Globus Medical(GMED) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The unaudited Q1 2024 consolidated financial statements reflect a net loss and significant changes in financial profile post-NuVasive merger | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets (in thousands) | $1,828,574 | $1,915,374 | | Total assets (in thousands) | $4,943,612 | $5,086,083 | | Total current liabilities (in thousands) | $786,324 | $392,347 | | Total liabilities (in thousands) | $1,021,251 | $1,088,124 | | Total equity (in thousands) | $3,922,361 | $3,997,959 | | Account | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net sales (in thousands) | $606,666 | $276,688 | | Gross profit (in thousands) | $365,179 | $205,863 | | Operating income/(loss) (in thousands) | $7,997 | $56,403 | | Net income/(loss) (in thousands) | $(7,117) | $49,129 | | Diluted EPS | $(0.05) | $0.48 | | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities (in thousands) | $52,387 | $53,313 | | Net cash provided by/(used in) investing activities (in thousands) | $(46,584) | $10,992 | | Net cash provided by/(used in) financing activities (in thousands) | $(115,721) | $2,940 | | Net increase/(decrease) in cash (in thousands) | $(113,230) | $67,219 | Note 1. Background Globus Medical, a musculoskeletal medical device company, completed its merger with NuVasive, Inc. on September 1, 2023, becoming the accounting acquirer - The company develops and commercializes healthcare solutions for musculoskeletal disorders, focusing on implants, robotic guidance, and orthopedic trauma products[14] - On September 1, 2023, Globus Medical merged with NuVasive, Inc., with Globus as the accounting acquirer, impacting prior period comparability[18][19] Note 3. Asset Acquisitions and Business Combinations Q1 2024 saw a biotech acquisition with $12.6 million in expensed IPR&D, alongside the preliminary $2.6 billion NuVasive merger purchase price allocation, including $1.23 billion in goodwill - In Q1 2024, the company acquired a biotech company and expensed $12.6 million for acquired in-process research and development (IPR&D)[60] NuVasive Merger Preliminary Purchase Price Allocation (in thousands) | Component | Value | | :--- | :--- | | Total Value Class A Common Stock | $2,153,860 | | Repayment of revolving credit facility | $420,762 | | Fair value of assumed equity awards | $28,635 | | Total purchase price | $2,603,836 | | Fair value of acquired identifiable net assets | $1,369,361 | | Goodwill | $1,234,475 | Note 4. Net Sales Total net sales for Q1 2024 significantly increased to $606.7 million, with Musculoskeletal Solutions remaining the largest product category at $574.7 million Net Sales by Product Category (in thousands) | Product Category | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Musculoskeletal Solutions | $574,697 | $251,607 | | Enabling Technologies | $31,969 | $25,081 | | Total net sales | $606,666 | $276,688 | Note 11. Debt The company assumed $450.0 million in 0.375% Senior Convertible Notes due 2025 from the NuVasive merger and maintains an undrawn $400.0 million revolving credit facility - The company assumed $450.0 million in principal of 0.375% Senior Convertible Notes due 2025 from the NuVasive merger[95] - The 2025 Notes are convertible into Class A Common Stock at a rate equivalent to a conversion price of approximately $124.38 per share[96] - The company has an undrawn $400.0 million revolving credit facility as of March 31, 2024[94] Note 12. Equity In Q1 2024, the company repurchased 1.6 million Class A common shares for $83.3 million, with $191.7 million remaining under the repurchase authorization - In Q1 2024, the company repurchased 1.6 million shares of Class A common stock for $83.3 million[107] - As of March 31, 2024, $191.7 million was remaining under the share repurchase authorization[107] Note 15. Restructuring and Other Costs The company incurred $24.0 million in pre-tax costs in Q1 2024 for its '2024 Synergy Plan' post-merger, with $19.1 million recorded as restructuring costs - The company incurred $24.0 million in pre-tax costs in Q1 2024 related to its '2024 Synergy Plan' to optimize the post-merger organization[129][130] - Of the total costs, $19.1 million was classified as 'Restructuring Costs' on the income statement, mainly for employee termination benefits[130] Note 18. Segment and Geographic Information The company aggregates its two operating segments into one reportable segment, with the United States accounting for $482.9 million of Q1 2024 net sales Net Sales by Geographic Area (in thousands) | Region | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | United States | $482,927 | $234,120 | | International | $123,739 | $42,568 | | Total | $606,666 | $276,688 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial results, highlighting a 119.3% surge in net sales to $606.7 million due to the NuVasive merger, offset by significantly higher operating costs leading to a net loss Net Sales Change by Geography (in thousands) | Geography | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | United States | $482,927 | $234,120 | $248,807 | 106.3% | | International | $123,739 | $42,568 | $81,171 | 190.7% | | Total net sales | $606,666 | $276,688 | $329,978 | 119.3% | - The increase in net sales was primarily due to the addition of NuVasive[153][154] - Cost of sales increased by 241.0% to $241.5 million, driven by the NuVasive addition, amortization of inventory fair value step-up, and increased volume[155] - Operating expenses increased significantly: R&D rose 171.6% to $57.3 million, SG&A rose 103.2% to $248.7 million, and Amortization of Intangibles rose 545.0% to $29.7 million, all primarily due to the NuVasive merger[156][157][158] - The company recorded $19.1 million in restructuring costs in Q1 2024 related to the 2024 Synergy Plan, primarily for employee termination benefits[161] - Cash used in financing activities increased to $115.7 million, primarily due to $83.3 million in common stock repurchases and payments for business acquisition liabilities[171][107] Quantitative and Qualitative Disclosures About Market Risk No significant changes to quantitative and qualitative market risk disclosures were reported compared to the 2023 Annual Report on Form 10-K - There have been no significant changes to the market risk information disclosed in the 2023 Annual Report on Form 10-K[178] Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024[180] - There were no material changes in the company's internal control over financial reporting during the first quarter of 2024[181] PART II. OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal proceedings, including a favorable defense verdict in the Moskowitz Family LLC patent infringement case in December 2023 - The company is subject to legal proceedings arising in the ordinary course of business[186] - In the Moskowitz Family LLC patent infringement lawsuit, a jury returned a defense verdict in favor of Globus in December 2023. No liability has been recorded for this matter as of March 31, 2024[137] Risk Factors No material changes to the risk factors previously disclosed in the company's 2023 Annual Report on Form 10-K were reported - There have been no material changes to the risk factors set forth in the company's 2023 Annual Report on Form 10-K[188] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 1.6 million Class A common shares for $83.3 million in Q1 2024, with $191.7 million remaining under the authorization Share Repurchases in Q1 2024 (in thousands, except per share prices) | Period | Total Shares Purchased | Average Price Paid per Share | Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | | Jan 2024 | 717 | $52.80 | $237,367 | | Feb 2024 | 464 | $51.94 | $213,291 | | Mar 2024 | 416 | $51.84 | $191,732 | | Total | 1,597 | - | - | - The share repurchase program was expanded in September 2023 by an additional $350.0 million[189] Defaults Upon Senior Securities Not applicable - Not applicable[192] Mine Safety Disclosures Not applicable - Not applicable[193] Other Information Not applicable - Not applicable[194] Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including CEO/CFO certifications and XBRL data files - The report includes a list of filed exhibits, such as CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906, and XBRL documents[196]