What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-28 compared with 2020-08-05 · 168 added, 145 removed, 207 unchanged (60% of the section changed)

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 together with our unaudited interim condensed consolidated financial statements and related notes included elsewhere in this report.

Unless otherwise noted, the figures in the following discussions are unaudited.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes for the year ended December 31, 2019, which are included in our Annual Report on Form 10-K filed with the SEC on February 20, 2020.

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.

(together with its consolidated subsidiaries, “Globus,” “we,” “us” or “our”), headquartered in Audubon, Pennsylvania, is a medical device company that develops and commercializes healthcare solutions whose mission is to improve the quality of life of patients with musculoskeletal disorders.

Founded in 2003, Globus is committed to medical device innovation and delivering exceptional service to hospitals and physicians to advance patient care and improve efficiency.

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COVID-19 Update

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 on March 11, 2020.

To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas.

While emergency and time-sensitive surgical procedures continue, the outbreak and preventive measures taken to help curb the spread have negatively impacted the markets we serve, in particular, hospitals and surgical centers globally where elective surgeries have been postponed.

We are considered a provider of “life-sustaining” goods and services in Pennsylvania and an essential business in other areas.

To date, COVID-19 has not materially affected our supply chain or production schedule, although delays may be possible in the future due to the dynamic nature of the situation.

We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities and may need to make changes to our business based on their recommendations.

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We are focused on navigating these recent challenges presented by COVID-19 and believe we are in a strong position to continue to not only sustain, but grow our business once the restrictions are lifted and elective surgeries fully resume.

To date, COVID-19 has not materially affected our supply chain or production schedule, although delays may be possible in the future due to the dynamic nature of the situation.

Product Categories

While we group our products into two categories, they are not limited to a particular technology, platform or surgical approach.

Instead, our goal is to offer a comprehensive product suite that can be used to effectively treat patients based on their specific anatomy and condition, and is customized to the surgeon’s training and surgical preference.

Musculoskeletal Solutions

Musculoskeletal Solutions consist primarily of implantable devices, biologics, accessories, and unique surgical instruments used in an expansive range of spinal, orthopedic and neurosurgical procedures.

Our Musculoskeletal Solutions consist primarily of implantable devices, biologics, accessories, and unique surgical instruments used in an expansive range of spinal, orthopedic and neurosurgical procedures.

Our broad spectrum of spine products addresses the vast majority of conditions affecting the spine including degenerative conditions, deformity, tumors, and trauma.

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We have also developed treatment options for motion preservation technologies, such as dynamic stabilization, total disc replacement and interspinous distraction devices;

and interventional pain management solutions to treat vertebral compression fractures.

Regenerative biologic products such as allografts and synthetic alternatives are adjunctive treatments typically used in combination with stabilizing implant hardware.

Our orthopedic trauma solutions are designed to treat a wide variety of orthopedic fracture patterns and patient anatomies in the upper and lower extremities as well as the hip.

To date, Globus has received 510(k) clearance from the U.S.

Food and Drug

as well as interventional pain management solutions to treat vertebral compression fractures.

Our biologic solutions include regenerative biologic products such as allografts and synthetic alternatives, which are adjunctive treatments typically used in combination with stabilizing implant hardware.

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Administration (the “FDA”) for numerous orthopedic trauma and extremity products, covering four major segments of the orthopedic trauma market - fracture plates, compression screws, intramedullary nails, and external fixation.

Our orthopedic trauma solutions are designed to treat a wide variety of orthopedic fracture patterns and patient anatomies in the upper and lower extremities as well as the hip.

To date, Globus has received 510(k) clearance from the U.S.

Food and Drug Administration (the “FDA”) for numerous orthopedic trauma and extremity products covering four major segments of the orthopedic trauma market - fracture plates, compression screws, intramedullary nails, and external fixation.

We began marketing these products in 2018 and intend to grow our presence in this field.

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Enabling Technologies

Enabling Technologies are advanced computer-assisted intelligent systems designed to enhance a surgeon’s capabilities and streamline surgical procedures to be safer, less invasive, more accurate, and more reproducible, to ultimately improve patient care and reduce radiation exposure for all involved.

Our current enabling technologies are comprised of imaging, navigation and robotic (“INR”) assisted surgery solutions.

This includes the ExcelsiusGPS ® platform, a robotic guidance and navigation system that supports minimally invasive and open procedures with screw placement applications.

