What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-04 · 34 added, 123 removed, 153 unchanged (51% of the section changed)

32 unchanged sentences

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.

In spine, a majority of these technologies are limited to surgical planning and assistance in implant placement 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

3 unchanged sentences

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

During the nine months ended September 30, 2021, international net sales accounted for approximately 14% of our total net sales.

During the three months ended March 31, 2022, international net sales accounted for approximately 14.8% of our total net sales.

We have sold our products in approximately 46 countries other than the United States through a combination of sales representatives employed by us and exclusive international distributors.

7 unchanged sentences

Results of Operations

Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020

Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021

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)

2 unchanged sentences

Total net sales

In the United States, the increase in net sales of $16.1 million for the three month period ending September 30, 2021 was due primarily to an increase in sales volume of enabling technologies and increased spine product sales resulting from penetration in existing territories, partially offset by current period impacts of the COVID-19 pandemic.

International net sales decreased by $2.4 million for the three month period ending September 30, 2021 due primarily to lower sales in Japan due to the transition of our sales force composition and impacts of the COVID-19 pandemic, which was partially offset by increased spine product sales resulting from penetration in other existing territories.

In the United States, the increase in net sales of $3.1 million for the three month period ending March 31, 2022 was due primarily to increased spine product sales, including robotic instruments, resulting from penetration in existing territories, partially offset by current period impacts of the COVID-19 pandemic.

International net sales increased by $0.1 million for the three month period ending March 31, 2022 due to increased spine product sales resulting from penetration in other existing territories, offset by lower sales in Japan due to the transition of our sales force composition.

GLOBUS MEDICAL, INC.

2 unchanged sentences

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

The $1.5 million increase in cost of goods sold was primarily due to increased volume, which was partially offset by lower inventory reserves and write-downs and favorable production variances driven by manufacturing efficiencies.

The $4.1 million increase in cost of goods sold was primarily due to increased volume, un favorable production variances, higher inventory reserves and write-offs, and unfavorable freight trends.

Research and Development Expenses

Three Months Ended

September 30,

(In thousands, except percentages)

4 unchanged sentences

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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 an increase in travel, meeting and consulting expenses, which are comparable to pre-COVID-19 spending.

The increase in selling, general and administrative expenses was primarily due to an increase in travel and meeting expenses, which are comparable to pre-COVID-19 spending.

Provision for Litigation

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

The provision for litigation for the three month period ending September 30, 2021 includes an accrual for a potential settlement.

The provision for litigation for the three month period ending March 31, 2022 includes an accrual for a potential legal settlement and for the period ending March 31, 2021 includes a receipt of a settlement.

Amortization of Intangibles

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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 intangible assets acquired in the fourth quarter of fiscal 2020.

The decrease in the amortization of intangibles is primarily due to individual intangible assets reaching their full amortization.

GLOBUS MEDICAL, INC.

2 unchanged sentences

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

The decrease in acquisition related costs is due to lower acquisition related professional fees and changes in fair value of business acquisition liabilities.

The decrease in acquisition related costs is due to changes in fair value of business acquisition liabilities.

Other Income/(expense), Net

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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, 2021.

The balances are consistent for the three month period ended March 31, 2022 compared to the three month period ended March 31, 2021.

Income Tax Provision

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Effective income tax rate

The decrease in the effective income tax rate was primarily due to the favorable impact of stock option exercises.

A discussion of our Results of Operations for the three months ended September 30, 2020 can be found in “ Part I, Item 2.

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

Results of Operations;

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

” on our Form 10-Q filed on October 28, 2020 .

Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

Nine Months Ended

September 30,

(In thousands, except percentages)

United States

International

Total net sales

In the United States, the increase in net sales of $140.9 million was due primarily to increased spine product sales resulting from penetration in existing territories and an increase in sales volume of enabling technologies, both of which were partially attributable to the lower net sales for the nine month period ending September 30, 2020 due to the COVID-19 pandemic.

International net sales increased by $11.6 million, which was due primarily to increased spine product sales resulting from penetration in existing territories and sales volume of enabling technologies, both of which were partially attributable to the lower net sales for the nine month period ending September 30, 2020 due to the COVID-19 pandemic.

The increase in net sales was partially offset by lower sales in Japan due to the transition of our sales force composition.

GLOBUS MEDICAL, INC.

AND SUBSIDIARIES

Cost of Goods Sold

Nine Months Ended

September 30,

(In thousands, except percentages)

Cost of goods sold

Percentage of net sales

The $20.8 million increase in cost of goods sold was primarily due to increased volume, which was partially offset by favorable production variances driven by manufacturing efficiencies, and lower write-downs of excess and obsolete inventory driven by the impact of the COVID-19 pandemic on operations for the nine month period ending September 30, 2020.

Research and Development Expenses

Nine Months Ended

September 30,

(In thousands, except percentages)

Research and development

Percentage of net sales

Research and development expenses for the nine month period ending September 30, 2020 includes $24.4 million of acquired in-process research and development (“IPR&D”) assets with no alternative future use, which was partially offset by an increase in personnel related expenses due to our continued investment in product development.

Selling, General and Administrative Expenses

Nine Months Ended

September 30,

(In thousands, except percentages)

Selling, general and administrative

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 the continued build out of the spine, INR technology and orthopedic trauma sales forces.

Provision for Litigation

Nine Months Ended

September 30,

(In thousands, except percentages)

Provision for litigation

Percentage of net sales

The provision for litigation for the nine month period ending September 30, 2021 includes an accrual for a potential settlement.

