UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021March 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File No. 001-35621
GLOBUS MEDICAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE | 04-3744954 | |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
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2560 General Armistead Avenue, Audubon, PA 19403 |
| (610) 930-1800 |
(Address of principal executive offices) (Zip Code) |
| (Registrant’s telephone number, including Area Code) |
Securities registered pursuant to Section 12(b) of the Act: | ||
Title of each class | Trading Symbols | Name of exchange on which registered |
Class A Common Stock, par value $.001 per share | GMED | New York Stock Exchange |
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:
Large Accelerated Filer | | Accelerated Filer | | Non-accelerated Filer | | Smaller Reporting Company | | Emerging Growth Company | |
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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 November 2, 2021May 6, 2022 was 101,470,823101,750,825 shares.
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)
September 30, | December 31, | March 31, | December 31, | |||||||||
(In thousands, except share and per share values) | 2021 | 2020 | 2022 | 2021 | ||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash, cash equivalents, and restricted cash | $ | 361,876 | $ | 239,397 | ||||||||
Cash and cash equivalents | $ | 229,789 | $ | 193,069 | ||||||||
Short-term marketable securities | 191,319 | 187,344 | 243,505 | 250,378 | ||||||||
Accounts receivable, net of allowances of $4,930 and $4,408, respectively | 159,576 | 141,676 | ||||||||||
Accounts receivable, net of allowances of $4,186 and $4,962, respectively | 166,222 | 164,436 | ||||||||||
Inventories | 234,368 | 229,153 | 253,886 | 237,001 | ||||||||
Prepaid expenses and other current assets | 16,207 | 17,771 | 19,587 | 18,417 | ||||||||
Income taxes receivable | 17,168 | 6,424 | 3,609 | 1,215 | ||||||||
Total current assets | 980,514 | 821,765 | 916,598 | 864,516 | ||||||||
Property and equipment, net of accumulated depreciation of $301,163 and $276,451, respectively | 215,665 | 216,879 | ||||||||||
Property and equipment, net of accumulated depreciation of $313,514 and $305,575, respectively | 227,541 | 221,076 | ||||||||||
Long-term marketable securities | 431,814 | 358,522 | 546,881 | 562,475 | ||||||||
Intangible assets, net | 73,095 | 86,949 | 64,385 | 68,660 | ||||||||
Goodwill | 166,578 | 156,716 | 179,045 | 179,708 | ||||||||
Other assets | 33,574 | 32,039 | 34,307 | 36,334 | ||||||||
Deferred income taxes | 9,338 | 6,615 | 29,937 | 24,494 | ||||||||
Total assets | $ | 1,910,578 | $ | 1,679,485 | $ | 1,998,694 | $ | 1,957,263 | ||||
LIABILITIES AND EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 20,678 | $ | 18,205 | $ | 26,093 | $ | 21,955 | ||||
Accrued expenses | 81,480 | 78,334 | 75,531 | 91,168 | ||||||||
Income taxes payable | 1,971 | 1,101 | 16,525 | 1,046 | ||||||||
Business acquisition liabilities | 8,729 | 5,777 | 11,535 | 11,770 | ||||||||
Deferred revenue | 9,667 | 8,125 | 11,807 | 12,025 | ||||||||
Payable to broker | — | 9,250 | — | 2,200 | ||||||||
Total current liabilities | 122,525 | 120,792 | 141,491 | 140,164 | ||||||||
Business acquisition liabilities, net of current portion | 49,113 | 31,493 | 56,501 | 58,755 | ||||||||
Deferred income taxes | 4,792 | 6,202 | 3,811 | 4,314 | ||||||||
Other liabilities | 15,879 | 14,701 | 11,519 | 12,642 | ||||||||
Total liabilities | 192,309 | 173,188 | 213,322 | 215,875 | ||||||||
Commitments and contingencies (Note 15) |
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Equity: | ||||||||||||
Class A common stock; $0.001 par value. Authorized 500,000,000 shares; issued and outstanding 79,029,625 and 77,284,007 shares at September 30, 2021 and December 31, 2020, respectively | 79 | 77 | ||||||||||
Class B common stock; $0.001 par value. Authorized 275,000,000 shares; issued and outstanding 22,430,097 shares at September 30, 2021 and December 31, 2020 | 22 | 22 | ||||||||||
Class A common stock; $0.001 par value. Authorized 500,000,000 shares; issued and outstanding 79,297,823 and 79,113,916 shares at March 31, 2022 and December 31, 2021, respectively | 79 | 79 | ||||||||||
Class B common stock; $0.001 par value. Authorized 275,000,000 shares; issued and outstanding 22,430,097 and 22,430,097 shares at March 31, 2022 and December 31, 2021, respectively | 22 | 22 | ||||||||||
Additional paid-in capital | 542,055 | 457,161 | 570,082 | 553,787 | ||||||||
Accumulated other comprehensive income (loss) | (3,054) | 3,955 | ||||||||||
Accumulated other comprehensive income/(loss) | (17,167) | (6,772) | ||||||||||
Retained earnings | 1,179,167 | 1,045,082 | 1,232,356 | 1,194,272 | ||||||||
Total equity | 1,718,269 | 1,506,297 | 1,785,372 | 1,741,388 | ||||||||
Total liabilities and equity | $ | 1,910,578 | $ | 1,679,485 | $ | 1,998,694 | $ | 1,957,263 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||
September 30, | September 30, | March 31, | ||||||||||||||||
(In thousands, except per share amounts) | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | ||||||||||||
Net sales | $ | 229,721 | $ | 216,098 | $ | 708,081 | $ | 555,597 | $ | 230,549 | $ | 227,344 | ||||||
Cost of goods sold | 58,554 | 57,097 | 177,427 | 156,604 | 59,167 | 55,027 | ||||||||||||
Gross profit | 171,167 | 159,001 | 530,654 | 398,993 | 171,382 | 172,317 | ||||||||||||
Operating expenses: | ||||||||||||||||||
Research and development | 15,853 | 14,421 | 46,324 | 69,278 | 17,412 | 14,924 | ||||||||||||
Selling, general and administrative | 96,444 | 89,152 | 301,589 | 262,710 | 100,748 | 97,891 | ||||||||||||
Provision for litigation | 605 | — | 511 | 197 | 2,341 | (94) | ||||||||||||
Amortization of intangibles | 4,573 | 4,152 | 13,970 | 12,043 | 4,512 | 4,774 | ||||||||||||
Acquisition related costs | 363 | 1,263 | 14,507 | 1,867 | (76) | 274 | ||||||||||||
Total operating expenses | 117,838 | 108,988 | 376,901 | 346,095 | 124,937 | 117,769 | ||||||||||||
Operating income/(loss) | 53,329 | 50,013 | 153,753 | 52,898 | 46,445 | 54,548 | ||||||||||||
Other income/(expense), net: | ||||||||||||||||||
Other income/(expense), net | ||||||||||||||||||
Interest income/(expense), net | 2,105 | 3,085 | 7,358 | 10,999 | 2,543 | 2,712 | ||||||||||||
Foreign currency transaction gain/(loss) | (898) | (170) | (969) | (806) | (391) | (280) | ||||||||||||
Other income/(expense) | (84) | 202 | 437 | 595 | 301 | 214 | ||||||||||||
Total other income/(expense), net | 1,123 | 3,117 | 6,826 | 10,788 | 2,453 | 2,646 | ||||||||||||
Income/(loss) before income taxes | 54,452 | 53,130 | 160,579 | 63,686 | 48,898 | 57,194 | ||||||||||||
Income tax provision | 7,241 | 8,914 | 26,494 | 14,358 | 10,814 | 11,865 | ||||||||||||
Net income/(loss) | $ | 47,211 | $ | 44,216 | $ | 134,085 | $ | 49,328 | $ | 38,084 | $ | 45,329 | ||||||
Other comprehensive income/(loss): | ||||||||||||||||||
Unrealized gain/(loss) on marketable securities, net of tax | (991) | (770) | (3,431) | 2,285 | ||||||||||||||
Other comprehensive income/(loss), net of tax: | ||||||||||||||||||
Unrealized gain/(loss) on marketable securities | (8,828) | (1,666) | ||||||||||||||||
Foreign currency translation gain/(loss) | (491) | 1,679 | (3,578) | 2,820 | (1,567) | (4,113) | ||||||||||||
Total other comprehensive income/(loss) | (1,482) | 909 | (7,009) | 5,105 | ||||||||||||||
Total other comprehensive income/(loss), net of tax | (10,395) | (5,779) | ||||||||||||||||
Comprehensive income/(loss) | $ | 45,729 | $ | 45,125 | $ | 127,076 | $ | 54,433 | $ | 27,689 | $ | 39,550 | ||||||
Earnings per share: | ||||||||||||||||||
Basic | $ | 0.47 | $ | 0.45 | $ | 1.33 | $ | 0.50 | $ | 0.37 | $ | 0.45 | ||||||
Diluted | $ | 0.45 | $ | 0.44 | $ | 1.30 | $ | 0.49 | $ | 0.37 | $ | 0.44 | ||||||
Weighted average shares outstanding: | ||||||||||||||||||
Basic | 101,104 | 98,217 | 100,477 | 98,453 | 101,600 | 99,866 | ||||||||||||
Diluted | 104,418 | 100,485 | 103,430 | 100,823 | 104,077 | 102,420 | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
Class A | Class B | Additional paid-in | Accumulated other comprehensive | Retained | Class A | Class B | Additional paid-in | Accumulated other comprehensive | Retained | |||||||||||||||||||||||||||||||||||
(In thousands) | Shares | $ | Shares | $ | capital | income/(loss) | earnings | Total | Shares | $ | Shares | $ | capital | income/(loss) | earnings | Total | ||||||||||||||||||||||||||||
Balance at December 31, 2020 | 77,284 | $ | 77 | 22,430 | $ | 22 | $ | 457,161 | $ | 3,955 | $ | 1,045,082 | $ | 1,506,297 | ||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 79,114 | $ | 79 | 22,430 | $ | 22 | $ | 553,787 | $ | (6,772) | $ | 1,194,272 | $ | 1,741,388 | ||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 7,883 | — | — | 7,883 | — | — | — | — | 8,353 | — | — | 8,353 | ||||||||||||||||||||||||||||
Grant of restricted stock units | — | — | — | — | 163 | — | — | 163 | — | — | — | — | 196 | — | — | 196 | ||||||||||||||||||||||||||||
Exercise of stock options | 303 | 1 | — | — | 9,100 | — | — | 9,101 | 184 | — | — | — | 7,746 | — | — | 7,746 | ||||||||||||||||||||||||||||
Comprehensive income/(loss) | — | — | — | — | — | (5,779) | 45,329 | 39,550 | — | — | — | — | — | (10,395) | 38,084 | 27,689 | ||||||||||||||||||||||||||||
Balance at March 31, 2021 | 77,587 | $ | 78 | 22,430 | $ | 22 | $ | 474,307 | $ | (1,824) | $ | 1,090,411 | $ | 1,562,994 | ||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 7,788 | — | — | 7,788 | ||||||||||||||||||||||||||||||||||||
Grant of restricted stock units | — | — | — | — | 197 | — | — | 197 | ||||||||||||||||||||||||||||||||||||
Exercise of stock options | 716 | 1 | — | — | 26,496 | — | — | 26,497 | ||||||||||||||||||||||||||||||||||||
Comprehensive income/(loss) | — | — | — | — | — | 252 | 41,545 | 41,797 | ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | 78,303 | $ | 79 | 22,430 | $ | 22 | $ | 508,788 | $ | (1,572) | $ | 1,131,956 | $ | 1,639,273 | ||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 7,621 | — | — | 7,621 | ||||||||||||||||||||||||||||||||||||
Grant of restricted stock units | — | — | — | — | 1,311 | — | — | 1,311 | ||||||||||||||||||||||||||||||||||||
Exercise of stock options | 727 | — | — | — | 24,335 | — | — | 24,335 | ||||||||||||||||||||||||||||||||||||
Comprehensive income/(loss) | — | — | — | — | — | (1,482) | 47,211 | 45,729 | ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | 79,030 | $ | 79 | 22,430 | $ | 22 | $ | 542,055 | $ | (3,054) | $ | 1,179,167 | $ | 1,718,269 | ||||||||||||||||||||||||||||||
Balance at March 31, 2022 | 79,298 | $ | 79 | 22,430 | $ | 22 | $ | 570,082 | $ | (17,167) | $ | 1,232,356 | $ | 1,785,372 | ||||||||||||||||||||||||||||||
Class A | Class B | Additional paid-in | Accumulated other comprehensive | Retained | Class A | Class B | Additional paid-in | Accumulated other comprehensive | Retained | |||||||||||||||||||||||||||||||||||
(In thousands) | Shares | $ | Shares | $ | capital | income/(loss) | earnings | Total | Shares | $ | Shares | $ | capital | income/(loss) | earnings | Total | ||||||||||||||||||||||||||||
Balance at December 31, 2019 | 77,394 | $ | 77 | 22,431 | $ | 22 | $ | 357,320 | $ | (2,898) | $ | 1,047,931 | $ | 1,402,452 | ||||||||||||||||||||||||||||||
Cumulative effects of adoption of accounting standards | — | — | — | — | — | — | (468) | (468) | ||||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | 77,284 | $ | 77 | 22,430 | $ | 22 | $ | 457,161 | $ | 3,955 | $ | 1,045,082 | $ | 1,506,297 | ||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 6,902 | — | — | 6,902 | — | — | — | — | 7,883 | — | — | 7,883 | ||||||||||||||||||||||||||||
Grant of restricted stock units | — | — | — | — | 163 | — | — | 163 | ||||||||||||||||||||||||||||||||||||
