What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-07 compared with 2023-08-03 · 99 added, 102 removed, 168 unchanged (54% of the section changed)

6 unchanged sentences

Globus is an engineering-driven company with a history of rapidly developing and commercializing advanced products and procedures to address treatment challenges.

With over 230 product launches to date, we offer a comprehensive portfolio of innovative and differentiated technologies that are used to treat a variety of musculoskeletal conditions.

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:

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, unless that period is extended voluntarily by the parties or terminated sooner by the FTC.

Both parties are continuing 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.

Product Categories

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.

NuVasive Merger

On September 1, 2023, pursuant to that certain merger agreement (the “Merger Agreement”) with NuVasive, Inc.

(“NuVasive”) and Zebra Merger Sub Inc.

(“Merger Sub”), Merger Sub, a wholly owned subsidiary of the Company, merged with and into NuVasive, with NuVasive surviving as a wholly owned subsidiary of the Company (the “Merger”).

Under the Merger Agreement, each share of common stock, par value $0.001 per share, of NuVasive issued and outstanding immediately prior to the effective time (other than certain excluded shares as described in the Merger Agreement) was cancelled and converted into the right to receive 0.75 fully paid and non-assessable shares of Class A common stock of Globus Medical, $0.001 par value per share, and the right to receive cash in lieu of fractional shares.

Product & Service Categories

While we group our revenue into three categories, Musculoskeletal Solutions, Enabling Technologies, and Neuromonitoring Services, 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.

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Musculoskeletal Solutions

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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, continue to improve patient outcomes.

Neuromonitoring Services

Our Neuromonitoring Services consists of products which use proprietary software-driven nerve detection and avoidance technology and include IONM services and disposables, biologics, and our capital equipment, all of which are used to aid spine surgery.

We make available surgical instrument sets and neuromonitoring systems to hospitals to facilitate surgeon access to the spine to perform restorative and fusion procedures using our implants and fixation products.

We sell surgical instrument sets and our proprietary software-driven neuromonitoring systems, however this does not make up a material part of our business.

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.

To date, the primary market for our products and services has been within the United States, where we sell our products and services through a combination of direct sales representatives employed by us and distributor sales representatives employed by exclusive independent distributors, who distribute our products for a commission that is generally based on a percentage of sales.

We believe there is significant opportunity to strengthen our position in the U.S.

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

During the six months ended June 30, 2023, international net sales accounted for approximately 15.6% of our total net sales.

We have sold our products in approximately 51 countries other than the United States through a combination of sales representatives employed by us and exclusive international distributors.

During the nine months ended September 30, 2023, international net sales accounted for approximately 17.1% of our total net sales.

We have sold our products and services in approximately 62 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, 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 and Neuromonitoring Services 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, 2022 .

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The preparation of the condensed 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 condensed consolidated financial statements, and the reported amounts of sales and expenses during the reporting periods.

Except for updates to accounting policies and estimates as a result of the Merger described in Note 2 to the accompanying condensed consolidated financial statements, 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, 2022 .

Results of Operations

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 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)

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Total net sales

In the United States, the increase in net sales of $20.2 million for the three month period ended June 30, 2023 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 $7.8 million for the three month period ended June 30, 2023 due to increased spine product sales resulting from penetration in existing territories.

Cost of Goods Sold

In the United States, the increase in net sales of $92.3 million for the three month period ended September 30, 2023 was due primarily to the addition of NuVasive, as well as 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 $37.2 million for the three month period ended September 30, 2023 due to the addition of NuVasive and increased spine product sales resulting from penetration in existing territories.

Cost of Sales

Three Months Ended

September 30,

(In thousands, except percentages)

Cost of goods sold

Cost of sales

Percentage of net sales

The $8.0 million increase in cost of goods sold was due primarily to increased volume, product mix, and higher depreciation.

These increases were partially offset by lower write-downs of excess and obsolete inventory and lower production variances .

The $69.9 million increase in cost of sales is due to the addition of NuVasive, amortization of inventory fair value step-up, and increased volume .

Research and Development Expenses

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

The $4.0 million increase in research and development expenses was due primarily to an increase in personnel related expenses due to our continued investment in product development.

The $10.6 million increase in research and development expenses was due primarily to the addition of NuVasive and an increase in personnel related expenses due to our continued investment in product development.

Selling, General and Administrative Expenses

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

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 bad debt and meeting expenses.

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The $49.6 million increase in selling, general and administrative expenses was due to the addition of NuVasive, and an increase in personnel related expenses resulting primarily from higher product sales, and an increase in bad debt and meeting expenses.

