GLOBUS MEDICAL INC 10-Q

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, 2019, which are included in our Annual Report on Form 10-K filed with the SEC on February 20, 2020. Overview Globus Medical, Inc. (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. 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. With over 210 products on the market, we offer a comprehensive portfolio of innovative and differentiated technologies that treat a variety of musculoskeletal conditions of the spine, extremities, pelvis, hip and knee. 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 and 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, while the government mandated restrictions, including elective surgeries, are in place, we do expect that it could continue to have a material adverse impact on our revenue growth, operating profit and cash flow and may lead to higher than normal inventory levels, 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 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 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. With more than fifteen years in this competitive market, we provide comprehensive solutions that facilitate both open and minimally invasive surgery (“MIS”) techniques. This includes traditional fusion implants such as pedicle screw and rod systems, plating systems, intervertebral spacers and corpectomy devices. We believe we pioneered innovative expandable solutions for interbody fusion, corpectomy and interspinous fixation that allow intraoperative customization of our devices to the patient’s anatomy and save surgical time by eliminating sequential trialing. We have also developed treatment options for motion preservation technologies, such as dynamic stabilization, total disc replacement and interspinous distraction devices; 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. 24 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES 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. Fracture plating includes proximal humerus, distal radius, proximal tibia, distal fibula, small fragment, mini-fragment and clavicle plates. Intramedullary nailing includes tibial, trochanteric, and femoral nail systems. Regenerative biologic products such as bone void fillers and allograft struts are also used in orthopedic procedures where applicable. Our hip and knee joint solutions for the treatment of degenerative conditions or failed previous reconstruction have a long history of clinical use with StelKast, Inc. Over 13 different implants have been marketed to date, including modular hip stems and acetabular cups for total hip arthroplasty as well as posterior stabilizing and cruciate retaining knee arthroplasty implants. Enabling Technologies 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. Globus’ innovative Enabling Technologies products offer surgeons more information about patient anatomy and surgical options to help them to make well-informed surgical decisions. 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. 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 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. 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, 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. 25 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES Results of Operations Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019 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 September 30, Change (In thousands, except percentages) 2020 2019 $ % United States $ 182,104 $ 162,697 $ 19,407 11.9% International 33,994 33,518 476 1.4% Total net sales $ 216,098 $ 196,215 $ 19,883 10.1% 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. and India. Cost of Goods Sold Three Months Ended September 30, Change (In thousands, except percentages) 2020 2019 $ % Cost of goods sold $ 57,097 $ 45,387 $ 11,710 25.8% Percentage of net sales 26.4% 23.1% 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, Change (In thousands, except percentages) 2020 2019 $ % Research and development $ 14,421 $ 14,508 $ (87) -0.6% Percentage of net sales 6.7% 7.4% Research and development expenses remained consistent with the three months ended September 30, 2019. Selling, General and Administrative Expenses Three Months Ended September 30, Change (In thousands, except percentages) 2020 2019 $ % Selling, general and administrative $ 89,152 $ 88,455 $ 697 0.8% Percentage of net sales 41.3% 45.1% 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. 26 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES Provision for Litigation Three Months Ended September 30, Change (In thousands, except percentages) 2020 2019 $ % Provision for litigation $ — $ 1,625 $ (1,625) 100.0% Percentage of net sales 0.0% 0.8% 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, Change (In thousands, except percentages) 2020 2019 $ % Amortization of intangibles $ 4,152 $ 3,620 $ 532 14.7% Percentage of net sales 1.9% 1.8% 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, Change (In thousands, except percentages) 2020 2019 $ % Acquisition related costs $ 1,263 $ 559 $ 704 125.9% Percentage of net sales 0.6% 0.3% Acquisition related costs increased due to business development-related activities. Other Income/(expense), Net Three Months Ended September 30, Change (In thousands, except percentages) 2020 2019 $ % Other income/(expense), net $ 3,117 $ 4,691 $ (1,574) -33.6% Percentage of net sales 1.4% 2.4% 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, Change (In thousands, except percentages) 2020 2019 $ % Income tax provision $ 8,914 $ 8,445 $ 469 5.6% Effective income tax rate 16.8% 18.1% 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. 