Exercise of stock options | 190 | 1 | — | — | 5,762 | — | — | 5,763 | 303 | 1 | — | — | 9,100 | — | — | 9,101 | ||||||||||||||||||||||||||||
Comprehensive income/(loss) | — | — | — | — | — | (3,368) | 25,949 | 22,581 | — | — | — | — | — | (5,779) | 45,329 | 39,550 | ||||||||||||||||||||||||||||
Repurchase and retirement of common stock | (1,920) | (2) | — | — | — | — | (73,862) | (73,864) | ||||||||||||||||||||||||||||||||||||
Balance at March 31, 2020 | 75,664 | $ | 76 | 22,431 | $ | 22 | $ | 369,984 | $ | (6,266) | $ | 999,550 | $ | 1,363,366 | ||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 7,426 | — | — | 7,426 | ||||||||||||||||||||||||||||||||||||
Exercise of stock options | 434 | — | (1) | — | 10,201 | — | — | 10,201 | ||||||||||||||||||||||||||||||||||||
Comprehensive income/(loss) | — | — | — | — | — | 7,564 | (20,837) | (13,273) | ||||||||||||||||||||||||||||||||||||
Repurchase and retirement of common stock | (771) | (1) | — | — | — | — | (30,804) | (30,805) | ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2020 | 75,327 | $ | 75 | 22,430 | $ | 22 | $ | 387,611 | $ | 1,298 | $ | 947,909 | $ | 1,336,915 | ||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 7,007 | — | — | 7,007 | ||||||||||||||||||||||||||||||||||||
Exercise of stock options | 915 | 1 | — | — | 28,156 | — | — | 28,157 | ||||||||||||||||||||||||||||||||||||
Comprehensive income/(loss) | — | — | — | — | — | 909 | 44,216 | 45,125 | ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2020 | 76,242 | $ | 76 | 22,430 | $ | 22 | 422,774 | $ | 2,207 | $ | 992,125 | $ | 1,417,204 | |||||||||||||||||||||||||||||||
Balance at March 31, 2021 | 77,587 | $ | 78 | 22,430 | $ | 22 | $ | 474,307 | $ | (1,824) | $ | 1,090,411 | $ | 1,562,994 | ||||||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended | Three Months Ended | |||||||||||
September 30, | March 31, | |||||||||||
(In thousands) | 2021 | 2020 | 2022 | 2021 | ||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 134,085 | $ | 49,328 | $ | 38,084 | $ | 45,329 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Acquired in-process research and development | — | 24,418 | ||||||||||
Depreciation and amortization | 53,038 | 45,970 | 16,837 | 17,157 | ||||||||
Amortization of premium (discount) on marketable securities | 1,763 | 215 | 1,690 | 520 | ||||||||
Write-down of excess and obsolete inventories | 5,570 | 12,411 | ||||||||||
Write-down for excess and obsolete inventories, net | 1,834 | 1,550 | ||||||||||
Stock-based compensation expense | 22,781 | 21,138 | 8,152 | 7,698 | ||||||||
Allowance for doubtful accounts | 883 | 2,741 | (728) | 80 | ||||||||
Change in fair value of business acquisition liabilities | 14,336 | 1,027 | (263) | 258 | ||||||||
Change in deferred income taxes | (3,131) | (4,458) | (2,994) | (808) | ||||||||
(Gain)/loss on disposal of assets, net | 383 | 714 | 115 | 103 | ||||||||
Payment of business acquisition related liabilities | — | (700) | (743) | — | ||||||||
(Increase)/decrease in: | ||||||||||||
Accounts receivable | (19,928) | 8,412 | (1,614) | (20,346) | ||||||||
Inventories | (9,161) | (47,271) | (17,939) | (3,997) | ||||||||
Prepaid expenses and other assets | (794) | (4,381) | 547 | 4,516 | ||||||||
Increase/(decrease) in: | ||||||||||||
Accounts payable | 2,521 | 5,401 | 4,160 | 4,212 | ||||||||
Accrued expenses and other liabilities | 7,500 | 3,749 | (15,428) | (4,783) | ||||||||
Income taxes payable/receivable | (9,825) | (105) | 12,980 | 12,081 | ||||||||
Net cash provided by/(used in) operating activities | 200,021 | 118,609 | 44,690 | 63,570 | ||||||||
Cash flows from investing activities: | ||||||||||||
Purchases of marketable securities | (347,057) | (57,418) | (142,145) | (185,110) | ||||||||
Maturities of marketable securities | 171,886 | 100,830 | 106,549 | 39,850 | ||||||||
Sales of marketable securities | 82,882 | 39,944 | 42,673 | 33,818 | ||||||||
Purchases of property and equipment | (39,853) | (49,595) | (19,971) | (13,672) | ||||||||
Acquisition of businesses, net of cash acquired, and purchases of intangible and other assets | — | (31,991) | ||||||||||
Acquisition of businesses, net of cash acquired and purchases of intangible and other assets | (1,000) | — | ||||||||||
Net cash provided by/(used in) investing activities | (132,142) | 1,770 | (13,894) | (125,114) | ||||||||
Cash flows from financing activities: | ||||||||||||
Payment of business acquisition related liabilities | (4,763) | (5,327) | ||||||||||
Payment of business acquisition liabilities | (1,699) | (1,537) | ||||||||||
Proceeds from exercise of stock options | 59,933 | 44,121 | 7,746 | 9,101 | ||||||||
Repurchase of common stock | — | (104,669) | ||||||||||
Net cash provided by/(used in) financing activities | 55,170 | (65,875) | 6,047 | 7,564 | ||||||||
Effect of foreign exchange rates on cash | (570) | 379 | (123) | (569) | ||||||||
Net increase in cash, cash equivalents, and restricted cash | 122,479 | 54,883 | ||||||||||
Cash, cash equivalents, and restricted cash at beginning of period | 239,397 | 195,724 | ||||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | 361,876 | $ | 250,607 | ||||||||
Net increase in cash and cash equivalents | 36,720 | (54,549) | ||||||||||
Cash and cash equivalents at beginning of period | 193,069 | 239,397 | ||||||||||
Cash and cash equivalents at end of period | $ | 229,789 | $ | 184,848 | ||||||||
Supplemental disclosures of cash flow information: | ||||||||||||
Income taxes paid | $ | 39,450 | $ | 19,328 | $ | 572 | $ | 570 | ||||
Purchases of property and equipment included in accounts payable and accrued expenses | $ | 3,491 | $ | 3,931 | $ | 4,105 | $ | 2,620 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 1. BACKGROUND
(a) The Company
Globus Medical, Inc., together with its subsidiaries, is a medical device company that develops and commercializes healthcare solutions with a mission 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 to address new treatment options. With over 220 product launches to date,products launched, we offer a comprehensive portfolio of innovative and differentiated technologies that address a variety of musculoskeletal pathologies, anatomies, and surgical approaches.
We are headquartered in Audubon, Pennsylvania, and we 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. Our 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
In March 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide. COVID-19 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.
Although the Company cannot reasonably estimate the length or severity of the impact that COVID-19 will have on its financial results, the Company may experience a material adverse impact on its sales, results of operations, and cash flows in 20212022 should there be a resurgence impacting hospitals, and surgical facilities, to which we provide services.our internal operations, or our suppliers.
In response to these developments, the Company will continue to monitor liquidity and cash flow. The Company has the ability to borrow from its existing credit facility, if needed, although we do not expect to do so due to our cash, cash equivalents and short-term marketable securities balances.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
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, 2020.2021.
In the opinion of management, these condensed consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of our financial position as of September 30, 2021,March 31, 2022, and results of operations for the three and nine months ended September 30, 2021.March 31, 2022. The results of operations for any interim period may not be indicative of results for the full year.
(b) Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Globus and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.are eliminated in consolidation.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(c) Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires the Companymanagement 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 we believemanagement 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 estimates include revenue recognition, intangible assets, business acquisition liabilities, allowance for doubtful accounts, stock-based compensation, reserves 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.
(d) Revenue Recognition
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 disclosure, 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 contracts with our customers for Musculoskeletal Solutions productscontracts have a single performance obligation and revenue is recognized at a point in time. Our Enabling Technologies products are advanced robotics 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 contracts with our customers for Enabling Technologies productsproduct contracts contain multiple performance obligations, including maintenance and support, and revenue is recognized as we fulfill each performance obligation. When contracts have 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.
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 generally 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 can affect the customer’s final acceptance of the sale.
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. Any revenue related to the provision of maintenance and support is recognized as we satisfy the performance obligation. 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. Maintenance and support services are generally invoiced annually, at the beginning of each contract period, and revenue is recognized ratably over the maintenance period. For the three and nine months ended September 30, 2021,March 31, 2022, there was an immaterial amount of revenue recognized from previously deferred revenue.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(e) Cash and Cash Equivalents and Restricted Cash
The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at acquisition date to be cash equivalents. Cash equivalents, which consist of money market accounts, commercial paper and corporate debt securities are stated at fair value.
(f) Marketable Securities
Our marketable securities include municipal bonds, corporate debt securities, commercial paper, asset-backed securities, and securities of government, federal agency, and other sovereign obligations and are classified as available-for-sale as of September 30, 2021.March 31, 2022. Short-term and long-term marketable securities are recorded at fair value on our condensed consolidated balance sheets. Any changeschange in the fair value of our available-for-sale securities, that do not result in recognition or reversal of an allowance for credit loss or write-down, are 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 marketable securities are determined on a specific identification basis. Realized gains and losses, interest income and the amortization/accretion of premiums/discounts are included in other income/(expense), net, on our condensed consolidated statements of operations and comprehensive income. Interest receivable is recorded in prepaid expenses and other current assets on our condensed consolidated balance sheets.
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 declines in the fair value of our securities for other-than-temporaryto determine whether they are resulting from expected credit losses or other factors. If the assessment indicates a credit loss exists, we recognize any measured impairment at each reporting period. If an unrealized loss for any security is expected, the loss will be recognized onas an allowance basis, consistent with ASC 326-30,for credit loss in our condensed consolidated statementstatements of operations andoperations. Any other impairments not recorded through allowance for credit losses is recognized in our other comprehensive income in the period the determination is made.income.