Provision for Litigation, net

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

The provision for litigation, net for the three month period ended June 30, 2023 includes a receipt of a legal settlement.

The provision for litigation, net for the three month period ended September 30, 2023 includes a legal settlement.

Amortization of Intangibles

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

Amortization of intangibles remained consistent for the three month period ended June 30, 2023 compared to the three month period ended June 30, 2022.

Amortization of intangibles increased for the three month period ended September 30, 2023 compared to the three month period ended September 30, 2022, due to the impact of the acquired intangibles from NuVasive.

Acquisition Related Costs

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

The increase in acquisition related costs is due to costs incurred related to unfavorable changes in fair value of business acquisition liabilities, driven by changes in market conditions and the achievement of certain performance conditions.

The current period also includes costs incurred related to the Merger Agreement with NuVasive.

The increase in acquisition related costs is due to costs incurred relating to the closing of the Merger, including investment banking, employee benefit and legal costs.

It also includes an unfavorable change in fair value of business acquisition liabilities, driven by changes in market conditions and the achievement of certain performance conditions.

Other Income/(expense), Net

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

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

The increase in other income, net is due primarily to foreign currency losses, offset by higher interest income from higher yields on marketable securities in the current period.

Income Tax Provision

Three Months Ended

September 30,

(In thousands, except percentages)

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Effective income tax rate

The effective income tax rate remained consistent for the three months ended June 30, 2023 compared to the three month period ended June 30, 2022.

GLOBUS MEDICAL, INC.

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A discussion of our Results of Operations for the three months ended June 30, 2022 can be found in “ Part I, Item 2.

The increase in the effective income tax rate is primarily due to the unfavorable impact of non-deductible Merger expenses on a lower amount of income/(loss) before income taxes in the period ended September 30, 2023.

A discussion of our Results of Operations for the three months ended September 30, 2022 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 June 30, 2022 Compared to the Three Months Ended June 30 2021.

” on our Form 10-Q filed on August 4, 2022 .

Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

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

” on our Form 10-Q filed on November 8, 2022 .

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Six Months Ended

Nine 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 $57.9 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.

In the United States, the increase in net sales of $150.2 million was due primarily to the addition of NuVasive, as well as 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 $53.4 million, which was due primarily to increased spine product sales, including robotic spine instruments, resulting from penetration in existing territories.

Cost of Goods Sold

Six Months Ended

Cost of Sales

Nine Months Ended

September 30,

(In thousands, except percentages)

Cost of goods sold

Cost of sales

Percentage of net sales

The $19.7 million increase in cost of goods sold was due primarily to increased volume and product mix, as well as higher depreciation and field service costs.

The $89.6 million increase in cost of sales is due to the addition of NuVasive, amortization of the inventory fair value step-up, volume, product mix, and higher depreciation.

These increases were partially offset by lower write-downs of excess and obsolete inventory and lower production variances .

Research and Development Expenses

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

The $7.6 million increase in research and development expenses was due primarily to an increase in personnel related expenses due to our continued investment in product development.

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The $18.3 million increase in research and development expenses was due primarily to the addition of NuVasive and an increase in personnel related expenses due to our continued investment in product development.

Selling, General and Administrative Expenses

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

The increase of $84.6 million in selling, general and administrative expenses was due to an increase in personnel related expenses resulting primarily from the addition of NuVasive, higher product sales, and an increase in travel and meeting and bad debt expenses.

Provision for Litigation, net

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

The provision for litigation, net for the six month period ended June 30, 2023 includes a receipt of a settlement.

For the period ended June 30, 2022, the provision includes an accrual for a legal settlement.

The provision for litigation, net for the nine month period ended September 30, 2023 includes a settlement payment, partially offset by a settlement receipt.

For the period ended September 30, 2022, the provision includes an accrual for a legal settlement.

Amortization of Intangibles

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

Amortization of intangibles remained consistent for the six month period ended June 30, 2023 compared to the six month period ended June 30, 2022.

Amortization of intangibles increased for the three month period ended September 30, 2023 compared to the nine month period ended September 30, 2022, due to the impact of the acquired intangibles from NuVasive.

Acquisition Related Costs

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

The current period also includes costs incurred related to the Merger Agreement with NuVasive.

The increase in acquisition related costs is due to costs incurred relating to the closing of the Merger, including investment banking, employee benefit, legal, and regulatory costs.

It also includes an unfavorable change in fair value of business acquisition liabilities, driven by changes in market conditions and the achievement of certain performance conditions.

Other Income/(expense), Net

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

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

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The increase in other income, net is due primarily to higher interest income from higher yields on marketable securities from external market factors, partially offset by higher foreign currency losses.