27 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019 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) 2020 2019 $ % United States $ 465,705 $ 470,224 $ (4,519) -1.0% International 89,892 103,477 (13,585) -13.1% Total net sales $ 555,597 $ 573,701 $ (18,104) -3.2% 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 Nine Months Ended September 30, Change (In thousands, except percentages) 2020 2019 $ % Cost of goods sold $ 156,604 $ 131,214 $ 25,390 19.4% Percentage of net sales 28.2% 22.9% 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 Nine Months Ended September 30, Change (In thousands, except percentages) 2020 2019 $ % Research and development $ 69,278 $ 44,577 $ 24,701 55.4% Percentage of net sales 12.5% 7.8% 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 Nine Months Ended September 30, Change (In thousands, except percentages) 2020 2019 $ % Selling, general and administrative $ 262,710 $ 262,618 $ 92 0.0% Percentage of net sales 47.3% 45.8% Selling, general and administrative expenses remained consistent with the nine months ended September 30, 2019. 28 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES Provision for Litigation Nine Months Ended September 30, Change (In thousands, except percentages) 2020 2019 $ % Provision for litigation $ 197 $ 1,625 $ (1,428) 100.0% Percentage of net sales 0.0% 0.3% 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 Nine Months Ended September 30, Change (In thousands, except percentages) 2020 2019 $ % Amortization of intangibles $ 12,043 $ 10,412 $ 1,631 15.7% Percentage of net sales 2.2% 1.8% 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 Nine Months Ended September 30, Change (In thousands, except percentages) 2020 2019 $ % Acquisition related costs $ 1,867 $ 1,245 $ 622 50.0% Percentage of net sales 0.3% 0.2% Acquisition related costs increased due to business development-related activities. Other Income/(expense), Net Nine Months Ended September 30, Change (In thousands, except percentages) 2020 2019 $ % Other income/(expense), net $ 10,788 $ 13,487 $ (2,699) -20.0% Percentage of net sales 1.9% 2.4% 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 Nine Months Ended September 30, Change (In thousands, except percentages) 2020 2019 $ % Income tax provision $ 14,358 $ 25,816 $ (11,458) -44.4% Effective income tax rate 22.5% 19.1% 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. 29 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES Non-GAAP Financial Measures To supplement our financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), management uses certain non-GAAP financial measures. For example, non-GAAP Adjusted EBITDA, which represents net income before interest income, net and other non-operating expenses, provision for income taxes, depreciation and amortization, stock-based compensation expense, provision for litigation, acquisition related costs/licensing, acquisition of in-process research and development, is useful as an additional measure of operating performance, and particularly as a measure of comparative operating performance from period to period, as it is reflective of changes in pricing decisions, cost controls and other factors that affect operating performance, and it removes the effect of our capital structure, asset base, income taxes and interest income and expense. Our management also uses non-GAAP Adjusted EBITDA for planning purposes, including the preparation of our annual operating budget and financial projections. Provision for litigation represents costs incurred for litigation settlements or unfavorable verdicts when the loss is known or considered probable and the amount can be reasonably estimated, or in the case of a favorable settlement, when income is realized. Acquisition related costs/licensing represents the change in fair value of business-acquisition-related contingent consideration; costs related to integrating recently acquired businesses, including but not limited to costs to exit or convert contractual obligations, severance, and information system conversion; and specific costs related to the consummation of the acquisition process such as banker fees, legal fees, and other acquisition related professional fees, as well as one-time licensing fees. Acquisition of in-process research and development represents the expensing of acquired assets with no alternative future use and related fees. The following is a reconciliation of net income to Adjusted EBITDA for the periods presented: Three Months Ended Nine Months Ended September 30, September 30, (In thousands, except percentages) 2020 2019 2020 2019 Net income/(loss) $ 44,216 $ 38,307 $ 49,328 $ 109,681 Interest income/(expense), net (3,085) (4,377) (10,999) (12,954) Provision for income taxes 8,914 8,445 14,358 25,816 Depreciation and amortization 16,301 13,575 45,970 38,688 EBITDA 66,346 55,950 98,657 161,231 Stock-based compensation expense 7,020 6,898 21,138 19,647 Provision for litigation — 1,625 197 1,625 Acquisition related costs/licensing 1,753 1,040 3,179 2,011 Acquisition of in-process research and development — — 24,418 — Adjusted EBITDA $ 75,119 $ 65,513 $ 147,589 $ 184,514 Net income as a percentage of net sales 20.5% 19.5% 8.9% 19.1% Adjusted EBITDA as a percentage of net sales 34.8% 33.4% 26.6% 32.2% 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. The tax impact of the non-GAAP adjustments is calculated based on the consolidated effective tax rate on a GAAP basis, applied to the non-GAAP adjustments, unless the underlying item has a materially different tax treatment, in which case the estimated tax rate applicable to the adjustment is used. 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. 