(g) Fair Value Measurements
Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis
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.
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 date, with the excess recorded as goodwill. We utilize Level 3 inputs in the determination of the initial fair value.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Contingent consideration represents contingent milestone, performance and revenue-sharing payment obligations related to business acquisitions and is measured at fair value, based on significant inputs that are not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation of contingent consideration uses assumptions we believe would be made by a market participant. We assess these assumptions on an ongoing basis as additional data impacting the assumptions is obtained. The fair value of contingent consideration recorded in business acquisition liabilities on our condensed consolidated balance sheets, and changes in the fair value of contingent consideration are recognized withinin acquisition related costs in the condensed consolidated statements of operations and comprehensive income. The fair value of contingent restricted stock unit (“RSU”) grants are recorded as additional paid-in capital in the consolidated balance sheet on the day of the grant due to the remote likelihood of forfeiture.
(h) Inventories
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 inventory is finished goods and we utilize both in-house manufacturing and third-party suppliers to produce our products. We periodically evaluate the carrying value of our inventories in relation to estimated forecasts of product demand, which takes into consideration the 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.
(i) Goodwill and Intangible Assets
Goodwill represents the excess of purchase price over the fair values of the identifiable assets acquired less the liabilities assumed in the acquisition of a business. Goodwill is tested for impairment at least annually or whenever events or circumstances indicate that a carrying amount may not be recoverable. Goodwill is tested for impairment at the reporting unit level by comparing the reporting unit’s carrying amount to the estimated fair value of the reporting unit. Fair values are estimated using an income and discounted cash flow approach. We perform our annual impairment test of goodwill in the fourth quarter of each year. We consider qualitative indicators of the fair value of a reporting unit when it is unlikely that a reporting unit has impaired goodwill. During the ninethree months ended September 30,March 31, 2022 and 2021, and 2020, we did 0t record any impairment charges related to goodwill.
Intangible assets consist of purchased in-process research and development (“IPR&D”), developed technology, supplier network, patents, customer relationships, re-acquired rights, and non-compete agreements. Intangible assets with finite useful lives are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from one to sixteen years. Intangible assets with finite useful lives are tested for impairment annually or whenever events or circumstances indicate that a carrying amount of an asset (asset group) may not be recoverable. If an impairment is indicated, we measure the amount of the impairment loss as the amount by which the carrying amount exceeds the fair value of the asset. Fair value is generally determined using a discounted future cash flow analysis. There were 0 impairments of finite-lived intangible assets during the ninethree months ended September 30, 2021March 31, 2022 or 2020.2021.
IPR&D has an indefinite life and is not amortized until completion of the project at which time the IPR&D becomes an amortizable asset. Intangible assets with indefinite useful lives are tested for impairment annually or whenever events or circumstances indicate that a carrying amount of an asset (asset group) may not be recoverable If the related project is not completed in a timely manner, we may have an impairment related to the IPR&D, calculated as the excess of the asset’s carrying value over its fair value. There were 0 impairments of IPR&D during the ninethree months ended September 30, 2021March 31, 2022 or 2020.2021.
(j) Stock-Based Compensation
The cost of employee and non-employee director awards is measured at the grant date fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period of the equity award. Compensation expense for awards includes the impact of forfeiture in the period when they occur.
We estimate the fair value of stock options utilizing the Black-Scholes option-pricing model. Inputs to the Black-Scholes model include our stock price, expected volatility, expected term, risk-free interest rate and expected dividends. Expected volatility is based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected term of the Company’s stock options offering period which is derived from historical experience. The risk-free interest rate assumption is based on observed interest rates of U.S. Treasury securities appropriate for the expected terms of the stock options. The dividend yield assumption is based on the history and expectation of no dividend payouts. The fair value of restricted stock units is estimated on the date of the grant using the closing price of the Company’s common stock on the date of grant.stock.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(k) Recently Issued Accounting Pronouncements
None applicable.
(l) Recently Adopted Accounting Pronouncements
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. To date, we have had no impacts on our investment portfolio or our credit agreement with Citizens Bank, N.A. related to reference rate reform. We
will continue to evaluate the impact this guidance could have on our condensed consolidated financial statements and related disclosures.
(l) Recently Adopted Accounting Pronouncements
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. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We adopted ASU 2019-12 on January 1, 2021. This standard did not have a material impact on our financial position, results of operations and disclosures.
NOTE 3. ASSET ACQUISITIONS AND BUSINESS COMBINATIONS
Asset Acquisitions
During the fourth quarter of 2021, the Company acquired substantially all the assets of Capstone Surgical Technologies, LLC (“Capstone”), which engages in the business of advanced drill and robotic surgery platforms. The purchase price consisted of $24.5 million of cash paid at closing, subject to net working capital and other post-closing adjustments, if applicable. The transaction also provides for additional consideration contingent upon the developed products obtaining approval from the U.S. Food and Drug Administration (the “FDA”) of up to $15.0 million, and additional consideration of up to $10.0 million contingent upon the achievement of certain performance milestones. Contingent consideration is not recorded in an asset acquisition until the milestone is met.
Also during the fourth quarter of 2021, the Company acquired substantially all the assets of a company that engages in the development of technology for use in robotic surgery platforms which was not considered material to the consolidated financial statements during the periods presented. The purchase price consisted of $10.0 million of cash paid at closing and also provides for additional consideration of $5.0 million contingent upon the achievement of certain performance milestones. Contingent consideration is not recorded in an asset acquisition until the milestone is met.
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 $25.3 million, and the consideration consisted of approximately $22.8 million of cash paid at closing plus $2.5 million of a contractual holdback obligation payable eighteen months from the closing date of the transaction, subject to net working capital and other post-closing adjustments, if applicable. TheDuring the fourth quarter of 2021, the contractual holdback obligation is included in accrued expenses in the condensed consolidated balance sheet.
The Company accountedand net working capital and other post-closing adjustments were settled for the transaction as an asset acquisition as substantially all of the fair value of the assets acquired was concentrated in a single identified asset, IPR&D of the limb lengthening system, thus satisfying the requirements of the screen test in ASU 2017-1. 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 $24.4 million was charged to research and development expense in the condensed consolidated statements of operations and comprehensive income at the date of acquisition.
$2.7 million. The transaction also provides for additional consideration of $8.0 million contingent upon the developed product obtaining approval from the U.S. Food and Drug Administration (the “FDA”) of $8.0 million within the third anniversary, or $4.0 million if within the fourth anniversary of the acquisition closing date, respectively. Contingent consideration is not recorded in an asset acquisition until the milestone is met.
The Company accounted for each of these transactions as asset acquisitions because substantially all of the fair value of the assets acquired in each transaction was concentrated in a single identified asset, in-process research and development (“IPR&D”) of the acquired technology, thus satisfying the requirements of the screen test in ASU 2017-1. At the date of the acquisitions, the Company determined that the development of the projects underway had not yet reached technological feasibility and that the research in process had no alternative future use. Accordingly, the acquired IPR&D of $34.3 million and $24.4 million was charged to research and development expense in the condensed consolidated statements of operations and comprehensive income for years ended 2021 and 2020, respectively.
Business Combinations
During the third quarter of 2021, the Company completed 23 acquisitions that were not considered material, individually or collectively, to the condensed consolidated financial statements during the periods presented. Two acquisitions were completed in the third quarter, while the third acquisition was completed in the fourth quarter. These acquisitions have been included in the condensed consolidated financial statements from the date of acquisition. The purchase price of the acquisition in the fourth quarter consisted of approximately $0.3 million of cash paid at closing and $13.0 million of contingent consideration payments, resulting in goodwill of $13.3 million based on the estimated fair values. The combined purchase price of the 2 acquisitions in the third quarter consisted of approximately $12.6 million of contingent consideration payments. The contingent payments are based upon achieving various performance obligations over a period of 10 years, and are payable in a combination of cash and RSUs. The Company recorded other intangible assets of $1.6 million, with a weighted average useful life of 3.8 years, and goodwill of $11.0 million based on their preliminary estimated fair values. The Company will finalize the purchase price allocationcontingent payments for all three acquisitions are based upon achieving various performance milestones over a period of the assets10 years and liabilities acquired within one year from the dateare payable in a combination of acquisition. While the Company does not expect material changes from the initial outcome of the valuation, certain assumptionscash and findings made at the date of acquisition could result in changes in the purchase price allocation.RSUs.
During the fourth quarter of 2020, the Company completed 2 acquisitions that were not considered material, individually or collectively, to the condensedoverall consolidated financial statements during the periods presented. These acquisitions have been included in the condensed consolidated financial statements from the date of acquisition. The combined purchase price consisted of approximately $1.5 million of cash paid at closing, plus $0.3 million of other liabilities and $33.2 million of contingent consideration payments. The contingent payments are based upon achieving various performance obligationsmilestones over a period of 10 years and are payable in a
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
combination of cash and RSUs. The Company recorded other intangible assets of $8.8 million, with a weighted average useful life of 4.2 years, and goodwill of $26.2 million based on their fair values.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
The contingent consideration payable related to the StelKast Acquisition of $5.0 million was paid during the third quarter of 2020.