Our Enabling Technologies are comprised of imaging, navigation and robotic (“INR”) assisted surgery solutions which are advanced computer-assisted intelligent systems designed to enhance a surgeon’s capabilities, and ultimately improve patient care and reduce radiation exposure for all involved, by streamlining surgical procedures to be safer, less invasive, more accurate, and more reproducible.

These include the ExcelsiusGPS ® platform which is a robotic guidance and navigation system that supports minimally invasive and open procedures with screw placement applications.

The ExcelsiusGPS ® platform has a modular design that can be used for a variety of screw placement applications, and we expect that it will serve as a foundation for future clinical applications using artificial intelligence and augmented reality.

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We believe the advantages of pre-planning implant position and viewing patient anatomy during surgery are self-evident, and also create significant secondary gains such as eliminating radiation exposure altogether.

While we group our products into two categories, they are not limited to a particular technology, platform or surgical approach.

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 our exclusive independent distributors, who distribute our products on our behalf for a commission that is generally based on a percentage of sales.

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.

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sales force and we intend to add additional direct and distributor sales representatives in the future.

During the six months ended June 30, 2020, our international sales accounted for approximately 16% of our total sales.

We have sold our products in approximately 50 countries outside the United States through a combination of direct 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 the commercialization of additional products.

During the nine months ended September 30, 2020, our international net sales accounted for approximately 16% of our total net sales.

We have sold our products in approximately 50 countries outside the United States through a combination of sales representatives employed by us and exclusive international distributors.

Our business is generally not seasonal in nature.

However, our sales of Musculoskeletal Solutions products may be influenced by summer vacation and winter holiday periods during which we have experienced fewer surgeries taking place, as well as more surgeries taking place later in the year when patients have met the deductibles under insurance plans.

Our sales of Enabling Technologies products may be influenced by longer capital purchase cycles and the timing of budget approvals for major capital purchases.

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Results of Operations

Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019

The following table sets forth, for the periods indicated, our sales by geography expressed as dollar amounts and the changes in sales between the specified periods expressed in dollar amounts and as percentages:

Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019

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

September 30,

(In thousands, except percentages)

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International

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In the United States, the decrease in sales of $34.8 million was due primarily to the postponement of elective surgeries at hospitals and surgical centers and longer selling cycles for INR capital equipment, due to the COVID-19 pandemic.

Internationally, the decrease in sales of $10.8 million was also due primarily to the postponement of elective surgeries at hospitals and surgical centers and longer selling cycles for INR capital equipment due to the impact of the COVID-19 pandemic.

On a constant currency basis, our international sales declined $10.5 million, or by 30.5%, and our worldwide sales decreased 23.3%.

Total net sales

In the United States, the increase in net sales of $19.4 million was due primarily to increased spine product sales resulting from penetration in existing territories.

International net sales increased by $0.5 million, which was due primarily to increased spine product sales resulting from penetration in existing territories, partially offset by the postponement of elective surgeries at hospitals and surgical centers due to the COVID-19 pandemic, particularly in Japan, the U.K.

Cost of Goods Sold

Three Months Ended

September 30,

(In thousands, except percentages)

Cost of goods sold

Percentage of sales

The $6.6 million net increase in cost of goods sold was primarily due to higher write-downs of excess and obsolete inventory on less frequently used product sizes as well as non-recurring inventory write-offs and other manufacturing expenses.

These increases were partially offset by lower sales volumes due to COVID-19.

Percentage of net sales

The $11.7 million increase in cost of goods sold was primarily due to higher write-downs of excess and obsolete inventory on less frequently used product sizes, non-recurring inventory write-offs and other manufacturing expense, depreciation, and increased product costs as a result of higher product sales.

Research and Development Expenses

Three Months Ended

September 30,

(In thousands, except percentages)

Research and development

Percentage of sales

The increase in research and development expenses was due primarily to the expensing of $24.4 million of acquired in-process research and development (“IPR&D”) assets with no alternative future use.

Percentage of net sales

Research and development expenses remained consistent with the three months ended September 30, 2019.

Selling, General and Administrative Expenses

Three Months Ended

September 30,

(In thousands, except percentages)

Selling, general and administrative

Percentage of sales

The decrease in selling, general and administrative expenses was primarily due to a decrease in sales commission expenses from lower sales and decreased travel, marketing, and surgeon educational activities as a result of COVID-19 restrictions.

