What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-08 · 61 added, 127 removed, 148 unchanged (56% of the section changed)

9 unchanged sentences

Musculoskeletal Solutions and Enabling Technologies.

NuVasive Agreement and Plan of Merger

On February 8, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with NuVasive, Inc.

(“NuVasive”) and Zebra Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“Merger Sub”).

The Merger Agreement provides, among other things, that subject to the satisfaction or waiver of the conditions set forth therein, Merger Sub will merge with and into NuVasive (the “Merger”), with NuVasive surviving the Merger as a wholly owned subsidiary of the Company.

On April 27, 2023, the Merger and related transactions were approved by stockholders of the Company and NuVasive.

The Company expects that the Merger will close in the third quarter of 2023, subject to the expiration or termination of the waiting period under the HSR Act and the satisfaction or waiver of the other customary closing conditions.

As previously disclosed, in connection with the Merger, the Company and NuVasive filed notification and report forms (the “HSR Filing”) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) with the U.S.

Federal Trade Commission (the “FTC”) and on March 31, 2023, the Company, in consultation with NuVasive, voluntarily withdrew its HSR Filing.

The Company refiled on April 3, 2023 in order to restart the initial waiting period under the HSR Act and to provide the FTC additional time to review the proposed transaction.

On May 3, 2023, the Company and NuVasive each received a request for additional information and documentary materials (the “Second Request”) from the FTC in connection with the FTC’s review of the Merger.

The effect of the Second Request is to extend the waiting period imposed by the HSR Act until 30 days after the Company and NuVasive have substantially complied with the Second Request, unless that period is extended voluntarily by the parties or terminated sooner by the FTC.

Both parties intend to continue to work cooperatively with the FTC in its review.

Completion of the Merger remains subject to the expiration or termination of the waiting period under the HSR Act and the satisfaction or waiver of the other closing conditions specified in the Merger Agreement.

For more information about the Merger, please refer to our Current Reports on Form 8-K filed on February 9, 2023, April 3, 2023, April 17, 2023, April 28, 2023 and May 3, 2023.

COVID-19 Update

We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities, regarding the COVID-19 pandemic, and we may need to make changes to our business based on their recommendations.

We continue to monitor the 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.

Under 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.

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

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However, if a resurgence of COVID-19 infections occurs and governments mandate restrictions, including restrictions on elective surgeries, we do expect that it could have a material adverse impact on our revenue growth, operating profit and cash flow, revised payment terms with certain of our customers, and a change in effective tax rate driven by changes in the mix of earnings across the Company’s jurisdictions.

We are focused on navigating these recent challenges presented by COVID-19 and believe we are in a strong position to continue to sustain and grow our business.

We are focused on navigating the challenges presented by COVID-19 and believe we are in a strong position to continue to sustain and grow our business.

Product Categories

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

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market for our Enabling Technologies in spine and orthopedic surgery is still in its infancy stage and consists primarily of imaging, navigation and robotic systems.

The market for our Enabling Technologies in spine and orthopedic surgery is still in its 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 for increased accuracy and time savings with less intraoperative radiation exposure to the patient and surgical staff.

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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, 2022, international net sales accounted for approximately 14.7% of our total net sales.

During the three months ended March 31, 2023, international net sales accounted for approximately 15.4% of our total net sales.

We have sold our products in approximately 45 countries other than the United States through a combination of sales representatives employed by us and exclusive international distributors.

1 unchanged sentence

Our business is generally not seasonal in nature.

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

However, sales of our Musculoskeletal Solutions products may be influenced by summer vacation and winter holiday periods during which we have experienced fewer surgeries

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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.

3 unchanged sentences

Results of Operations

Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

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 $18.9 million for the three month period ended September 30, 2022 was due to an increase in spine product sales, including robotic instruments, resulting from penetration in existing territories and sales volume of enabling technologies.

International net sales increased by $5.6 million for the three month period ended September 30, 2022 due to an increase in spine product sales, including robotic instruments, resulting from penetration in existing territories, and sales volume of enabling technologies, partially offset by lower sales in Japan due to the transition of our sales force composition.