Income Tax Provision

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Effective income tax rate

The effective income tax rate remained consistent for the six months ended June 30, 2023 compared to the six month period ended June 30, 2022.

A discussion of our Results of Operations for the six months ended June 30, 2022 can be found in “ Part I, Item 2.

The increase in the effective income tax rate is primarily due to the unfavorable impact of non-deductible Merger expenses in the period ended September 30, 2023.

A discussion of our Results of Operations for the nine months ended September 30, 2022 can be found in “ Part I, Item 2.

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

Results of Operations;

Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021 .

” on our Form 10-Q filed on August 4, 2022 .

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

” on our Form 10-Q filed on November 8, 2022 .

Liquidity and Capital Resources

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sales force, and expand into international markets.

We may, however, require additional liquidity as we continue to execute our business strategy.

We may, however, require additional liquidity as we continue to execute our

business strategy.

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.

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

In September 2023, we entered into the September 2023 Credit Agreement, with U.S.

Bank National Association, and Citizens Bank, N.A., as joint lead arrangers and joint book runners, and other lenders referred to therein, that provides a revolving credit facility permitting borrowings up to $400.0 million and has a termination date of September 27, 2028.

We may request an increase in the revolving commitments in an aggregate amount not to exceed (i) $200 million or (ii) so long as the Leverage Ratio (as defined in the September 2023 Credit Agreement) is at least .25 to 1.00 less than the applicable Leverage Ratio then required under the September 2023 Credit Agreement, an unlimited amount.

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

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

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Cash Provided by Operating Activities

The net cash provided by operating activities for the six month period ended June 30, 2023 was primarily cash flow from net income and favorable changes in accrued expenses and other liabilities and income taxes payable.

These changes were partially offset by unfavorable changes in accounts payable and outflows for inventories.

The higher cash provided by operating activities for the nine month period ended September 30, 2023 was primarily favorable changes in accrued expenses, income tax payable, and accounts receivable and higher non-cash expenses.

These changes were partially offset by lower cash flow from net income, unfavorable changes in deferred taxes, accounts payable and outflows for inventories.

Cash Used in Investing Activities

The cash provided by investing activities for the six month period ended June 30, 2023 was primarily from net inflows of purchases, maturities and sales of marketable securities and lower purchases of property and equipment.

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The higher cash provided by investing activities for the nine month period ended September 30, 2023 was primarily from net inflows of purchases, maturities and sales of marketable securities and lower purchases of property and equipment, partially offset by the NuVasive merger and net cash acquired.

Cash Used in Financing Activities

The net cash provided by financing activities for the six month period ended June 30, 2023 was primarily the result of no repurchases of common stock in the six months ended June 30, 2023 as compared to the six month period ended June 30, 2022, partially offset by lower proceeds from exercise of stock options.

A discussion of our Cash Flows for the three and six months ended June 30, 2022 can be found in “ Part I, Item 2.

The net cash provided by financing activities for the nine month period ended September 30, 2023 was primarily the result of no repurchases of common stock in the nine months ended September 30, 2023 as compared to the nine month period ended September 30, 2022, partially offset by lower proceeds from exercise of stock options.

A discussion of our Cash Flows for the three and nine months ended September 30, 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 August 4, 2022 .

” on our Form 10-Q filed on November 8, 2022 .

Contractual Obligations and Commitments

There have been no material changes to our contractual obligations during the three and six months ended June 30, 2023.

In connection with the NuVasive merger, the Company acquired additional obligations and commitments, including, but not limited to i) the 2025 Notes, with a principal balance of $450.0 million, ii) contingent consideration arrangements associated with certain historical NuVasive acquisitions, and iii) operating lease and finance lease obligations.

Refer to the Notes to the condensed consolidated financial statements for further description of our 2025 Notes (Note 11), contingent consideration arrangements (Notes 6 and 12), and lease obligations (Note 15).

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

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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.

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.

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Safety stock levels are determined based on a number of factors, including demand, manufacturing lead times, and quantities required to maintain service levels.

Recently Issued Accounting Pronouncements

Recently Adopted and Recently Issued Accounting Pronouncements

For further details on recently issued accounting pronouncements, please refer to “Part I;

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Summary of Significant Accounting Policies;

(k) Recently Issued Accounting Pronouncements” above.

(q) Recently Adopted Accounting Pronouncements” above.

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, 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

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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.

These risks and uncertainties include, but are not limited to, the risks and costs associated with the integration of, and our ability to integrate the NuVasive business successfully and to achieve anticipated synergies, 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.

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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