30 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES The following is a reconciliation of net income computed in accordance with U.S. GAAP to non-GAAP net income for the periods presented: Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2020 2019 2020 2019 Net income/(loss) $ 44,216 $ 38,307 $ 49,328 $ 109,681 Provision for litigation — 1,625 197 1,625 Amortization of intangibles 4,152 3,620 12,043 10,412 Acquisition related costs/licensing 1,753 1,040 3,179 2,011 Acquisition of in-process research and development — — 24,418 — Tax effect of adjusting items (992) (1,135) (3,418) (2,659) Non-GAAP net income $ 49,129 $ 43,457 $ 85,747 $ 121,070 The following is a reconciliation of Diluted Earnings Per Share as computed in accordance with U.S. GAAP to non-GAAP Diluted Earnings Per Share for the periods presented: Three Months Ended Nine Months Ended September 30, September 30, (Per share amounts) 2020 2019 2020 2019 Diluted earnings per share, as reported $ 0.44 $ 0.38 $ 0.49 $ 1.08 Provision for litigation — 0.02 — 0.02 Amortization of intangibles 0.04 0.04 0.12 0.10 Acquisition related costs/licensing 0.02 0.01 0.03 0.02 Acquisition of in-process research and development — — 0.24 — Tax effect of adjusting items (0.01) (0.01) (0.03) (0.03) Non-GAAP diluted earnings per share $ 0.49 $ 0.43 $ 0.85 $ 1.19 * Amounts might not add due to rounding We also define the non-GAAP measure of Free Cash Flow as the net cash provided by operating activities, less the cash impact of purchases of property and equipment. We believe that this financial measure provides meaningful information for evaluating our overall liquidity for comparative periods as it facilitates an assessment of funds available to satisfy current and future obligations and fund acquisitions. Below is a reconciliation of net cash provided by operating activities as computed in accordance with U.S. GAAP to Free Cash Flow for the periods presented: Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2020 2019 2020 2019 Net cash provided by operating activities $ 53,248 $ 55,866 $ 118,609 $ 117,666 Purchases of property and equipment (17,325) (12,062) (49,595) (54,957) Free cash flow $ 35,923 $ 43,804 $ 69,014 $ 62,709 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. 31 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES 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 Reported Currency ‎ Impact on Constant ‎ Currency September 30, Net Sales Current Net Sales (In thousands, except percentages) 2020 2019 Growth Period Net Sales Growth United States $ 182,104 $ 162,697 11.9% $ — 11.9% International 33,994 33,518 1.4% 348 0.4% Total net sales $ 216,098 $ 196,215 10.1% $ 348 10.0% Nine Months Ended Reported Currency ‎ Impact on Constant ‎ Currency September 30, Net Sales Current Net Sales (In thousands, except percentages) 2020 2019 Growth Period Net Sales Growth United States $ 465,705 $ 470,224 -1.0% $ — -1.0% International 89,892 103,477 -13.1% (215) -12.9% Total net sales $ 555,597 $ 573,701 -3.2% $ (215) -3.1% 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. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for financial measures prepared in accordance with U.S. GAAP. These measures do not include certain expenses that may be necessary to evaluate our liquidity or operating results. Our definitions of 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, December 31, (In thousands) 2020 2019 Cash, cash equivalents, and restricted cash $ 250,607 $ 195,724 Short-term marketable securities 159,030 115,763 Long-term marketable securities 275,587 409,514 Total cash, cash equivalents, restricted cash and marketable securities $ 685,224 $ 721,001 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. 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 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. Our liquidity may be negatively impacted as a result of a decline in sales of our products, including declines due to changes in our customers’ ability to obtain third-party coverage and reimbursement for procedures that use our products, increased pricing pressures resulting from intensifying competition, cost increases and slower product development cycles resulting from a changing regulatory environment; and unfavorable results from litigation which will affect our cash flow. We anticipate that to the extent that we require additional liquidity, it will be funded through the incurrence of other indebtedness, additional equity financings or a combination of these potential sources of liquidity. 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. 32 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES Cash Flows The following table summarizes, for the periods indicated, cash flows from operating, investing and financing activities: Nine Months Ended September 30, Change (In thousands) 2020 2019 $ Net cash provided by operating activities $ 118,609 $ 117,666 $ 943 Net cash used in investing activities 1,770 (104,246) 106,016 Net cash used in/provided by financing activities (65,875) 13,254 (79,129) Effect of foreign exchange rate changes on cash 379 (231) 610 Increase (decrease) in cash, cash equivalents, and restricted cash $ 54,883 $ 26,443 $ 28,440 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 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. 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 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. 33 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES 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. 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 1. Background and 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, 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. 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, 2019 and there have been no significant changes to this information.