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In the United States, the increase in net sales of $37.7 million for the three month period ended March 31, 2023 was due primarily to increased spine product sales, including robotic instruments, resulting from penetration in existing territories and an increase in sales volume of enabling technologies.

International net sales increased by $8.4 million for the three month period ended March 31, 2023 due to increased spine product sales resulting from penetration in existing territories.

Cost of Goods Sold

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

The $6.9 million increase in cost of goods sold was primarily due to increased volume, higher inventory reserves and unfavorable freight trends, partially offset by lower inventory write-offs .

The $11.7 million increase in cost of goods sold was primarily due to increased volume and product mix .

Research and Development Expenses

Three Months Ended

September 30,

(In thousands, except percentages)

2 unchanged sentences

The $3.7 million increase in research and development expenses was primarily due to an increase in personnel related expenses due to our continued investment in product development.

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Selling, General and Administrative Expenses

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

The $10.1 million increase in selling, general and administrative expenses was primarily due to an increase in commission expenses resulting from higher product sales and travel and meeting expenses for the three month period ended September 30, 2022 compared to the three month period ended September 30, 2021.

The increase in selling, general and administrative expenses was due to an increase in personnel related expenses resulting primarily from higher product sales, and an increase in travel and meeting expenses.

Provision for Litigation

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

The provision for litigation was immaterial for the three month periods ended September 30, 2022 and 2021.

The provision for litigation for the three month period ended March 31, 2022 includes an accrual for a potential legal settlement.

Amortization of Intangibles

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

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

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Amortization of intangibles remained consistent for the three month period ended March 31, 2023 compared to the three month period ended March 31, 2022.

Acquisition Related Costs

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 changes in fair value of business acquisition liabilities.

The increase in acquisition related costs is due to costs incurred related to the Merger Agreement with NuVasive, including payments for regulatory filings and share registration costs, which were partially offset by favorable changes in fair value of business acquisition liabilities, driven by changes in market conditions and the achievement of certain performance conditions.

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Other Income/(expense), Net

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

The increase in other income/(expense) is due to an increase in interest income partially offset by change in foreign exchange rates.

The increase in other income, net was due primarily to higher interest income from higher yields on marketable securities from external market factors.

Income Tax Provision

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Effective income tax rate

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

A discussion of our Results of Operations for the three months ended September 30, 2021 can be found in “ Part I, Item 2.

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

Results of Operations;

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

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

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Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

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 $32.1 million was due primarily to increased spine product sales, including robotic spine instruments, resulting from penetration in existing territories and an increase in sales volume of enabling technologies.

International net sales increased by $8.2 million, which was due primarily to increased spine product sales, including robotic spine instruments, resulting from penetration in existing territories and an increase in sales volume of enabling technologies, partially offset by lower sales in Japan due to the transition of our sales force composition.

Cost of Goods Sold

Nine Months Ended

September 30,

(In thousands, except percentages)

Cost of goods sold

Percentage of net sales

The $15.7 million increase in cost of goods sold was primarily due to increased volume, unfavorable freight trends and production variances, partially offset by lower inventory write-offs and lower depreciation.

Research and Development Expenses

Nine Months Ended

September 30,

(In thousands, except percentages)

Research and development

Percentage of net sales

The $7.2 million increase in research and development expenses was primarily due to an increase in personnel related expenses due to our continued investment in product development.

Selling, General and Administrative Expenses

Nine Months Ended

September 30,

(In thousands, except percentages)

Selling, general and administrative

Percentage of net sales

The $12.5 million increase in selling, general and administrative expenses was primarily due to an increase in travel and meeting expenses and an increase in commission expenses resulting from higher product sales, partially offset by a decrease in employee benefit costs.

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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 ended September 30, 2022 includes a legal settlement and for the period ended September 30, 2021 includes a receipt of a settlement.

Amortization of Intangibles

Nine Months Ended

September 30,

(In thousands, except percentages)

Amortization of intangibles

Percentage of net sales

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

Acquisition Related Costs

Nine Months Ended

September 30,

(In thousands, except percentages)

Acquisition related costs

Percentage of net sales

Acquisition related costs decreased due to favorable changes in fair value of business acquisition liabilities during the nine months ended September 30, 2022 compared to unfavorable changes in fair value of business acquisition liabilities during the nine months ended September 30, 2021.