NOTE 4. NET SALES
The following table represents net sales by product category:
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||
September 30, | September 30, | March 31, | ||||||||||||||||
(In thousands) | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | ||||||||||||
Musculoskeletal Solutions | $ | 209,478 | $ | 207,063 | $ | 652,157 | $ | 533,085 | $ | 217,402 | $ | 212,416 | ||||||
Enabling Technologies | 20,243 | 9,035 | 55,924 | 22,512 | 13,147 | 14,928 | ||||||||||||
Total net sales | $ | 229,721 | $ | 216,098 | $ | 708,081 | $ | 555,597 | $ | 230,549 | $ | 227,344 | ||||||
NOTE 5. MARKETABLE SECURITIES
The composition of our short-term and long-term marketable securities was as follows:
September 30, 2021 | March 31, 2022 | |||||||||||||||||||||||
(In thousands) | Amortized | Gross | Gross Unrealized Losses | Fair | Amortized | Gross | Gross Unrealized Losses | Fair | ||||||||||||||||
Short-term: | ||||||||||||||||||||||||
Municipal bonds | $ | 59,492 | $ | 205 | $ | (1) | $ | 59,696 | $ | 41,252 | $ | 9 | $ | (110) | $ | 41,151 | ||||||||
Corporate debt securities | 87,754 | 766 | — | 88,520 | 147,401 | 57 | (927) | 146,531 | ||||||||||||||||
Commercial paper | 16,990 | 4 | — | 16,994 | 36,251 | — | (42) | 36,209 | ||||||||||||||||
Asset-backed securities | 15,880 | 121 | — | 16,001 | 6,603 | 11 | — | 6,614 | ||||||||||||||||
Government, federal agency, and other sovereign obligations | 10,106 | 2 | — | 10,108 | 13,070 | — | (70) | 13,000 | ||||||||||||||||
Total short-term marketable securities | $ | 190,222 | $ | 1,098 | $ | (1) | $ | 191,319 | $ | 244,577 | $ | 77 | $ | (1,149) | $ | 243,505 | ||||||||
Long-term: | ||||||||||||||||||||||||
Municipal bonds | $ | 66,306 | $ | 139 | $ | (21) | $ | 66,424 | $ | 101,483 | $ | 4 | $ | (2,255) | $ | 99,232 | ||||||||
Corporate debt securities | 224,466 | 1,063 | (51) | 225,478 | 341,254 | 76 | (7,442) | 333,888 | ||||||||||||||||
Asset-backed securities | 139,778 | 276 | (142) | 139,912 | 102,013 | 19 | (1,926) | 100,106 | ||||||||||||||||
Government, federal agency, and other sovereign obligations | 14,032 | — | (377) | 13,655 | ||||||||||||||||||||
Total long-term marketable securities | $ | 430,550 | $ | 1,478 | $ | (214) | $ | 431,814 | $ | 558,782 | $ | 99 | $ | (12,000) | $ | 546,881 | ||||||||
December 31, 2021 | ||||||||||||
(In thousands) | Amortized | Gross | Gross | Fair | ||||||||
Short-term: | ||||||||||||
Municipal bonds | $ | 66,379 | $ | 99 | $ | (11) | $ | 66,467 | ||||
Corporate debt securities | 107,102 | 434 | (65) | 107,471 | ||||||||
Commercial paper | 38,252 | 2 | (1) | 38,253 | ||||||||
Asset-backed securities | 12,931 | 58 | — | 12,989 | ||||||||
Government, federal agency, and other sovereign obligations | 25,231 | — | (33) | 25,198 | ||||||||
Total short-term marketable securities | $ | 249,895 | $ | 593 | $ | (110) | $ | 250,378 | ||||
Long-term: | ||||||||||||
Municipal bonds | $ | 91,185 | $ | 4 | $ | (409) | $ | 90,780 | ||||
Corporate debt securities | 324,492 | 351 | (1,318) | 323,525 | ||||||||
Asset-backed securities | 128,139 | 101 | (578) | 127,662 | ||||||||
Government, federal agency, and other sovereign obligations | 20,539 | — | (31) | 20,508 | ||||||||
Total long-term marketable securities | $ | 564,355 | $ | 456 | $ | (2,336) | $ | 562,475 | ||||
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
December 31, 2020 | ||||||||||||
(In thousands) | Amortized | Gross | Gross | Fair | ||||||||
Short-term: | ||||||||||||
Municipal bonds | $ | 39,684 | $ | 140 | $ | — | $ | 39,824 | ||||
Corporate debt securities | 97,937 | 817 | (4) | 98,750 | ||||||||
Commercial paper | 25,543 | 4 | — | 25,547 | ||||||||
Asset-backed securities | 15,232 | 44 | — | 15,276 | ||||||||
Government, federal agency, and other sovereign obligations | 7,886 | 61 | — | 7,947 | ||||||||
Total short-term marketable securities | $ | 186,282 | $ | 1,066 | $ | (4) | $ | 187,344 | ||||
Long-term: | ||||||||||||
Municipal bonds | $ | 70,176 | $ | 612 | $ | — | $ | 70,788 | ||||
Corporate debt securities | 158,464 | 3,120 | — | 161,584 | ||||||||
Asset-backed securities | 124,406 | 1,747 | (3) | 126,150 | ||||||||
Total long-term marketable securities | $ | 353,046 | $ | 5,479 | $ | (3) | $ | 358,522 | ||||
The short-term marketable securities have effective maturity dates of less than one year and the long-term marketable securities have effective maturity dates ranging from one to three years as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
Purchases of marketable securities include amounts payable to brokers of $9.3$2.2 million as of December 31, 2020.2021. Purchases of marketable securities included 0 amounts payable to brokers as of March 31, 2022.
NOTE 6. FAIR VALUE MEASUREMENTS
Assets and liabilities measured at fair value on a recurring basis included the following:
(In thousands) | Balance at September 30, 2021 | Level 1 | Level 2 | Level 3 | Balance at March 31, 2022 | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Assets: | ||||||||||||||||||||||||
Cash equivalents | $ | 42,561 | $ | 38,386 | $ | 4,175 | $ | — | $ | 61,945 | $ | 44,491 | $ | 17,454 | $ | — | ||||||||
Municipal bonds | 126,120 | — | 126,120 | — | 140,383 | — | 140,383 | — | ||||||||||||||||
Corporate debt securities | 313,998 | — | 313,998 | — | 480,419 | — | 480,419 | — | ||||||||||||||||
Commercial paper | 16,994 | — | 16,994 | — | 36,209 | — | 36,209 | — | ||||||||||||||||
Asset-backed securities | 155,913 | — | 155,913 | — | 106,720 | — | 106,720 | — | ||||||||||||||||
Government, federal agency, and other sovereign obligations | 10,108 | — | 10,108 | — | 26,655 | — | 26,655 | — | ||||||||||||||||
Liabilities: | ||||||||||||||||||||||||
Business acquisition liabilities | 57,842 | — | — | 57,842 | 68,036 | — | — | 68,036 | ||||||||||||||||
(In thousands) | Balance at December 31, 2020 | Level 1 | Level 2 | Level 3 | Balance at December 31, 2021 | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Assets: | ||||||||||||||||||||||||
Cash equivalents | $ | 56,223 | $ | 23,628 | $ | 32,595 | $ | — | $ | 26,684 | $ | 3,768 | $ | 22,916 | $ | — | ||||||||
Municipal bonds | 110,612 | — | 110,612 | — | 157,247 | — | 157,247 | — | ||||||||||||||||
Corporate debt securities | 260,334 | — | 260,334 | — | 430,996 | — | 430,996 | — | ||||||||||||||||
Commercial paper | 25,547 | — | 25,547 | — | 38,253 | — | 38,253 | — | ||||||||||||||||
Asset-backed securities | 141,426 | — | 141,426 | — | 140,651 | — | 140,651 | — | ||||||||||||||||
Government, federal agency, and other sovereign obligations | 7,947 | — | 7,947 | — | 45,706 | — | 45,706 | — | ||||||||||||||||
Liabilities: | ||||||||||||||||||||||||
Business acquisition liabilities | 37,270 | — | — | 37,270 | 70,525 | — | — | 70,525 | ||||||||||||||||
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.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Assets and Liabilities That Are Measured at Fair Value on a Nonrecurring Basis
Fair value of the revenue-based business acquisition liabilities was determined using a discounted cash flow model and an option pricing model. The significant inputs of such models are not observable in the market, such as certain financial metric growth rates, volatility and discount rates, market price risk adjustment, projections associated with the applicable milestone, the interest rate, and the related probabilities and payment structure in the contingent consideration arrangement.
The following are the significant unobservable inputs used in the two valuation techniques:
Unobservable input | Range | Weighted Average* | Range | Weighted Average* | ||||||||
Revenue risk premium | 2.5% | - | 4.9% | 3.1% | 2.4% | - | 4.9% | 3.0% | ||||
Revenue volatility | 14.0% | - | 15.8% | 14.6% | 14.0% | - | 15.8% | 14.8% | ||||
Discount rate | 1.0% | - | 8.5% | 3.3% | 1.2% | - | 8.5% | 3.3% | ||||
Projected year of payment | 2021 | - | 2031 | 2022 | - | 2031 | ||||||
* The weighted average rates were calculated based on the relative fair value of each business acquisition liability.
The change in the carrying value of the business acquisition liabilities during the three and nine months ended September 30,March 31, 2022 and 2021, and 2020, respectively included the following:
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||
September 30, | September 30, | March 31, | ||||||||||||||||
(In thousands) | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | ||||||||||||
Fair value measurement at beginning of period | $ | 47,995 | $ | 4,216 | $ | 37,270 | $ | 9,549 | ||||||||||
Purchase price contingent consideration | 12,628 | — | 12,628 | — | ||||||||||||||
Beginning balance | $ | 70,525 | $ | 37,270 | ||||||||||||||
Contingent cash payments | (1,613) | (175) | (4,628) | (1,028) | (2,412) | (1,492) | ||||||||||||
Contingent RSU grants | (1,311) | — | (1,671) | — | (196) | (163) | ||||||||||||
Changes in fair value of business acquisition liabilities | 208 | 507 | 14,336 | 970 | (263) | 258 | ||||||||||||
Contractual payable reclassification | (65) | — | (93) | (4,943) | 382 | 148 | ||||||||||||
Fair value measurement at September 30, 2021 and 2020, respectively | $ | 57,842 | $ | 4,548 | $ | 57,842 | $ | 4,548 | ||||||||||
Ending balance | $ | 68,036 | $ | 36,021 | ||||||||||||||
Changes in the fair value of business acquisition liabilities are driven by changes in market conditions and the achievement of certain performance conditions.
NOTE 7. INVENTORIES
Inventories included the following:
September 30, | December 31, | March 31, | December 31, | |||||||||
(In thousands) | 2021 | 2020 | 2022 | 2021 | ||||||||
Raw materials | $ | 44,038 | $ | 39,646 | $ | 48,894 | $ | 41,819 | ||||
Work in process | 18,274 | 16,446 | 17,591 | 17,401 | ||||||||
Finished goods | 172,056 | 173,061 | 187,401 | 177,781 | ||||||||
Total inventories | $ | 234,368 | $ | 229,153 | $ | 253,886 | $ | 237,001 | ||||
During the three months ended September 30,March 31, 2022 and 2021, and 2020, net adjustments to cost of sales related to excess and obsolete inventory were $0.6$1.8 million and $5.2$1.6 million, respectively. The net adjustments for the three months ended September 30,March 31, 2022 and 2021 and 2020 reflect a combination of additional expense for excess and obsolete related provisions ($3.83.4 million and $7.9$3.8 million, respectively) offset by sales and disposals ($3.21.6 million and $2.7 million, respectively) of inventory for which an excess and obsolete provision was provided previously through expense recognized in prior periods.
During the nine months ended September 30, 2021 and 2020, net adjustments to cost of sales related to excess and obsolete inventory were $5.6 million and $12.4 million, respectively. The net adjustments for the nine months ended September 30, 2021 and 2020 reflect a combination of additional expense for excess and obsolete related provisions ($15.2 million and $18.9 million, respectively) offset by sales and disposals ($9.6 million and $6.5$2.2 million, respectively) of inventory for which an excess and obsolete provision was provided previously through expense recognized in prior periods.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 8. PROPERTY AND EQUIPMENT
Property and equipment included the following:
Useful | September 30, | December 31, | Useful | March 31, | December 31, | |||||||||||
(In thousands) | Life | 2021 | 2020 | Life | 2022 | 2021 | ||||||||||
Land | — | $ | 8,308 | $ | 8,322 | — | $ | 8,286 | $ | 8,296 | ||||||
Buildings and improvements | 31.5 | 44,497 | 33,825 | 31.5 | 46,718 | 44,672 | ||||||||||
Equipment | 5-15 | 112,776 | 102,553 | 5-15 | 117,052 | 113,301 | ||||||||||
Instruments | 5 | 285,730 | 278,930 | 5 | 289,427 | 285,762 | ||||||||||
Modules and cases | 5 | 43,422 | 41,919 | 5 | 45,047 | 44,185 | ||||||||||
Other property and equipment | 3-5 | 22,095 | 27,781 | 3-5 | 34,525 | 30,435 | ||||||||||
516,828 | 493,330 | 541,055 | 526,651 | |||||||||||||
Less: accumulated depreciation | (301,163) | (276,451) | (313,514) | (305,575) | ||||||||||||
Total | $ | 215,665 | $ | 216,879 | $ | 227,541 | $ | 221,076 | ||||||||
Instruments are hand-held devices used by surgeons to install implants during surgery. Modules and cases are used to store and transport the instruments and implants.
