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Item 2. Management’s Discussion and Analysis

2021-05-04 compared with 2020-10-28 · 78 added, 262 removed, 113 unchanged (75% of the section changed)

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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.

(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.

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.

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:

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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.

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, 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.

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 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 sustain and grow our business.

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.

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.

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.

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

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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.

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, improve patient outcomes

Geographic Information

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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.

During the three months ended March 31, 2021, international net sales accounted for approximately 15% of our total net sales.

We have sold our products in approximately 47 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.

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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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, 2020 .

Results of Operations

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

Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020

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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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.

In the United States, the increase in net sales of $34.9 million was due primarily to increased spine product sales resulting from penetration in existing territories and an increase in sales volume of enabling technologies.

International net sales increased by $1.9 million, which was due primarily to increased sales volume of enabling technologies and spine product sales resulting from penetration in existing territories, partially offset by lower sales in Japan due to a sales force position.

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Cost of Goods Sold

Three Months Ended

September 30,

(In thousands, except percentages)

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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.

The $6.2 million increase in cost of goods sold was primarily due to increased volume, product mix, and higher write-downs of excess and obsolete inventory, partially offset by favorable production variances.

Research and Development Expenses

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

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

The decrease in research and development expenses was primarily driven by the decreased travel and meeting expense as a result of COVID-19 restrictions.

Selling, General and Administrative Expenses

Three Months Ended

September 30,

(In thousands, except percentages)

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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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These increases were partially offset by decreased travel and meeting expenses as a result of COVID-19 restrictions.

Provision for Litigation

Three Months Ended

September 30,

(In thousands, except percentages)

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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.

The provision for litigation for the three month period ending March 31, 2021 includes receipt of a settlement.

Amortization of Intangibles

Three Months Ended

September 30,

(In thousands, except percentages)

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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.

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.

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Acquisition Related Costs

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

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

Acquisition related costs decreased due to higher changes in fair value of business acquisition liabilities for the three month period ended March 31, 2020.

Other Income/(expense), Net

Three Months Ended

September 30,

(In thousands, except percentages)

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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.

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 March 31, 2021.

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 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)

United States

International

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

Nine Months Ended

September 30,

(In thousands, except percentages)

Cost of goods sold

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

Nine Months Ended

September 30,

(In thousands, except percentages)

Research and development

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

Nine Months Ended

September 30,

(In thousands, except percentages)

Selling, general and administrative

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

Nine Months Ended

September 30,

(In thousands, except percentages)

Provision for litigation

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

Nine Months Ended

September 30,

(In thousands, except percentages)

Amortization of intangibles

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

Nine Months Ended

September 30,

(In thousands, except percentages)

Acquisition related costs

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 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

Nine Months Ended

September 30,

(In thousands, except percentages)

Income tax provision

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

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,

(In thousands, except percentages)

Net income/(loss)

Interest income/(expense), net

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

Adjusted EBITDA

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.

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.

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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,

(In thousands)

Net income/(loss)

Provision for litigation

Amortization of intangibles

Acquisition related costs/licensing

Acquisition of in-process research and development

Tax effect of adjusting items

Non-GAAP net income

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,

(Per share amounts)

Diluted earnings per share, as reported

Provision for litigation

Amortization of intangibles

Acquisition related costs/licensing

Acquisition of in-process research and development

Tax effect of adjusting items

Non-GAAP diluted earnings per share

* 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,

(In thousands)

Net cash provided by operating activities

Purchases of property and equipment

Free cash flow

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

Total net sales

Nine Months Ended

September 30,

(In thousands, except percentages)

Period Net Sales

United States

International

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.

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 reflected net sales growth may differ from that of other companies and therefore may not be comparable.

The change in effective income tax rate for the three month periods ending March 31, 2021 and 2020 is primarily driven by the increase in pretax income partially offset by an increase in tax benefits related to stock option exercises and the reduction to non-tax deductible expenses in the current year.

A discussion of our Results of Operations for the three months ended March 31, 2020 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 March 31, 2020 Compared to the Three Months Ended March 31, 2019.

” on our Form 10-Q filed on May 7, 2020 .

Liquidity and Capital Resources

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

September 30,

(In thousands)

Cash, cash equivalents, and restricted cash

Short-term marketable securities

Long-term marketable securities

Total cash, cash equivalents, restricted cash and marketable securities

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.

Our principal source of liquidity is cash flow from operating activities, 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.

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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.

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 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 of March 31, 2021, we have not borrowed under the Credit Agreement.

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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,

Three Months Ended

(In thousands)

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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.

The increase in net cash provided by operating activities for the three months ended March 31, 2021 was primarily due to the increase of cash flow from net income, reduced outflows for inventories and liabilities, and the favorable change in prepaid expenses and other assets, primarily related to long term accounts receivable becoming current.

These were partially offset by an unfavorable change in accounts receivable as a result of increased sales.

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.

The increase in net cash used in investing activities for the three months ended March 31, 2021 was due primarily to the net outflows of purchases, maturities and sales of marketable securities, which was partially offset by a decrease of 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.

The increase in net cash provided by financing activities for the three months ended March 31, 2021 was primarily the result of the increase in proceeds from option exercises partially offset by the increased payments of business acquisition liabilities.

The three months ended March 31, 2020 included cash used for the repurchase of common stock.

A discussion of our Cash Flows for the three months ended March 31, 2020 can be found in “ Part I, Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations:

Results of Operations;

” on our Form 10-Q filed on May 7, 2020 .

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.

There have been no material changes to our contractual obligations during the three months ended March 31, 2021.

Off-Balance Sheet Arrangements

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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.

We believe our supplier relationships and facilities will support our capacity needs for 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.

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

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Notes to Condensed Consolidated Financial Statements (Unaudited);

Background and Summary of Significant Accounting Policies;

Summary of Significant Accounting Policies;

(k) Recently Issued Accounting Pronouncements” above.

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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.

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”).

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.

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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