Other Income/(expense), Net

Nine Months Ended

September 30,

(In thousands, except percentages)

Other income, net

Percentage of net sales

The increase in other income/(expense) is due to an increase in interest income and a reimbursement for damaged inventory and instrumentation, partially offset by change in foreign exchange rates.

Income Tax Provision

Nine Months Ended

September 30,

(In thousands, except percentages)

Income tax provision

Effective income tax rate

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

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A discussion of our Results of Operations for the nine months ended September 30, 2021 can be found in “ Part I, Item 2.

The effective income tax rate remained consistent for the three months ended March 31, 2023 compared to the three month period ended March 31, 2022.

A discussion of our Results of Operations for the three months ended March 31, 2022 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, 2021 Compared to the Nine Months Ended September 30, 2020.

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

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

” on our Form 10-Q filed on May 10, 2022 .

Liquidity and Capital Resources

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

As of September 30, 2022, we have not borrowed under the Credit Agreement.

As of March 31, 2023, we have not borrowed under the Credit Agreement.

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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)

5 unchanged sentences

Cash Provided by Operating Activities

The net cash provided by operating activities for the nine months ended September 30, 2022 was primarily cash flow from net income and favorable changes in accounts payable, partially offset by outflows for inventories and unfavorable changes in accounts receivables and prepaid expenses and other assets.

The net cash provided by operating activities for the three month period ended March 31, 2023 was primarily cash flow from net income and favorable changes in income tax and accounts payable, partially offset by outflows for inventories and unfavorable changes in accounts receivable and accrued expenses and other liabilities.

Cash Used in Investing Activities

The cash used in investing activities for the nine months ended September 30, 2022 was primarily from purchases of property and equipment partially offset by the net inflows of purchases, maturities and sales of marketable securities.

The cash provided by investing activities for the three month period ended March 31, 2023 was primarily from net inflows of purchases, maturities and sales of marketable securities, partially offset by purchases of property and equipment and the acquisition of businesses, net of cash acquired and purchases of intangible and other assets.

Cash Used in Financing Activities

The net cash used in financing activities for the nine months ended September 30, 2022 was primarily the result of the repurchased Class A common stock partially offset by inflows from proceeds from exercise of stock options.

A discussion of our Cash Flows for the nine months ended September 30, 2021 can be found in “ Part I, Item 2.

The net cash provided by financing activities for the three month period ended March 31, 2023 was primarily the result of the proceeds from exercise of stock options, partially offset by payment of business acquisition liabilities.

A discussion of our Cash Flows for the three months ended March 31, 2022 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 November 4, 2021 .

” on our Form 10-Q filed on May 10, 2022 .

Contractual Obligations and Commitments

There have been no material changes to our contractual obligations during the nine months ended September 30, 2022.

There have been no material changes to our contractual obligations during the three months ended March 31, 2023.

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 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.

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 such delays, 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.

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.

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Recently Issued Accounting Pronouncements

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(k) Recently Issued Accounting Pronouncements” above.

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Cautionary Note Concerning Forward-Looking Statements

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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, 2021 , particularly those set forth under “Item 1.

These risks and uncertainties include, but are not limited to, the occurrence of any change, event, series of events or circumstances that could give rise to the termination of the Merger Agreement, including a termination of the Merger Agreement under circumstances that could require Globus to pay a termination fee to NuVasive or require NuVasive to pay a termination fee to Globus;

the inability to complete the Merger due to the failure to satisfy any of the conditions to the completion of the Merger, including receipt of the necessary approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”), in a timely manner or otherwise;

any unexpected costs, liabilities or delays related to the NuVasive transaction;

the respective businesses of Globus and NuVasive may suffer as a result of uncertainty surrounding the transaction;

the effect of the announcement of the transaction on the ability of Globus or NuVasive to retain and hire key personnel and maintain relationships with customers, suppliers and others with whom Globus or NuVasive does business, or on Globus’ or NuVasive’s operating results and business generally;

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 in this Quarterly Report on Form 10-Q and throughout our Annual Report on Form 10-K for the year ended December 31, 2022 , particularly those set forth under “Item 1.

Business,” “Item 1A.

11 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