Depreciation expense related to property and equipment was as follows:
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||
September 30, | September 30, | March 31, | ||||||||||||||
(In thousands) | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | ||||||||||
Depreciation | $ | 12,178 | $ | 12,148 | $ | 39,068 | $ | 33,925 | $ | 12,325 | 12,384 | |||||
NOTE 9. GOODWILL AND INTANGIBLE ASSETS
The change in the carrying amount of goodwill during the twelve months ended December 31, 20202021 and the ninethree months ended SeptemberMarch 30, 2021,31, 2022, respectively included the following:
(In thousands) | |||
December 31, | $ |
| |
Additions and adjustments |
| ||
Foreign exchange |
| ||
December 31, |
| ||
Foreign exchange |
| ||
|
| ||
| $ |
|
The composition of intangible assets was as follows:
September 30, 2021 | March 31, 2022 | |||||||||||||||||||
(In thousands) | Weighted Average Amortization Period (in years) | Gross | Accumulated | Intangible | Weighted Average Amortization Period (in years) | Gross | Accumulated | Intangible | ||||||||||||
Supplier network | 10.0 | $ | 4,000 | $ | (2,767) | $ | 1,233 | 10.0 | $ | 4,000 | $ | (2,967) | $ | 1,033 | ||||||
Customer relationships & other intangibles | 6.5 | 57,090 | (36,724) | 20,366 | 6.4 | 53,971 | (37,940) | 16,031 | ||||||||||||
Developed technology | 8.0 | 71,815 | (26,152) | 45,663 | 8.0 | 72,584 | (30,761) | 41,823 | ||||||||||||
Patents | 16.1 | 8,910 | (3,077) | 5,833 | 16.1 | 8,863 | (3,365) | 5,498 | ||||||||||||
Total intangible assets | $ | 141,815 | $ | (68,720) | $ | 73,095 | $ | 139,418 | $ | (75,033) | $ | 64,385 | ||||||||
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
December 31, 2020 | December 31, 2021 | |||||||||||||||||||
(In thousands) | Weighted Average Amortization Period (in years) | Gross | Accumulated | Intangible | Weighted Average Amortization Period (in years) | Gross | Accumulated | Intangible | ||||||||||||
Supplier network | 10.0 | $ | 4,000 | $ | (2,467) | $ | 1,533 | 10.0 | $ | 4,000 | $ | (2,867) | $ | 1,133 | ||||||
Customer relationships & other intangibles | 6.5 | 57,704 | (32,056) | 25,648 | 6.4 | 56,264 | (37,842) | 18,422 | ||||||||||||
Developed technology | 8.0 | 72,644 | (19,295) | 53,349 | 8.0 | 71,947 | (28,545) | 43,402 | ||||||||||||
Patents | 16.1 | 9,082 | (2,663) | 6,419 | 16.1 | 8,938 | (3,235) | 5,703 | ||||||||||||
Total intangible assets | $ | 143,430 | $ | (56,481) | $ | 86,949 | $ | 141,149 | $ | (72,489) | $ | 68,660 | ||||||||
The following table summarizes amortization of intangible assets for future periods as of SeptemberMarch 30, 2021:31, 2022:
(In thousands) | Annual | Annual | ||||
Remaining 2021 | $ | 4,602 | ||||
2022 | 18,260 | |||||
Remaining 2022 | $ | 13,588 | ||||
2023 | 16,157 | 16,061 | ||||
2024 | 13,162 | 13,255 | ||||
2025 | 8,876 | 8,969 | ||||
2026 | 5,525 | |||||
Thereafter | 12,038 | 6,987 | ||||
Total | $ | 73,095 | $ | 64,385 | ||
NOTE 10. ACCRUED EXPENSES
Accrued expense included the following:
September 30, | December 31, | March 31, | December 31, | |||||||||
(In thousands) | 2021 | 2020 | 2022 | 2021 | ||||||||
Compensation and other employee-related costs | $ | 48,672 | $ | 44,948 | $ | 40,802 | $ | 52,407 | ||||
Legal and other settlements and expenses | 604 | 650 | 3,997 | 6,124 | ||||||||
Accrued non-income taxes | 5,659 | 4,952 | 6,791 | 6,415 | ||||||||
Royalties | 3,821 | 3,720 | 3,864 | 4,558 | ||||||||
Rebates & Fees | 7,759 | 8,011 | ||||||||||
Rebates | 8,920 | 8,725 | ||||||||||
Other | 14,965 | 16,053 | 11,157 | 12,939 | ||||||||
Total accrued expenses | $ | 81,480 | $ | 78,334 | $ | 75,531 | $ | 91,168 | ||||
NOTE 11. DEBT
Line of Credit
In August 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(as amended, the “Revolving Credit Facility”). As amended, the Credit Agreement, and has a termination date of August 3, 2022. The Revolving Credit Facility includes up to a $25.0 million sub limit for letters of credit. Revolving loans under the Credit Agreement will bear interest, at the Company’s option, at either a base rate or the Adjusted LIBOR Rate (as defined in the Credit Agreement), plus, in each case, an applicable margin, as determined in accordance with the provisions of the Credit Agreement. The base rate will be the highest of: the rate of interest announced publicly by Citizens Bank, N.A. from time to time as its “prime rate”; the federal funds effective rate plus 1/2 of 1%; and the Adjusted LIBOR Rate for a one-month period plus 1%. The applicable margin is subject to adjustment as provided in the Credit Agreement. The Credit Agreement contains financial and other customary covenants, including a maximum leverage ratio. As of SeptemberMarch 30, 2021,31, 2022, we have 0t borrowed under the Credit Agreement with Citizens Bank, N.A.Agreement.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 12. EQUITY
Stock Repurchases
UnderIn March 2020, the currentCompany announced a stock repurchase plan, pursuant to which the Company was authorized to repurchase up to $200 million of the Company’s Class A common stock. In March 2022, the Company announced in March 2020,the expansion of the stock repurchase plan, pursuant to which the Company is authorized to repurchase up toan additional $200 million of the Company’s Class A common stock. The repurchase program has no time limit and may be suspended for periods or discontinued at any time. As of September 30, 2021, $95.3March 31, 2022, $295.3 million of this authorization is remaining. The timing and actual number of shares repurchased will depend on various factors including price, corporate and regulatory requirements, debt covenant requirements, alternative investment opportunities and other market conditions. Funding of share repurchases is expected to come from operating cash flows and excess cash.
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.
The following table summarizes the activity related to share repurchases:
(In thousands except for per share prices)
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 | 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 | 1,920 | $ | 38.49 | $ | 73,902 | $ | 126,098 | 1,920 | $ | 38.49 | $ | 73,902 | $ | 126,098 | ||||||
April 1, 2020 - June 30, 2020 | 771 | 39.95 | 30,804 | 95,294 | 771 | 39.95 | 30,804 | 95,294 | ||||||||||||
July 1, 2020 - September 30,2020 | — | — | — | 95,294 | — | — | — | 95,294 | ||||||||||||
October 1, 2020 - December 31, 2020 | — | — | — | 95,294 | — | — | — | 95,294 | ||||||||||||
January 1, 2021 - March 31, 2021 | — | — | — | 95,294 | — | — | — | 95,294 | ||||||||||||
April 1, 2021 - June 30, 2021 | — | — | — | 95,294 | — | — | — | 95,294 | ||||||||||||
July 1, 2021 - September 30, 2021 | — | — | — | $ | 95,294 | — | — | — | 95,294 | |||||||||||
January 1, 2020 - September 30, 2021 | 2,691 | $ | 38.91 | $ | 104,706 | |||||||||||||||
October 1, 2021 - December 31, 2021 | — | — | — | 95,294 | ||||||||||||||||
January 1, 2022 - March 31, 2022 | — | — | — | $ | 295,294 | |||||||||||||||
January 1, 2020 - March 31, 2022 | 2,691 | $ | 38.91 | $ | 104,706 | |||||||||||||||
(1) Inclusive of an immaterial amount of commission fees
Common Stock
Our amended and restated Certificate of Incorporation provides for a total of 775,000,000 authorized shares of common stock. Of the authorized number of shares of common stock, 500,000,000 shares are designated as Class A common stock (“Class A Common”), and 275,000,000 shares are designated as Class B common stock (“Class B Common”).
The holders of Class A Common are entitled to 1 vote for each share of Class A Common held. The holders of Class B Common are entitled to 10 votes for each share of Class B Common held. The holders of Class A Common and Class B Common vote together as 1 class of common stock on all matters submitted to a vote of stockholders, except as required by law or our amended and restated Certificate of Incorporation. Each share of our Class B common stock is convertible at any time at the option of the holder into 1 share of our Class A common stock. In addition, each share of our Class B common stock will convert automatically into 1 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 Annual Report on Form 10-K on February 17, 2021.2022.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 ninethree months ended SeptemberMarch 30,31, 2022 and 2021, and 2020, respectively:
(In thousands) | Unrealized | Foreign | Accumulated other comprehensive income/(loss) | Unrealized loss on marketable securities, net of tax | Foreign currency translation adjustments | Accumulated other comprehensive loss | ||||||||||||
Accumulated other comprehensive income/(loss), net of tax, at December 31, 2020 | $ | 5,001 | $ | (1,046) | $ | 3,955 | ||||||||||||
Accumulated other comprehensive income/(loss), net of tax, at December 31, 2021 | $ | (1,053) | $ | (5,719) | $ | (6,772) | ||||||||||||
Other comprehensive income/(loss) before reclassifications | (4,179) | (3,578) | (7,757) | (11,596) | (1,567) | (13,163) | ||||||||||||
Amounts reclassified from accumulated other comprehensive income/(loss), net of tax | 748 | — | 748 | 2,768 | — | 2,768 | ||||||||||||
Other comprehensive income/(loss), net of tax | (3,431) | (3,578) | (7,009) | (8,828) | (1,567) | (10,395) | ||||||||||||
Accumulated other comprehensive income/(loss), net of tax, at September 30, 2021 | $ | 1,570 | $ | (4,624) | $ | (3,054) | ||||||||||||
Accumulated other comprehensive income/(loss), net of tax, at March 31, 2022 | $ | (9,881) | $ | (7,286) | $ | (17,167) | ||||||||||||
(In thousands) | Unrealized | Foreign | Accumulated | Unrealized loss on marketable securities, net of tax | Foreign currency translation adjustments | Accumulated other comprehensive loss | ||||||||||||
Accumulated other comprehensive income/(loss), net of tax, at December 31, 2019 | $ | 3,599 | $ | (6,497) | $ | (2,898) | ||||||||||||
Accumulated other comprehensive income/(loss), net of tax, at December 31, 2020 | $ | 5,001 | $ | (1,046) | $ | 3,955 | ||||||||||||
Other comprehensive income/(loss) before reclassifications | 3,001 | 2,820 | 5,821 | (2,178) | (4,113) | (6,291) | ||||||||||||
Amounts reclassified from accumulated other comprehensive income/(loss), net of tax | (716) | — | (716) | 512 | — | 512 | ||||||||||||
Other comprehensive income/(loss), net of tax | 2,285 | 2,820 | 5,105 | (1,666) | (4,113) | (5,779) | ||||||||||||
Accumulated other comprehensive income/(loss), net of tax, at September 30, 2020 | $ | 5,884 | $ | (3,677) | $ | 2,207 | ||||||||||||
Accumulated other comprehensive income/(loss), net of tax, at March 31, 2021 | $ | 3,335 | $ | (5,159) | $ | (1,824) | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax, related to unrealized gains/losses on marketable securities were released to other income, net in our condensed consolidated statements of operations and comprehensive income.
Earnings Per Common Share
The Company computes basic earnings per share using the weighted-average number of common shares outstanding during the period. Diluted earnings per share assumes the conversion, exercise or issuance of all potential common stock equivalents, unless the effect of inclusion would be anti-dilutive. For purposes of this calculation, common stock equivalents include the Company’s stock options and unvested RSUs. The contingently issuable shares are included in basic net income per share as of the date that all necessary conditions have been satisfied and are included in the denominator for dilutive calculation for the entire period if such shares would be issuable as of the end of the reporting period assuming the end of the reporting period was the end of the contingency period.