These decreases were partially offset by donations made to community organizations serving individuals and families directly impacted by the pandemic, by the continued build out of the spine, INR technology, joints and orthopedic trauma sales forces, and by increases in bad debt and other expenses.

Percentage of net sales

The increase in selling, general and administrative expenses was primarily due to an increase in commission expenses resulting from higher product sales and by the continued build out of the spine, INR technology, joints and orthopedic trauma sales forces.

These increases were partially offset by decreased travel and surgeon educational activities as a result of COVID-19 restrictions.

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Provision for Litigation

Three Months Ended

September 30,

(In thousands, except percentages)

Provision for litigation

Percentage of sales

Provision for litigation was immaterial for the three month period ending June 30, 2020.

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Percentage of net sales

There was no provision for litigation for the three month period ending September 30, 2020.

The provision for litigation for the three month period ending September 30, 2019 includes settlement and verdict costs.

Amortization of Intangibles

Three Months Ended

September 30,

(In thousands, except percentages)

Amortization of intangibles

Percentage of sales

The increase in the amortization of intangibles is primarily due to the developed technology intangible assets acquired in connection with the Nemaris and StelKast acquisitions.

Percentage of net sales

The increase in the amortization of intangibles is primarily due to the developed technology intangible asset acquired in connection with the Nemaris acquisition.

Acquisition Related Costs

Three Months Ended

September 30,

(In thousands, except percentages)

Acquisition related costs

Percentage of sales

Acquisition related costs remained immaterial, consistent with the three month period ending June 30, 2019.

Other Income, Net

Percentage of net sales

Acquisition related costs increased due to business development-related activities.

Other Income/(expense), Net

Three Months Ended

September 30,

(In thousands, except percentages)

Other income/(expense), net

Percentage of sales

The decrease in other income, net was due primarily to lower interest income from lower yields on marketable securities during the three month period ended June 30, 2020.

Percentage of net sales

The decrease in other income/(expense), net was primarily the result of lower interest income from lower yields on marketable securities during the three month period ended September 30, 2020.

Income Tax Provision

Three Months Ended

September 30,

(In thousands, except percentages)

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Effective income tax rate

The change in the effective income tax rates between the current year and prior year periods is primarily a result of the non-tax-deductible expense of acquired IPR&D of $24.4 million, and tax benefits due to an increase in stock option exercises in the current year.

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

Six Months Ended

The change in the effective income tax rates between the current year and prior year periods is primarily a result of higher tax benefits resulting from an increase in stock option exercises in the current year period.

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Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019

Nine Months Ended

September 30,

(In thousands, except percentages)

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International

In the United States, the decrease in sales of $23.9 million was due to the postponement of elective surgeries at hospitals and surgical centers and longer selling cycles for INR capital equipment due to the COVID-19 pandemic.

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Internationally, the decrease in sales of $14.1 million was due primarily to the postponement of elective surgeries at hospitals and surgical centers and longer selling cycles for INR capital equipment due to the COVID-19 pandemic as well as a one-time distributor stocking order in the period ended March 31, 2019.

On a constant currency basis, our international sales declined $13.5 million, or by 19.3%, and our worldwide sales decreased 9.9%.

Total net sales

In the United States, the decrease in net sales of $4.5 million was due to the postponement of elective surgeries at hospitals and surgical centers and longer selling cycles for INR capital equipment due to the COVID-19 pandemic.

International net sales decreased by $13.6 million, and was due primarily to the postponement of elective surgeries at hospitals and surgical centers and longer selling cycles for INR capital equipment due to the COVID-19 pandemic as well as a one-time distributor stocking order in the period ended March 31, 2019.

Cost of Goods Sold

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

Cost of goods sold

Percentage of sales

The $13.7 million net increase in cost of goods sold was primarily due to higher write-downs of excess and obsolete inventory on less frequently used product sizes, from non-recurring inventory write-offs and other manufacturing expenses, and depreciation.

These increases were partially offset by lower sales volumes due to COVID-19.

Percentage of net sales

The $25.4 million increase in cost of goods sold was primarily due to higher write-downs of excess and obsolete inventory on less frequently used product sizes, non-recurring inventory write-offs and other manufacturing expenses, and depreciation.

Research and Development Expenses

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

Research and development

Percentage of sales

Percentage of net sales

The increase in research and development expenses was due primarily to $24.4 million of in-process research and development (“IPR&D”) from the acquisition of Synoste Oy (“Synoste”) which was expensed because we determined that it did not have an alternative future use.