Amortization of Intangibles

Nine Months Ended

September 30,

(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 asset acquired in connection with the Nemaris acquisition and the intangible assets acquired in the fourth quarter of fiscal 2020.

GLOBUS MEDICAL, INC.

AND SUBSIDIARIES

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 changes in fair value of business acquisition liabilities, driven by changes in market conditions and the achievement of certain performance conditions.

Other Income/(expense), Net

Nine Months Ended

September 30,

(In thousands, except percentages)

Other income/(expense), net

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 nine month period ended September 30, 2021.

Income Tax Provision

Nine Months Ended

September 30,

(In thousands, except percentages)

Income tax provision

Effective income tax rate

The decrease in the effective income tax rate was primarily due to the unfavorable impact of non-tax-deductible acquired IPR&D in the nine month period ended September 30, 2020.

A discussion of our Results of Operations for the nine months ended September 30, 2020 can be found in “ Part I, Item 2.

The increase in the effective income tax rate was primarily due to the lower impact of stock option exercises compared to the prior period.

A discussion of our Results of Operations for the three months ended March 31, 2021 can be found in “ Part I, Item 2.

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

Results of Operations;

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

” on our Form 10-Q filed on October 28, 2020 .

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

” on our Form 10-Q filed on May 4, 2021 .

Liquidity and Capital Resources

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 source of liquidity is cash flow from operating activities as well as our cash and cash equivalents and marketable securities, which we believe will provide sufficient funding for us to meet our liquidity requirements for the foreseeable future.

Our principal liquidity requirements are to fund working capital, research and development, including clinical trials, capital expenditures primarily related to investment in surgical sets required to maintain and expand our business, and potential future business or intellectual property acquisitions.

5 unchanged sentences

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”).

In August 2020, we entered into the Credit Agreement with Citizens Bank, N.A.

which provides a Revolving Credit Facility permitting borrowings up to $125.0 million.

As amended, the Credit Agreement has a termination date of August 3, 2022.

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

As of September 30, 2021, we have not borrowed under the Credit Agreement.

As of March 31, 2022, we have not borrowed under the Credit Agreement.

GLOBUS MEDICAL, INC.

1 unchanged sentence

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)

3 unchanged sentences

Effect of foreign exchange rate changes on cash

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

Increase (decrease) in cash and cash equivalents

Cash Provided by Operating Activities

The increase in net cash provided by operating activities for the nine months ended September 30, 2021 was primarily due to the increase of cash flow from net income and reduced outflows for inventories and liabilities.

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

The net cash provided by operating activities for the three months ended March 31, 2022 was primarily cash flow from net income and favorable changes in accounts payable and income tax payables, partially offset by outflows for inventories.

Cash Used in Investing Activities

The increase in net cash used in investing activities for the nine months ended September 30, 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 and acquisition activity.

The cash used in investing activities for the three months ended March 31, 2022 was primarily from the purchases of property and equipment partially offset by net outflows of purchases, maturities and sales of marketable securities.

Cash Used in Financing Activities

The increase in net cash provided by financing activities for the nine months ended September 30, 2021 was primarily the result of the increase in proceeds from option exercises.

The nine months ended September 30, 2020 included cash used for the repurchase of common stock.

A discussion of our Cash Flows for the nine months ended September 30, 2020 can be found in “ Part I, Item 2.

The net cash provided by financing activities for the three months ended March 31, 2022 was primarily the result of the receipt of proceeds from option exercises, partially offset by payments of business acquisition liabilities.

A discussion of our Cash Flows for the three months ended March 31, 2021 can be found in “ Part I, Item 2.

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

Results of Operations;

” on our Form 10-Q filed on October 28, 2020 .

” on our Form 10-Q filed on May 4, 2021 .

Contractual Obligations and Commitments

There have been no material changes to our contractual obligations during the three months ended September 30, 2021.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

There have been no material changes to our contractual obligations during the three months ended March 31, 2022.

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

To date, we have experienced slight delays in locating and obtaining the materials necessary to fulfill our production requirements, but it has not caused a meaningful backlog of sales orders.

Despite the current delays, which we believe are temporary and are driven by the dynamic nature of the COVID-19 impact on the global supply chain, we believe our supplier relationships and facilities will support our capacity needs for the foreseeable future.

However, it is possible that a prolonged COVID-19 disruption could cause a backlog of sales orders.

To date, we have experienced delays in locating and obtaining the materials necessary to fulfill our production requirements, which has extended our lead times but has not caused a meaningful backlog of sales orders.

Despite the current delays, which we believe are primarily driven by the dynamic nature of COVID-19 and geopolitical impacts on the global supply chain, we believe our supplier relationships and facilities will support our capacity needs for the foreseeable future for Musculoskeletal Solutions.

However, it is possible that the impacts of COVID-19 and geopolitical disruptions could cause a backlog of sales orders for Musculoskeletal Solutions products.

The delays experienced for sourcing certain components of Enabling Technology products may cause a backlog of sales orders in the foreseeable future.

A majority of our product inventory is held primarily with our sales representatives and at hospitals throughout the United States.

1 unchanged sentence

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

Recently Issued Accounting Pronouncements

4 unchanged sentences

(k) Recently Issued Accounting Pronouncements” above.

GLOBUS MEDICAL, INC.

AND SUBSIDIARIES

Cautionary Note Concerning Forward-Looking Statements

17 unchanged sentences

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