The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||
September 30, | September 30, | March 31, | ||||||||||||||||
(In thousands, except per share amounts) | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | ||||||||||||
Numerator: | ||||||||||||||||||
Net income/(loss) | $ | 47,211 | $ | 44,216 | $ | 134,085 | $ | 49,328 | $ | 38,084 | $ | 45,329 | ||||||
Denominator for basic and diluted net income per share: | ||||||||||||||||||
Weighted average shares outstanding for basic | 101,104 | 98,217 | 100,477 | 98,453 | 101,600 | 99,866 | ||||||||||||
Dilutive stock options and RSUs | 3,314 | 2,268 | 2,953 | 2,370 | 2,477 | 2,554 | ||||||||||||
Weighted average shares outstanding for diluted | 104,418 | 100,485 | 103,430 | 100,823 | 104,077 | 102,420 | ||||||||||||
Earnings per share: | ||||||||||||||||||
Basic | $ | 0.47 | $ | 0.45 | $ | 1.33 | $ | 0.50 | $ | 0.37 | $ | 0.45 | ||||||
Diluted | $ | 0.45 | $ | 0.44 | $ | 1.30 | $ | 0.49 | $ | 0.37 | $ | 0.44 | ||||||
Anti-dilutive stock options and RSUs excluded from the calculation | 1,748 | 5,101 | 2,164 | 6,130 | 3,378 | 3,034 | ||||||||||||
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 13. STOCK-BASED COMPENSATIONAWARDS
We have 32 stock plans: our 2008 Stock Plan, our 2012 Equity Incentive Plan (the “2012 Plan”), and our 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan is the only active stock plan. The purpose of the 2008 and 2012 Stock PlansPlan was, and of the 2021 Plan is, to provide incentive to employees, directors, and consultants of Globus. The Plans are administered by the Board of Directors of Globus (the “Board”) or its delegates. The number, type of option, exercise price, and vesting terms are determined by the Board or its delegates in accordance with the terms of the Plans. The options granted expire on a date specified by the Board, which is generally not more than ten years from the grant date. Options granted to employees generally vest in varying installments over a four-year period.
The 2012 Plan was approved by our Board in March 2012, and by our stockholders in June 2012. The 2012 Plan terminated pursuant to its terms in 2022. Following the effectiveness of our 2021 Equity Incentive Plan, we have not issued any additional awards under the 2012 Plan; however, awards previously granted under the 2012 Plan remain outstanding and are administered by our Board of Directors under the terms and conditions of the 2012 Plan. Under the 2012 Plan, the aggregate number of shares of Class A Common stock that were able to be issued subject to options and other awards is equal to the sum of (i) 3,076,923 shares, (ii) any shares available for issuance under the 2008 Plan as of March 13, 2012, (iii) any shares underlying awards outstanding under the 2008 Plan as of March 13, 2012 that, on or after that date, are forfeited, terminated, expired or lapse for any reason, or are settled for cash without delivery of shares and (iv) starting January 1, 2013, an annual increase in the number of shares available under the 2012 Plan equal to up to 3% of the number of shares of our common and preferred stock outstanding at the end of the previous year, as determined by our Board. The number of shares that were able to be issued or transferred pursuant to incentive stock options under the 2012 Plan was limited to 10,769,230 shares. The shares of Class A Common stock covered by the 2012 Plan included authorized but unissued shares, treasury shares or shares of common stock purchased on the open market.
The 2021 Plan was approved by our Board in March 2021, and by our stockholders in June 2021. Under the 2021 Plan, the aggregate number of shares of Class A Common stock that were able to be issued subject to options and other awards is equal to the sum of (i) 2,000,000 shares, (ii) any shares available for issuance under the 2012 Plan as of June 3, 2021 and (iii) any shares underlying awards outstanding under the 2012 Plan or 2021 Plan as of June 3, 2021 that, on or after that date, are forfeited, terminated, expired or lapse for any reason, or are settled for cash without delivery of shares. The number of shares that may be issued or transferred pursuant to incentive stock options under the 2021 Plan is limited to 2,000,000 shares. The shares of Class A Common stock covered by the 2021 Plan include authorized but unissued shares, treasury shares or shares of common stock purchased on the open market.
As of September 30, 2021,March 31, 2022, pursuant to the 2021 Plan, there were 2,845,5753,247,276 shares of Class A Common stock reserved and 2,684,0081,333,253 shares of Class A Common stock available for future grants.
Stock Options
Stock option activity during the ninethree months ended SeptemberMarch 30, 202131, 2022 is summarized as follows:
Option | Weighted | Weighted | Aggregate | |||||||
Outstanding at December 31, 2020 | 9,746 | $ | 41.33 | |||||||
Granted | 1,925 | 67.68 | ||||||||
Exercised | (1,746) | 34.38 | ||||||||
Forfeited | (521) | 51.64 | ||||||||
Outstanding at September 30, 2021 | 9,404 | $ | 47.44 | 7.2 | $ | 275,662 | ||||
Exercisable at September 30, 2021 | 4,439 | $ | 38.61 | 6.0 | $ | 168,709 | ||||
Expected to vest at September 30, 2021 | 4,965 | $ | 55.34 | 8.2 | $ | 106,953 | ||||
Option | Weighted | Weighted | Aggregate | |||||||
Outstanding at December 31, 2021 | 9,462 | $ | 48.01 | |||||||
Granted | 1,339 | 64.24 | ||||||||
Exercised | (184) | 44.57 | ||||||||
Forfeited | (138) | 56.51 | ||||||||
Outstanding at March 31, 2022 | 10,479 | $ | 50.05 | 7.1 | $ | 251,187 | ||||
Exercisable at March 31, 2022 | 5,260 | $ | 41.60 | 5.9 | $ | 169,290 | ||||
Expected to vest at March 31, 2022 | 5,219 | $ | 58.57 | 8.4 | $ | 81,897 | ||||
The total intrinsic value of stock options exercised was $33.8$4.7 million and $23.3$10.1 million during the three months ended September 30,March 31, 2022, and 2021, and 2020, respectively. The total intrinsic value of stock options exercised was $68.9 million and $39.4 million during the nine months ended September 30, 2021, and 2020, respectively.
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The fair value of the options was estimated on the date of the grant using a Black-Scholes option pricing model with the following assumptions:
Nine Months Ended | Three Months Ended | |||||||||||||||
September 30, | March 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Risk-free interest rate | 0.40% | - | 0.84% | 0.23% | - | 1.67% | 1.46% | - | 1.95% | 0.40% | - | 0.81% | ||||
Expected term (years) | 4.8 | 4.9 | 4.8 | 4.8 | ||||||||||||
Expected volatility | 33.0% | - | 34.0% | 28.0% | - | 37.0% | 34.0% | 34.0% | ||||||||
Expected dividend yield | —% | —% | —% | —% | ||||||||||||
The weighted average grant date fair value of stock options granted during the three months ended September 30,March 31, 2022, and 2021 was $20.48 and 2020 was $24.11 and $16.98 per share, respectively. The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2021, and 2020 was $20.19 and $14.54$19.26 per share, respectively.
Restricted Stock Units
Restricted stock unit activity during the ninethree months ended September 30, 2021March 31, 2022 is summarized as follows:
Restricted Stock | Weighted | Weighted | Restricted Stock | Weighted | Weighted | |||||||||
Outstanding at December 31, 2020 | 3 | $ | 58.69 | |||||||||||
Outstanding at December 31, 2021 | 29 | $ | 72.54 | |||||||||||
Granted | 23 | 74.87 | 2 | 70.94 | ||||||||||
Vested | — | — | — | — | ||||||||||
Forfeited | — | — | — | — | ||||||||||
Outstanding at September 30, 2021 | 26 | $ | 72.81 | 9.0 | ||||||||||
Outstanding at March 31, 2022 | 31 | $ | 72.40 | 8.5 | ||||||||||
Stock-Based Compensation
Compensation expense related to stock options granted to employees and non-employees under the Plans was as follows:
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||
September 30, | September 30, | March 31, | ||||||||||||||||
(In thousands) | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | ||||||||||||
Stock-based compensation expense | $ | 7,451 | $ | 7,020 | $ | 22,781 | $ | 21,138 | $ | 8,152 | $ | 7,698 | ||||||
Net stock-based compensation capitalized into inventory | 170 | (13) | 511 | 197 | 201 | 185 | ||||||||||||
Total stock-based compensation cost | $ | 7,621 | $ | 7,007 | $ | 23,292 | $ | 21,335 | $ | 8,353 | $ | 7,883 | ||||||
As of September 30, 2021,March 31, 2022, there was $66.1$78.8 million of unrecognized compensation expense related to unvested employee stock options that are expected to vest over a weighted average period of approximately three years.
NOTE 14. INCOME TAXES
In computing our income tax provision, we make certain estimates and 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,March 31, 2022 and 2021, and 2020, respectively:
Three Months Ended | Nine Months Ended | ||||||||
September 30, | September 30, | ||||||||
2021 | 2020 | 2021 | 2020 | ||||||
Effective income tax rate | 13.3% | 16.8% | 16.5% | 22.5% | |||||
Three Months Ended | ||||
March 31, | ||||
2022 | 2021 | |||
Effective income tax rate | 22.1% | 20.7% | ||
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 15. COMMITMENTS AND CONTINGENCIES
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 considered probable and the amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range, and no amount in 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 probable, and the amount 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. 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.
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 eightsix patents by making, using, offering for sale or selling the COALITION®, COALITION MIS®, COALITION AGX®, CORBELTM®, MONUMENT®, MAGNIFY®-S, HEDRON IATM, HEDRON ICTM®, INDEPENDENCE®, INDEPENDENCE MIS®, INDEPENDENCE MIS AGX®, 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 inmonetary 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. The outcome of this litigation cannot be determined, nor can we estimate a range of potential loss, therefore, we have 0t recorded a liability related to this litigation as of September 30, 2021.March 31, 2022.
NOTE 16. LEASES
The Company leases certain equipment, vehicles, and facilities under the terms of operating lease agreements. Our leases have initial lease terms ranging from one year to fourteen years. Certain leases contain options to extend the term beyond the initial lease termination date. We use judgment to determine whether it is reasonably possible that we will extend the lease beyond the initial term and the length of the possible extension. Leases that have terms of less than 12 months are treated as short-term and we do not recognize right of use assets or lease liabilities for such leases. We generally estimate discount rates using our incremental borrowing rate, and based on other information available, at commencement date of a lease when determining the present value of future payments as most of our leases do not provide an implicit rate.
The Company includes right-of-use assets in other assets, short-term lease liabilities in accrued expenses, and long-term lease liabilities in 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 operations and comprehensive income.
Amounts reported in the condensed consolidated balance sheet were as follows:
September 30, | December 31, | |||||
(In thousands, except weighted average lease term and discount rate) | 2021 | 2020 | ||||
Operating lease right of use asset | $ | 5,393 | $ | 4,741 | ||
Lease liability - current | 2,128 | 1,865 | ||||
Lease liability - long-term | 3,297 | 2,936 | ||||
Total operating lease liability | $ | 5,425 | $ | 4,801 | ||
Supplemental non-cash information: | ||||||
Weighted-average remaining lease term (years) - operating leases | 3.1 | 2.9 | ||||
Weighted-average discount rate - operating leases | 3.3% | 3.0% | ||||
GLOBUS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Operating lease expense recognized in the condensed consolidated statement of operations and comprehensive income was as follows:
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
(In thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||
Operating lease expense | $ | 783 | $ | 904 | $ | 2,461 | $ | 2,652 | ||||
Future minimum lease payments under non-cancellable leases as of September 30, 2021 are as follows:
(In thousands) | Operating Leases | ||
Remaining 2021 | $ | 607 | |
2022 | 2,169 | ||
2023 | 1,452 | ||
2024 | 987 | ||
2025 | 396 | ||
Thereafter | 153 | ||
Total undiscounted operating lease payments | $ | 5,764 | |
Less: imputed interest | 339 | ||
Total operating lease liability | $ | 5,425 | |
NOTE 17.16. SEGMENT AND GEOGRAPHIC INFORMATION
Operating segments are defined as components of an enterprise for which separate 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 manage our business globally within 1 operating segment, and segment information is consistent with how the chief operating decision makers review the business, makes investing and resource allocation decisions and assesses operating performance.