Selling, General and Administrative Expenses

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

Selling, general and administrative

Percentage of sales

Percentage of net sales

Selling, general and administrative expenses remained consistent with the nine months ended September 30, 2019.

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Provision for Litigation

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

Provision for litigation

Percentage of sales

Provision for litigation was immaterial for the six month period ending June 30, 2020.

Percentage of net sales

Provision for litigation was immaterial for the nine month period ending September 30, 2020.

The provision for litigation for the nine month period ending September 30, 2019 includes settlement and verdict costs.

Amortization of Intangibles

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

Amortization of intangibles

Percentage of sales

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Percentage of net sales

The increase in the amortization of intangibles is primarily due to the developed technology intangible assets acquired in connection with the Nemaris and StelKast acquisitions.

Acquisition Related Costs

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

Acquisition related costs

Percentage of sales

Acquisition related costs remained immaterial, consistent with the six month period ending June 30, 2019.

Other Income, Net

Six Months Ended

Percentage of net sales

Acquisition related costs increased due to business development-related activities.

Other Income/(expense), Net

Nine Months Ended

September 30,

(In thousands, except percentages)

Other income/(expense), net

Percentage of sales

The decrease in other income, net was due primarily to lower interest income from lower yields on marketable securities during the six month period ended June 30, 2020.

Percentage of net sales

The decrease in other income, net was due primarily to lower interest income from lower yields on marketable securities during the nine month period ended September 30, 2020.

Income Tax Provision

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

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Effective income tax rate

The change in the effective income tax rates between the current year and prior year periods is primarily the result of the non-deductible expense of acquired IPR&D of $24.4 million, partially offset by higher tax benefits resulting from an increase in stock option exercises in the current year period.

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Non-GAAP Financial Measures

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Acquisition of in-process research and development represents the expensing of acquired assets with no alternative future use and related fees.

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The following is a reconciliation of net income to Adjusted EBITDA for the periods presented:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

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Adjusted EBITDA

Net income as a percentage of sales

Adjusted EBITDA as a percentage of sales

In addition, for the period ended June 30, 2020 and for other comparative periods, we are presenting non-GAAP net income and non-GAAP Diluted Earnings Per Share, which represents net income and diluted earnings per share excluding the provision for litigation, amortization of intangibles, acquisition related costs/licensing, acquisition of in-process research and development, and the tax effects of all of the foregoing adjustments.

Net income as a percentage of net sales

Adjusted EBITDA as a percentage of net sales

In addition, for the period ended September 30, 2020 and for other comparative periods, we are presenting non-GAAP net income and non-GAAP Diluted Earnings Per Share, which represents net income and diluted earnings per share excluding the provision for litigation, amortization of intangibles, acquisition related costs/licensing, acquisition of in-process research and development, and the tax effects of all of the foregoing adjustments.

The tax effect adjustment represents the tax effect of the pre-tax non-GAAP adjustments excluded from non-GAAP net income.

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We believe these non-GAAP measures are also useful indicators of our operating performance, and particularly as additional measures of comparative operating performance from period to period as they remove the effects of litigation, amortization of intangibles, acquisition related costs/licensing, acquisition of in-process research and development, and the tax effects of all of the foregoing adjustments, which we believe are not reflective of underlying business trends.

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The following is a reconciliation of net income computed in accordance with U.S.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

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Non-GAAP net income

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The following is a reconciliation of Diluted Earnings Per Share as computed in accordance with U.S.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(Per share amounts)

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

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Free cash flow

Furthermore, the non-GAAP measure of constant currency sales growth is calculated by translating current year sales at the same average exchange rates in effect during the applicable prior year period.

We believe constant currency sales growth provides insight to the comparative increase or decrease in period sales, in dollar and percentage terms, excluding the effects of fluctuations in foreign currency exchange rates.

Below is a reconciliation of sales growth as reported in accordance with U.S.

GAAP compared to constant currency sales growth for the periods presented.

Furthermore, the non-GAAP measure of constant currency net sales growth is calculated by translating current year net sales at the same average exchange rates in effect during the applicable prior year period.

We believe constant currency net sales growth provides insight to the comparative increase or decrease in period net sales, in dollar and percentage terms, excluding the effects of fluctuations in foreign currency exchange rates.

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Below is a reconciliation of net sales growth as reported in accordance with U.S.

