,000 thousand Senior Convertible Notes due March 2025[189] - An undrawn $400,000 thousand revolving credit facility with U.S. Bank National Association expires on September 27, 2028[190] - The company is in compliance with all covenants of the credit agreement as of September 30, 2024[190] Cash Flow Summary (Nine Months Ended September 30, in thousands) | Metric | 2024 | 2023 | Change | | :-------------------------------------- | :------- | :------- | :------- | | Net cash provided by operating activities | $310,299 | $138,825 | $171,474 | | Net cash provided by investing activities | $(71,929) | $(17,647) | $(54,282) | | Net cash provided by financing activities | $(87,429) | $5,449 | $(92,878) | - Operating cash flow increase driven by higher net income (post-Merger) and non-cash add-backs[192] - Investing cash flow usage increased due to less inflows from marketable securities maturities and increased property/equipment purchases, partially offset by decreased acquisition outflows[193] - Financing cash flow shifted to usage due to increased Class A common stock repurchases ($84,800 thousand) and business acquisition-related liability payments ($31,100 thousand), partially offset by higher stock option exercise proceeds ($29,800 thousand)[194] Contractual Obligations and Commitments The NuVasive merger introduced additional contractual obligations, including $450,000 thousand 2025 Notes, contingent consideration, and various operating and finance lease obligations - Acquired $450,000 thousand 2025 Notes from NuVasive merger[196] - Assumed contingent consideration arrangements from NuVasive acquisitions[196] - Assumed operating and finance lease obligations[196] Recently Adopted and Recently Issued Accounting Pronouncements The company adopted ASU No. 2022-03 and ASU No. 2021-08 with no material impact and is evaluating ASUs 2023-09 and 2023-07 for future implementation - Adopted ASU No. 2022-03 (Fair Value Measurement) on January 1, 2024, with no material impact[55] - Adopted ASU No. 2021-08 (Business Combinations) on January 1, 2023, with no material impact[56] - Evaluating ASU No. 2023-09 (Income Tax Disclosures) and ASU No. 2023-07 (Segment Reporting), effective for fiscal years beginning after December 15, 2024, and December 15, 2023 (interim periods after December 15, 2024), respectively[53][54] Cautionary Note Concerning Forward-Looking Statements This section cautions readers that the report contains forward-looking statements subject to various risks and uncertainties, including NuVasive integration, market demand, and regulatory compliance - Report contains forward-looking statements subject to risks and uncertainties[198] - Risks include NuVasive integration, health epidemics, market demand, competition, product development, regulatory compliance, intellectual property, litigation, industry trends, and economic conditions[198] - Readers are cautioned not to place undue reliance on forward-looking statements[199] Item 3. Quantitative and Qualitative Disclosures About Market Risk No significant changes to market risk disclosures have occurred since the 2023 Annual Report on Form 10-K - No significant changes to quantitative and qualitative disclosures about market risk since the 2023 Annual Report on Form 10-K[200] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of September 30, 2024, with no material changes in internal control over financial reporting, acknowledging inherent limitations - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2024[201] - No material changes in internal control over financial reporting occurred during the three months ended September 30, 2024[202] - Management believes control systems provide reasonable assurance but acknowledge inherent limitations, meaning they may not prevent all errors or fraud[203] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, exhibits, and signatures Item 1. Legal Proceedings The company is involved in various legal proceedings, including an appealed patent infringement lawsuit by Moskowitz Family LLC, with uncertain outcomes that could materially impact financial results - Company is involved in various legal proceedings and claims[205] - Moskowitz Family LLC filed a patent infringement suit; Globus received a defense verdict on December 14, 2023, which is now under appeal[143] - Outcomes are uncertain and could materially impact consolidated earnings, financial position, or cash flows[142] Item 1A. Risk Factors No material changes to risk factors have occurred since the 2023 Annual Report on Form 10-K, and readers should review them for potential business impacts - No material changes to risk factors from the 2023 Annual Report on Form 10-K[208] - Readers should review existing risk factors as they could adversely affect business and financial performance[207] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The share repurchase program was expanded by $350,000 thousand on September 27, 2023, with no shares repurchased in Q3 2024 and $190,300 thousand remaining authorized - Share repurchase program for Class A common stock was expanded by $350,000 thousand on September 27, 2023[208] - No shares were repurchased during the third quarter of 2024 (July 1 - September 30, 2024)[209] - As of September 30, 2024, $190,300 thousand remained authorized for repurchase under the program[209] Item 3. Defaults Upon Senior Securities This item is not applicable to the current report - Not applicable[209] Item 4. Mine Safety Disclosures This item is not applicable to the current report - Not applicable[210] Item 5. Other Information No other information is reported under this item - None[210] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including officer certifications, XBRL taxonomy documents, and the cover page interactive data file - Includes certifications by CEO and CFO (Exhibit 31.1, 31.2, 32)[212] - Includes XBRL Instance Document and Taxonomy Extension Schema, Calculation, Label, Presentation, and Definition Linkbase Documents (Exhibit 101.INS, 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF)[212] - Includes Cover Page Interactive Data File (Exhibit 104)[212] SIGNATURES The report is duly signed on November 5, 2024, by Daniel T. Scavilla (President and CEO) and Keith Pfeil (CFO and COO) - Signed by Daniel T. Scavilla (President and CEO) and Keith Pfeil (CFO and COO) on November 5, 2024[215]