The following table represents total net sales by geographic area, based on the location of the customer:
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||
September 30, | September 30, | March 31, | ||||||||||||||||
(In thousands) | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | ||||||||||||
United States | $ | 198,172 | $ | 182,104 | $ | 606,608 | $ | 465,705 | $ | 196,403 | $ | 193,317 | ||||||
International | 31,549 | 33,994 | 101,473 | 89,892 | 34,146 | 34,027 | ||||||||||||
Total net sales | $ | 229,721 | $ | 216,098 | $ | 708,081 | $ | 555,597 | $ | 230,549 | $ | 227,344 | ||||||
NOTE 18. SUBSEQUENT EVENT
On November 4, 2021, the Company acquired substantially all of the assets of Capstone Surgical Technologies, LLC, which engages in the business of creating advanced drill and robotic surgery platforms. The purchase price is a combination of an initial cash payment of $25.0 million, subject to post-closing adjustments, if applicable, and contingent consideration of up to $25.0 million.
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, 2020,2021, which are included in our Annual Report on Form 10-K filed with the SEC on February 17, 2021.2022.
Overview
Globus Medical, Inc. (together, as applicable, 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, ambulatory surgery centers 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.
Globus is an engineering-driven company with a history of rapidly developing and commercializing advanced products and procedures to address treatment challenges. With over 220 product launches to date, we offer a comprehensive portfolio of innovative and differentiated technologies that are used to treat a variety of musculoskeletal conditions. 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, regarding the COVID-19 pandemic, and we 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, if a resurgence occurs and governments mandate restrictions, including restrictions on elective surgeries, we do expect that it could have a material adverse impact on our revenue growth, operating profit and cash flow, 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 sustain and grow our business.
Product Categories
While we group our products into two categories, Musculoskeletal Solutions and Enabling Technologies, 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 safely and 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. Musculoskeletal disorders are a leading driver of healthcare costs worldwide. Disorders range in severity from mild pain and loss of feeling to extreme pain and paralysis. These disorders are primarily caused by degenerative and congenital conditions, deformity, tumors and traumatic injuries. Treatment alternatives for musculoskeletal disorders range from non-operative conservative therapies to surgical interventions depending on the pathology. Conservative therapies include bed rest, medication, casting, bracing, and physical therapy. When conservative therapies are not indicated, or fail to provide adequate quality of life improvements, surgical interventions may be used. Surgical treatments for musculoskeletal disorders can be instrumented, which include the use of implants, or non-instrumented, which forego the use of hardware but may include biologics.
Enabling Technologies
Our Enabling Technologies are comprised of imaging, navigation and robotics (“INR”) solutions for assisted surgery 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, and more accurate. The
market for our Enabling Technologies in spine and orthopedic surgery is still in the infancy stage and consists primarily of imaging, navigation and robotic systems. In spine, a majority of these technologies are limited to surgical planning and assistance in implant placement which are designed for increased accuracy and time savings with less intraoperative radiation exposure to the patient and surgical staff. As our Enabling Technologies become more fully integrated with our Musculoskeletal Solutions, a continued rise in adoption is expected. Furthermore, we believe as new technologies such as augmented reality and artificial intelligence are introduced, Enabling Technologies have the potential to transform the way surgery is performed and most importantly, continue to improve patient outcomes.
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 ninethree months ended September 30, 2021,March 31, 2022, international net sales accounted for approximately 14%14.8% of our total net sales. We have sold our products in approximately 4946 countries other than 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, sales of our 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. Sales of our Enabling Technologies products may be influenced by longer capital purchase cycles and the timing of budget approvals for major capital purchases.
Critical Accounting Policies and Estimates
The preparation of the consolidated financial statements requires us to make assumptions, estimates and judgments that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of sales and expenses during the reporting periods. There have been no material changes to the critical accounting policies and estimates as previously disclosed in Part II, Item 7 of our Annual Report on Form 10-K for the year-ended December 31, 20202021.
Results of Operations
Three Months Ended September 30, 2021March 31, 2022 Compared to the Three Months Ended September 30, 2020March 31, 2021
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:
Three Months Ended | Three Months Ended | |||||||||||||||||||||
September 30, | Change | March 31, | Change | |||||||||||||||||||
(In thousands, except percentages) | 2021 | 2020 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||
United States | $ | 198,172 | $ | 182,104 | $ | 16,068 | 8.8% | $ | 196,403 | $ | 193,317 | $ | 3,086 | 1.6% | ||||||||
International | 31,549 | 33,994 | (2,445) | -7.2% | 34,146 | 34,027 | 119 | 0.4% | ||||||||||||||
Total net sales | $ | 229,721 | $ | 216,098 | $ | 13,623 | 6.3% | $ | 230,549 | $ | 227,344 | $ | 3,205 | 1.4% | ||||||||
In the United States, the increase in net sales of $16.1$3.1 million for the three month period ending September 30, 2021March 31, 2022 was due primarily to an increase in sales volume of enabling technologies and increased spine product sales, including robotic instruments, resulting from penetration in existing territories, partially offset by current period impacts of the COVID-19 pandemic.
International net sales decreasedincreased by $2.4$0.1 million for the three month period ending September 30, 2021March 31, 2022 due primarily to increased spine product sales resulting from penetration in other existing territories, offset by lower sales in Japan due to the transition of our sales force composition and impacts of the COVID-19 pandemic, which was partially offset by increased spine product sales resulting from penetration in other existing territories.
composition.
Cost of Goods Sold
Three Months Ended | Three Months Ended | |||||||||||||||||||||
September 30, | Change | March 31, | Change | |||||||||||||||||||
(In thousands, except percentages) | 2021 | 2020 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||
Cost of goods sold | $ | 58,554 | $ | 57,097 | $ | 1,457 | 2.6% | $ | 59,167 | $ | 55,027 | $ | 4,140 | 7.5% | ||||||||
Percentage of net sales | 25.5% | 26.4% | 25.7% | 24.2% | ||||||||||||||||||
The $1.5$4.1 million increase in cost of goods sold was primarily due to increased volume, which was partially offset by lower inventory reserves and write-downs and unfavorable production variances, driven by manufacturing efficiencies.higher inventory reserves and write-offs, and unfavorable freight trends.
Research and Development Expenses
Three Months Ended | Three Months Ended | |||||||||||||||||||||
September 30, | Change | March 31, | Change | |||||||||||||||||||
(In thousands, except percentages) | 2021 | 2020 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||
Research and development | $ | 15,853 | $ | 14,421 | $ | 1,432 | 9.9% | $ | 17,412 | $ | 14,924 | $ | 2,488 | 16.7% | ||||||||
Percentage of net sales | 6.9% | 6.7% | 7.6% | 6.6% | ||||||||||||||||||
The $1.4$2.5 million increase in research and development expenses was primarily due to an increase in personnel related expenses due to our continued investment in product development.
Selling, General and Administrative Expenses
Three Months Ended | Three Months Ended | |||||||||||||||||||||
September 30, | Change | March 31, | Change | |||||||||||||||||||
(In thousands, except percentages) | 2021 | 2020 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||
Selling, general and administrative | $ | 96,444 | $ | 89,152 | $ | 7,292 | 8.2% | $ | 100,748 | $ | 97,891 | $ | 2,857 | 2.9% | ||||||||
Percentage of net sales | 42.0% | 41.3% | 43.7% | 43.1% | ||||||||||||||||||
The increase in selling, general and administrative expenses was primarily due to an increase in commission expenses resulting from higher product sales,travel and an increase in travel, meeting and consulting expenses, which are comparable to pre-COVID-19 spending.
Provision for Litigation
Three Months Ended | Three Months Ended | |||||||||||||||||||||
September 30, | Change | March 31, | Change | |||||||||||||||||||
(In thousands, except percentages) | 2021 | 2020 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||
Provision for litigation | $ | 605 | $ | — | $ | 605 | 100.0% | $ | 2,341 | $ | (94) | $ | 2,435 | -2590.4% | ||||||||
Percentage of net sales | 0.3% | 0.0% | 1.0% | 0.0% | ||||||||||||||||||
The provision for litigation for the three month period ending September 30, 2021March 31, 2022 includes an accrual for a potential legal settlement and for the period ending March 31, 2021 includes a receipt of a settlement.
Amortization of Intangibles
Three Months Ended | Three Months Ended | |||||||||||||||||||||
September 30, | Change | March 31, | Change | |||||||||||||||||||
(In thousands, except percentages) | 2021 | 2020 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||
Amortization of intangibles | $ | 4,573 | $ | 4,152 | $ | 421 | 10.1% | $ | 4,512 | $ | 4,774 | $ | (262) | -5.5% | ||||||||
Percentage of net sales | 2.0% | 1.9% | 2.0% | 2.1% | ||||||||||||||||||
The increasedecrease in the amortization of intangibles is primarily due to the developed technology intangible asset acquired in connection with theindividual intangible assets acquired in the fourth quarter of fiscal 2020.reaching their full amortization.
Acquisition Related Costs
Three Months Ended | Three Months Ended | |||||||||||||||||||||
September 30, | Change | March 31, | Change | |||||||||||||||||||
(In thousands, except percentages) | 2021 | 2020 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||
Acquisition related costs | $ | 363 | $ | 1,263 | $ | (900) | -71.3% | $ | (76) | $ | 274 | $ | (350) | -127.7% | ||||||||
Percentage of net sales | 0.2% | 0.6% | 0.0% | 0.1% | ||||||||||||||||||
The decrease in acquisition related costs is due to lower acquisition related professional fees and changes in fair value of business acquisition liabilities.
Other Income/(expense), Net
Three Months Ended | Three Months Ended | |||||||||||||||||||||
September 30, | Change | March 31, | Change | |||||||||||||||||||
(In thousands, except percentages) | 2021 | 2020 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||
Other income/(expense), net | $ | 1,123 | $ | 3,117 | $ | (1,994) | -64.0% | $ | 2,453 | $ | 2,646 | $ | (193) | -7.3% | ||||||||
Percentage of net sales | 0.5% | 1.4% | 1.1% | 1.2% | ||||||||||||||||||
The decrease in other income/(expense), net was primarily the result of lower interest income from lower yields on marketable securities duringbalances are consistent for the three month period ended September 30,March 31, 2022 compared to the three month period ended March 31, 2021.
Income Tax Provision
Three Months Ended | Three Months Ended | |||||||||||||||||||||
September 30, | Change | March 31, | Change | |||||||||||||||||||
(In thousands, except percentages) | 2021 | 2020 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||
Income tax provision | $ | 7,241 | $ | 8,914 | $ | (1,673) | -18.8% | $ | 10,814 | $ | 11,865 | $ | (1,051) | -8.9% | ||||||||
Effective income tax rate | 13.3% | 16.8% | 22.1% | 20.7% | ||||||||||||||||||
The decreaseincrease in the effective income tax rate was primarily due to the favorablelower impact of stock option exercises.exercises compared to the prior period.
A discussion of our Results of Operations for the three months ended September 30, 2020March 31, 2021 can be found in “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations: Results of Operations; Three Months Ended September 30, 2020March 31, 2021 Compared to the Three Months Ended September 30, 2019.March 31, 2020.” on our Form 10-Q filed on October 28, 2020.
Nine Months Ended September 30,May 4, 2021 Compared to the Nine Months Ended September 30, 2020
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:
Nine Months Ended | |||||||||||
September 30, | Change | ||||||||||
(In thousands, except percentages) | 2021 | 2020 | $ | % | |||||||
United States | $ | 606,608 | $ | 465,705 | $ | 140,903 | 30.3% | ||||
International | 101,473 | 89,892 | 11,581 | 12.9% | |||||||
Total net sales | $ | 708,081 | $ | 555,597 | $ | 152,484 | 27.4% | ||||
In the United States, the increase in net sales of $140.9 million was due primarily to increased spine product sales resulting from penetration in existing territories and an increase in sales volume of enabling technologies, both of which were partially attributable to the lower net sales for the nine month period ending September 30, 2020 due to the COVID-19 pandemic.
International net sales increased by $11.6 million, which was due primarily to increased spine product sales resulting from penetration in existing territories and sales volume of enabling technologies, both of which were partially attributable to the lower net sales for the nine month period ending September 30, 2020 due to the COVID-19 pandemic. The increase in net sales was partially offset by lower sales in Japan due to the transition of our sales force composition.
Cost of Goods Sold
Nine Months Ended | |||||||||||
September 30, | Change | ||||||||||
(In thousands, except percentages) | 2021 | 2020 | $ | % | |||||||
Cost of goods sold | $ | 177,427 | $ | 156,604 | $ | 20,823 | 13.3% | ||||
Percentage of net sales | 25.1% | 28.2% | |||||||||
The $20.8 million increase in cost of goods sold was primarily due to increased volume, which was partially offset by favorable production variances driven by manufacturing efficiencies, and lower write-downs of excess and obsolete inventory driven by the impact of the COVID-19 pandemic on operations for the nine month period ending September 30, 2020.
Research and Development Expenses
Nine Months Ended | |||||||||||
September 30, | Change | ||||||||||
(In thousands, except percentages) | 2021 | 2020 | $ | % | |||||||
Research and development | $ | 46,324 | $ | 69,278 | $ | (22,954) | -33.1% | ||||
Percentage of net sales | 6.5% | 12.5% | |||||||||
Research and development expenses for the nine month period ending September 30, 2020 includes $24.4 million of acquired in-process research and development (“IPR&D”) assets with no alternative future use, which was partially offset by an increase in personnel related expenses due to our continued investment in product development.
Selling, General and Administrative Expenses
Nine Months Ended | |||||||||||
September 30, | Change | ||||||||||
(In thousands, except percentages) | 2021 | 2020 | $ | % | |||||||
Selling, general and administrative | $ | 301,589 | $ | 262,710 | $ | 38,879 | 14.8% | ||||
Percentage of net sales | 42.6% | 47.3% | |||||||||
The increase in selling, general and administrative expenses was primarily due to an increase in commission expenses resulting from higher product sales, and the continued build out of the spine, INR technology and orthopedic trauma sales forces.
Provision for Litigation
Nine Months Ended | |||||||||||
September 30, | Change | ||||||||||
(In thousands, except percentages) | 2021 | 2020 | $ | % | |||||||
Provision for litigation | $ | 511 | $ | 197 | $ | 314 | 159.4% | ||||
Percentage of net sales | 0.1% | 0.0% | |||||||||
The provision for litigation for the nine month period ending September 30, 2021 includes an accrual for a potential settlement.
Amortization of Intangibles
Nine Months Ended | |||||||||||
September 30, | Change | ||||||||||
(In thousands, except percentages) | 2021 | 2020 | $ | % | |||||||
Amortization of intangibles | $ | 13,970 | $ | 12,043 | $ | 1,927 | 16.0% | ||||
Percentage of net sales | 2.0% | 2.2% | |||||||||
The increase in the amortization of intangibles is primarily due to the developed technology intangible asset acquired in connection with the Nemaris acquisition and the intangible assets acquired in the fourth quarter of fiscal 2020.
Acquisition Related Costs
Nine Months Ended | |||||||||||
September 30, | Change | ||||||||||
(In thousands, except percentages) | 2021 | 2020 | $ | % | |||||||
Acquisition related costs | $ | 14,507 | $ | 1,867 | $ | 12,640 | 677.0% | ||||
Percentage of net sales | 2.0% | 0.3% | |||||||||
Acquisition related costs increased due to changes in fair value of business acquisition liabilities, driven by changes in market conditions and the achievement of certain performance conditions.
Other Income/(expense), Net
Nine Months Ended | |||||||||||
September 30, | Change | ||||||||||
(In thousands, except percentages) | 2021 | 2020 | $ | % | |||||||
Other income/(expense), net | $ | 6,826 | $ | 10,788 | $ | (3,962) | -36.7% | ||||
Percentage of net sales | 1.0% | 1.9% | |||||||||
The decrease in other income/(expense), net was primarily the result of lower interest income from lower yields on marketable securities during the nine month period ended September 30, 2021.
Income Tax Provision
Nine Months Ended | |||||||||||
September 30, | Change | ||||||||||
(In thousands, except percentages) | 2021 | 2020 | $ | % | |||||||
Income tax provision | $ | 26,494 | $ | 14,358 | $ | 12,136 | 84.5% | ||||
Effective income tax rate | 16.5% | 22.5% | |||||||||
The decrease in the effective income tax rate was primarily due to the unfavorable impact of non-tax-deductible acquired IPR&D in the nine month period ended September 30, 2020.
A discussion of our Results of Operations for the nine months ended September 30, 2020 can be found in “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations: Results of Operations; Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019.” on our Form 10-Q filed on October 28, 2020.
Liquidity and Capital Resources
Our principal source of liquidity is cash flow from operating activities as well as our cash and cash equivalents and marketable securities, which we believe will provide sufficient funding for us to meet our liquidity requirements for the foreseeable future. Our principal liquidity requirements are to fund working capital, research and development, including clinical trials, capital expenditures primarily related to investment in 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. To the extent that we require new sources of liquidity, we may consider incurring debt, including borrowing against our existing credit facility, convertible debt instruments, and/or raising additional funds through an equity offering. 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.
In August 2020, we entered into a credit agreementthe Credit Agreement with Citizens Bank, N.A. (the “Credit Agreement”) thatwhich provides a revolving credit facilityRevolving Credit Facility permitting borrowings up to $125.0 million (the “Revolving Credit Facility”).million. As amended, the Credit Agreement has a termination date of August 3, 2022. The Revolving Credit Facility includes up to a $25.0 million sub limit for letters of credit. As of September 30, 2021,March 31, 2022, we have not borrowed under the Credit Agreement.
Cash Flows
The following table summarizes, for the periods indicated, cash flows from operating, investing and financing activities:
Nine Months Ended | Three Months Ended | 2022-2021 | ||||||||||||||||
September 30, | Change | March 31, | Change | |||||||||||||||
(In thousands) | 2021 | 2020 | $ | 2022 | 2021 | $ | ||||||||||||
Net cash provided by/(used in) operating activities | $ | 200,021 | $ | 118,609 | $ | 81,412 | $ | 44,690 | $ | 63,570 | $ | (18,880) | ||||||
Net cash provided by/(used in) investing activities | (132,142) | 1,770 | (133,912) | (13,894) | (125,114) | 111,220 | ||||||||||||
Net cash provided by/(used in) financing activities | 55,170 | (65,875) | 121,045 | 6,047 | 7,564 | (1,517) | ||||||||||||
Effect of foreign exchange rate changes on cash | (570) | 379 | (949) | (123) | (569) | 446 | ||||||||||||
Increase (decrease) in cash, cash equivalents, and restricted cash | $ | 122,479 | $ | 54,883 | $ | 67,596 | ||||||||||||
Increase (decrease) in cash and cash equivalents | $ | 36,720 | $ | (54,549) | $ | 91,269 | ||||||||||||
Cash Provided by Operating Activities
The increase in net cash provided by operating activities for the ninethree months ended September 30, 2021March 31, 2022 was primarily due to the increase of cash flow from net income and reduced outflows for inventoriesfavorable changes in accounts payable and liabilities. These wereincome tax payables, partially offset by an unfavorable change in accounts receivable as a result of increased sales.outflows for inventories.
Cash Used in Investing Activities
The increase in net cash used in investing activities for the ninethree months ended September 30, 2021March 31, 2022 was due primarily tofrom the purchases of property and equipment partially offset by net outflows of purchases, maturities and sales of marketable securities, which was partially offset by a decrease of purchases of property and equipment and acquisition activity.securities.
Cash Used in Financing Activities
The increase in net cash provided by financing activities for the ninethree months ended September 30, 2021March 31, 2022 was primarily the result of the increase inreceipt of proceeds from option exercises. The nine months ended September 30, 2020 included cash used for the repurchaseexercises, partially offset by payments of common stock.business acquisition liabilities.
A discussion of our Cash Flows for the ninethree months ended September 30, 2020March 31, 2021 can be found in “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations: Results of Operations; Cash Flows.” on our Form 10-Q filed on October 28, 2020May 4, 2021.
Contractual Obligations and Commitments
There have been no material changes to our contractual obligations during the three months ended September 30, 2021.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.March 31, 2022.
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 experienced slight delays in locating and obtaining the materials necessary to fulfill our production requirements, which has extended our lead times but it has not caused a meaningful backlog of sales orders. Despite the current delays, which we believe are temporary and areprimarily driven by the dynamic nature of the COVID-19 impactand geopolitical impacts on the global supply chain, we believe our supplier relationships and facilities will support our capacity needs for the foreseeable future.future for Musculoskeletal Solutions. However, it is possible that a prolongedthe impacts of COVID-19 disruptionand geopolitical disruptions could cause a backlog of sales orders.orders for Musculoskeletal Solutions products. The delays experienced for sourcing certain components of Enabling Technology products may cause a backlog of sales orders in the foreseeable future. A majority of our product inventory is held primarily with our sales representatives and at hospitals throughout the United States. We stock inventory in our warehouse facilities and retain title to consigned inventory which is maintained with our field representatives and hospitals in sufficient quantities so that products are available when needed for surgical procedures. Safety stock levels are determined based on a number of factors, including demand, manufacturing lead times, and quantities required to maintain service levels.
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 2. 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, 20202021, particularly those set forth under “Item 1. Business,” “Item 1A. Risk Factors,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Item 7A. Quantitative and Qualitative Disclosure About Market Risk”, 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, 20202021 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, 2021.March 31, 2022. 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, 2021,March 31, 2022, 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, 2021March 31, 2022 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 15. Commitments and Contingencies” above.
In addition, we are subject to legal proceedings arising in the ordinary course of business.
Item 1A. Risk Factors
The Company faces a number of uncertainties and risks that are difficult to predict and many of which are outside of the Company's control. For a detailed discussion of the risks that affect our business, please refer to “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes to the risk factors as previously disclosed in the Company's Annual Report on Form 10-K, except for the revisions to the following risk factor: Not applicable.
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 continuing preventative and precautionary measures that hospitals and federal, state, local, and international governments have taken to mitigate the spread of the disease has led to restrictions on, disruptions in, and other related impacts on elective procedure rates. We expect elective procedure rates to continue to vary and could be impacted by regional COVID-19 case volumes, hospital and clinical occupancy rates, staffing levels, a patient’s willingness to schedule deferrable procedures, travel and quarantine restrictions, as well as new COVID-19 variants.
Further, worldwide supply chain disruption relating to the COVID-19 pandemic has resulted in delays and component shortages that have and may continue to impact our ability to manufacture our products. These disruptions may, among other things, impact our ability to satisfy customer demand, which could negatively impact our results of operations.
These challenges and restrictions will likely continue for the duration of the pandemic, which is uncertain, and may even continue beyond the pandemic. Many areas are relaxing restrictions and resuming business operations, but a resurgence in infections or mutations of the coronavirus that causes COVID-19 could cause governments, hospitals, public institutions, or other authorities to reinstate such restrictions or impose additional restrictions. 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, if a resurgence occurs and governments mandate restrictions, including restrictions on elective surgeries, we do expect that it could have a material adverse impact on our revenue growth, operating profit and cash flow, 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.
Exhibit No. |
| Item |
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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: |
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| Chief Executive Officer |
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| President |
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| (Principal Executive Officer) |
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Dated: |
| /s/ KEITH PFEIL |
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| Keith Pfeil |
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| Chief Financial Officer |
Chief Accounting Officer | ||
Senior Vice President | ||
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| (Principal Financial Officer) |
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