GAAP compared to constant currency reflected net sales growth for the periods presented:

Three Months Ended

September 30,

(In thousands, except percentages)

Period Net Sales

United States

International

Six Months Ended

Total net sales

Nine Months Ended

September 30,

(In thousands, except percentages)

Period Net Sales

United States

International

Non-GAAP Adjusted EBITDA, non-GAAP net income, non-GAAP Diluted Earnings Per Share, Free Cash Flow and constant currency sales growth are not calculated in conformity with U.S.

Total net sales

Non-GAAP Adjusted EBITDA, non-GAAP net income, non-GAAP Diluted Earnings Per Share, Free Cash Flow and constant currency reflected net sales growth are not calculated in conformity with U.S.

GAAP within the meaning of Item 10(e) of Regulation S-K.

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GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for financial measures prepared in accordance with U.S.

Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for financial measures prepared in accordance with U.S.

These measures do not include certain expenses that may be necessary to evaluate our liquidity or operating results.

Our definitions of non-GAAP Adjusted EBITDA, non-GAAP net income, non-GAAP Diluted Earnings Per Share, Free Cash Flow and constant currency sales growth may differ from that of other companies and therefore may not be comparable.

The following table summarizes, for the periods indicated, cash flows from operating, investing and financing activities:

Six Months Ended

(In thousands)

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in/provided by financing activities

Effect of foreign exchange rate changes on cash

Increase/(decrease) in cash, cash equivalents, and restricted cash

Cash Provided by Operating Activities

The increase in net cash provided by operating activities was primarily due to the increases of cash flow from accounts receivable as a result of improved collections and lower sales and from income taxes as a result of the delay of lower estimated income tax payments due to COVID-19.

These were offset partially by the decrease of cash flow from pre-tax net income.

Cash Used in Investing Activities

The decrease in net cash used in investing activities was due primarily to the decrease in net impact of purchases, maturities and sales of marketable securities, and decreased purchases of property and equipment.

Cash Used in Financing Activities

The increase in net cash used in financing activities was primarily the result of the repurchase of common stock, partially offset by the increase in proceeds from option exercises and by lower payments of business acquisition liabilities.

Our definitions of non-GAAP Adjusted EBITDA, non-GAAP net income, non-GAAP Diluted Earnings Per Share, Free Cash Flow and constant currency reflected net sales growth may differ from that of other companies and therefore may not be comparable.

Liquidity and Capital Resources

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

September 30,

(In thousands)

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Total cash, cash equivalents, restricted cash and marketable securities

In May 2011, we entered into a credit agreement with Wells Fargo Bank related to a revolving credit facility that provides for borrowings up to $50.0 million.

In June 2018, we amended the credit agreement to increase the revolving credit facility amount from $50.0 million to $125.0 million.

At our request, and with the approval of the bank, the amount of borrowings available under the revolving credit facility can be increased to $150.0 million.

On August 6, 2020, we entered into a credit agreement with Citizens Bank, N.A.

(the “Credit Agreement”) that provides a revolving credit facility permitting borrowings up to $125.0 million (the “Revolving Credit Facility”), and has a termination date of August 5, 2021.

The Revolving Credit Facility includes up to a $25.0 million sub limit for letters of credit.

As amended to date, the revolving credit facility with Wells Fargo Bank expired in May 2020.

The Company is currently negotiating and intends to enter into a new credit agreement with another institution in the near term.

In addition to our existing cash and marketable securities balances, our principal source of liquidity is our cash flows from operating activities.

In addition to our existing cash and marketable securities balances, our principal sources of liquidity are our cash flows from operating activities and our revolving credit facility.

We believe these sources will provide sufficient liquidity for us to meet our liquidity requirements for the foreseeable future.

Our principal liquidity requirements are to meet our working capital, research and development, including clinical trials, and capital expenditure needs, principally for our surgical sets required to maintain and expand our business and potential future business or intellectual property acquisitions.

We expect to continue to make investments in surgical sets as we launch new products, increase the

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size of our U.S.

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.

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There is no assurance that we will be able to secure such additional funding on terms acceptable to us, or at all.

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The following table summarizes, for the periods indicated, cash flows from operating, investing and financing activities:

Nine Months Ended

September 30,

(In thousands)

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in/provided by financing activities

Effect of foreign exchange rate changes on cash

Increase (decrease) in cash, cash equivalents, and restricted cash

Cash Provided by Operating Activities

The increase in net cash provided by operating activities for the nine months ended September 30, 2020 was primarily due to the increase of cash flow from net income and cash flow from accounts receivable as a result of improved collections.

These were partially offset by cash outflows for inventories.

The decrease in net cash provided by operating activities for the nine months ended September 30, 2019 was primarily due to the decrease of cash flow from inventories and lower net income, which were offset partially by the increase of cash flow from accounts payable and accrued expenses.

Cash Used in Investing Activities

The increase in net cash provided by investing activities for the nine months ended September 30, 2020 was due primarily to the net inflows of purchases, maturities and sales of marketable securities, which was partially offset by increased purchases of property and equipment and payments related to asset acquisitions.

The decrease in net cash used in investing activities for the nine months ended September 30, 2019 was due primarily to the decrease in net impact of purchases, maturities and sales of marketable securities, partially offset by increased purchases of property and equipment.

Cash Used in Financing Activities

The increase in net cash used in financing activities for the nine months ended September 30, 2020 was primarily the result of the repurchase of common stock and payments for business acquisition related liabilities, partially offset by the increase in proceeds from option exercises.

The decrease in cash provided by financing activities for the nine months ended September 30, 2019 was the result of the decrease in proceeds from option exercises.

Contractual Obligations and Commitments

During the three months ended March 31, 2020, there was a material change in our contractual obligations related to purchase obligations payable within less than one year.

In connection with the Nemaris acquisition completed in 2018, we had certain contingent consideration obligations payable to the sellers in this transaction upon the achievement of certain regulatory and sales milestones of $10.0 million which were achieved during the three months ended March 31, 2020.

During the three months ended June 30, 2020, there was a material change in our contractual obligations related to purchase obligations payable within less than one year.

In connection with the StelKast acquisition completed in 2019, we had certain contingent consideration obligations payable to the sellers in this transaction upon the achievement of certain sales milestones of $5.0 million which were achieved in substance during the three months ended June 30, 2020 and was paid in July 2020.

During the three months ended September 30, 2020 there was a material change in our contractual obligations related to the purchase obligation payables within less than one year.

In connection with the Nemaris and StelKast acquisitions completed in 2018 and 2019, respectively, we paid the contingent consideration obligation payables of $10.0 million and $5.0 million, respectively, during the three months ended September 30, 2020.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Seasonality and Backlog

Our business is generally not seasonal in nature.

Our sales of Enabling Technologies products may be influenced by longer capital purchase cycles and the timing of budget approvals for major capital purchases.

We work closely with our suppliers to ensure that our inventory needs are met while maintaining high quality and reliability.

To date, we have not experienced significant difficulty in locating and obtaining the materials necessary to fulfill our production requirements, and we have not experienced a meaningful backlog of sales orders.

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The COVID-19 pandemic may lead to higher than normal inventory levels, as there has not been a material effect to our supply chain or production schedule and we may experience decreased revenues while government mandated restrictions on elective surgeries are in place.

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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.

GLOBUS MEDICAL, INC.

AND SUBSIDIARIES

changes and applicable laws and regulations that are applicable to our businesses, our ability to safeguard our intellectual property, our success in defending legal proceedings brought against us, trends in the medical device industry, and general economic conditions, and other risks set forth throughout our Annual Report on Form 10-K for the year ended December 31, 2019 (the “Form 10-K”), particularly those set forth under “Item 1A, Risk Factors” of the Form 10-K, and those discussed in other documents we file with the Securities and Exchange Commission (the “SEC”).

These risks and uncertainties include, but are not limited to, health epidemics, pandemics and similar outbreaks, including the COVID-19 pandemic, factors affecting our quarterly results, our ability to manage our growth, our ability to sustain our profitability, demand for our products, our ability to compete successfully (including without limitation our ability to convince surgeons to use our products and our ability to attract and retain sales and other personnel), our ability to rapidly develop and introduce new products, our ability to develop and execute on successful business strategies, our ability to comply with changes and applicable laws and regulations that are applicable to our businesses, our ability to safeguard our intellectual property, our success in defending legal proceedings brought against us, trends in the medical device industry, and general economic conditions, and other risks set forth throughout our Annual Report on Form 10-K for the year ended December 31, 2019 (the “Form 10-K”), particularly those set forth under “Item 1A, Risk Factors” of the Form 10-K, and those discussed in other documents we file with the Securities and Exchange Commission (the “SEC”).

Moreover, we operate in an evolving environment.

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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 and there have been no significant changes to this information.

We have evaluated the information required under this item that was disclosed under Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2019 and there have been no significant changes to this information.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis