GLOBUS MEDICAL INC 10-Q

Item 1. Financial Statements GLOBUS MEDICAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, December 31, (In thousands, except share and per share values) 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 279,620 $ 150,466 Short-term marketable securities 189,314 295,592 Accounts receivable, net of allowances of $ 9,242 and $ 4,724 , respectively 494,112 213,247 Inventories 904,977 298,981 Prepaid expenses and other current assets 47,574 20,997 Income taxes receivable 1,740 4,061 Total current assets 1,917,337 983,344 Property and equipment, net of accumulated depreciation of $ 387,816 and $ 343,036 , respectively 606,911 243,729 Operating lease right of use assets 94,831 5,988 Long-term marketable securities 275,958 495,852 Intangible assets, net 1,261,617 63,574 Goodwill 1,122,428 197,471 Other assets 69,478 37,323 Deferred income taxes 7,315 48,845 Total assets $ 5,355,875 $ 2,076,126 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 86,934 $ 36,101 Accrued expenses 221,670 92,169 Operating lease liabilities 13,385 2,536 Income taxes payable 34,402 990 Business acquisition liabilities 54,339 13,308 Deferred revenue 17,992 14,100 Total current liabilities 428,722 159,204 Business acquisition liabilities, net of current portion 75,627 54,950 Operating lease liabilities 99,927 3,475 Senior convertible notes 409,723 — Deferred income taxes 132,191 1,779 Other liabilities 22,400 10,345 Total liabilities 1,168,590 229,753 Commitments and contingencies (Note 16) Equity: Class A common stock; $ 0.001 par value. Authorized 500,000,000 shares; issued and outstanding 118,169,712 and 77,762,282 shares at September 30, 2023 and December 31, 2022, respectively 118 78 Class B common stock; $ 0.001 par value. Authorized 275,000,000 shares; issued and outstanding 22,430,097 and 22,430,097 shares at September 30, 2023 and December 31, 2022, respectively 22 22 Additional paid-in capital 2,858,091 630,952 Accumulated other comprehensive income/(loss) ( 18,736 ) ( 24,630 ) Retained earnings 1,347,790 1,239,951 Total equity 4,187,285 1,846,373 Total liabilities and equity $ 5,355,875 $ 2,076,126 See accompanying notes to unaudited condensed consolidated financial statements. 3 GLOBUS MEDICAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, (In thousands, except per share amounts) 2023 2022 2023 2022 Net sales $ 383,639 $ 254,148 $ 951,942 $ 748,345 Cost of sales 135,390 65,497 282,688 193,134 Gross profit 248,249 188,651 669,254 555,211 Operating expenses: Research and development 29,329 18,701 71,758 53,508 Selling, general and administrative 156,206 106,576 398,691 314,042 Provision for litigation, net 2,924 — 184 2,341 Amortization of intangibles 13,761 4,324 22,909 13,229 Acquisition related costs 45,625 ( 652 ) 52,693 ( 1,832 ) Total operating expenses 247,845 128,949 546,235 381,288 Operating income/(loss) 404 59,702 123,019 173,923 Other income/(expense), net Interest income/(expense), net 7,920 3,899 22,711 8,918 Foreign currency transaction gain/(loss) ( 5,314 ) ( 2,210 ) ( 5,649 ) ( 3,708 ) Other income/(expense) ( 475 ) 74 318 1,770 Total other income/(expense), net 2,131 1,763 17,380 6,980 Income/(loss) before income taxes 2,535 61,465 140,399 180,903 Income tax provision 1,537 14,034 32,560 40,799 Net income/(loss) $ 998 $ 47,431 $ 107,839 $ 140,104 Other comprehensive income/(loss), net of tax: Unrealized gain/(loss) on marketable securities 2,641 ( 4,380 ) 6,979 ( 18,239 ) Foreign currency translation gain/(loss) ( 2,310 ) ( 2,478 ) ( 1,085 ) ( 7,215 ) Total other comprehensive income/(loss), net of tax 331 ( 6,858 ) 5,894 ( 25,454 ) Comprehensive income/(loss) $ 1,329 $ 40,573 $ 113,733 $ 114,650 Earnings per share: Basic $ 0.01 $ 0.48 $ 1.03 $ 1.39 Diluted $ 0.01 $ 0.47 $ 0.98 $ 1.36 Weighted average shares outstanding: Basic 113,537 99,652 104,762 100,638 Diluted 115,245 101,417 110,058 102,789 See accompanying notes to unaudited condensed consolidated financial statements. ‎ 4 GLOBUS MEDICAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) Class A ‎ Common Stock Class B ‎ Common Stock Additional paid-in Accumulated other comprehensive Retained (In thousands) Shares $ Shares $ capital income/(loss) earnings Total Balance at December 31, 2022 77,762 $ 78 22,430 $ 22 $ 630,952 $ ( 24,630 ) $ 1,239,951 $ 1,846,373 Stock-based compensation — — — — 9,032 — — 9,032 Grant of contingent restricted stock units — — — — 219 — — 219 Exercise of stock options 143 — — — 4,859 — — 4,859 Comprehensive income/(loss) — — — — — 5,208 49,129 54,337 Balance at March 31, 2023 77,905 $ 78 22,430 $ 22 $ 645,062 $ ( 19,422 ) $ 1,289,080 $ 1,914,820 Stock-based compensation — — — — 8,639 — — 8,639 Grant of contingent restricted stock units — — — — 340 — — 340 Exercise of stock options 108 — — — 3,199 — — 3,199 Comprehensive income/(loss) — — — — — 355 57,712 58,067 Balance at June 30, 2023 78,013 $ 78 22,430 $ 22 $ 657,240 $ ( 19,067 ) $ 1,346,792 $ 1,985,065 Stock-based compensation — — — — 22,756 — — 22,756 Grant of contingent restricted stock units — — — — 951 — — 951 Exercise of stock options 101 — — — 3,299 — — 3,299 Issuance of Class A common stock under employee and director equity option plans, net 243 — — — ( 10,267 ) — — ( 10,267 ) Issuance of equity for NuVasive Merger 39,813 40 — — 2,184,112 — — 2,184,152 Comprehensive income/(loss) — — — — — 331 998 1,329 Balance at September 30, 2023 118,170 $ 118 22,430 $ 22 $ 2,858,091 $ ( 18,736 ) $ 1,347,790 $ 4,187,285 5 GLOBUS MEDICAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Continued) Class A ‎ Common Stock Class B ‎ Common Stock Additional paid-in Accumulated other comprehensive Retained (In thousands) Shares $ Shares $ capital income/(loss) earnings Total Balance at December 31, 2021 79,114 $ 79 22,430 $ 22 $ 553,787 $ ( 6,772 ) $ 1,194,272 $ 1,741,388 Stock-based compensation — — — — 8,353 — — 8,353 Grant of contingent restricted stock units — — — — 196 — — 196 Exercise of stock options 184 — — — 7,746 — — 7,746 Comprehensive income/(loss) — — — — — ( 10,395 ) 38,084 27,689 Balance at March 31, 2022 79,298 $ 79 22,430 $ 22 $ 570,082 $ ( 17,167 ) $ 1,232,356 $ 1,785,372 Stock-based compensation — — — — 8,020 — — 8,020 Grant of contingent restricted stock units — — — — 220 — — 220 Exercise of stock options 90 — — — 3,585 — — 3,585 Comprehensive income/(loss) — — — — — ( 8,201 ) 54,590 46,389 Repurchase and retirement of common stock ( 2,351 ) ( 2 ) — — — — ( 144,491 ) ( 144,493 ) Balance at June 30, 2022 77,037 $ 77 22,430 $ 22 $ 581,907 $ ( 25,368 ) $ 1,142,455 $ 1,699,093 Stock-based compensation — — — — 8,434 — — 8,434 Grant of contingent restricted stock units — — — — 1,116 — — 1,116 Exercise of stock options 364 — — — 14,895 — — 14,895 Comprehensive income/(loss) — — — — — ( 6,858 ) 47,431 40,573 Balance at September 30, 2022 77,401 $ 77 22,430 $ 22 $ 606,352 $ ( 32,226 ) $ 1,189,886 $ 1,764,111 See accompanying notes to unaudited condensed consolidated financial statements. 6 GLOBUS MEDICAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, (In thousands) 2023 2022 Cash flows from operating activities: Net income $ 107,839 $ 140,104 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 73,571 51,342 Amortization of premium (discount) on marketable securities 730 4,446 Write-down for excess and obsolete inventories, net 6,700 5,890 Amortization of inventory fair value step up 19,065 — Stock-based compensation expense 40,297 24,303 Allowance for doubtful accounts 4,284 ( 396 ) Change in fair value of business acquisition liabilities 4,431 ( 2,043 ) Change in deferred income taxes ( 45,990 ) ( 17,014 ) (Gain)/loss on disposal of assets, net 1,466 241 Payment of business acquisition related liabilities ( 2,370 ) ( 2,021 ) (Increase)/decrease in: Accounts receivable ( 36,953 ) ( 46,200 ) Inventories ( 58,978 ) ( 48,650 ) Prepaid expenses and other assets ( 1,280 ) ( 6,866 ) Increase/(decrease) in: Accounts payable ( 7,952 ) 10,407 Accrued expenses and other liabilities 20,579 1,660 Income taxes payable/receivable 13,386 ( 710 ) Net cash provided by/(used in) operating activities 138,825 114,493 Cash flows from investing activities: Purchases of marketable securities ( 100,643 ) ( 322,100 ) Maturities of marketable securities 214,430 239,126 Sales of marketable securities 219,987 89,978 Purchases of property and equipment ( 55,393 ) ( 55,707 ) Acquisition of businesses, net of cash acquired and purchases of intangible and other assets ( 296,028 ) ( 1,175 ) Net cash provided by/(used in) investing activities ( 17,647 ) ( 49,878 ) Cash flows from financing activities: Payment of business acquisition liabilities ( 5,908 ) ( 5,288 ) Proceeds from exercise of stock options 11,357 26,228 Repurchase of common stock — ( 144,493 ) Net cash provided by/(used in) financing activities 5,449 ( 123,553 ) Effect of foreign exchange rates on cash 2,527 92 Net increase/(decrease) in cash and cash equivalents 129,154 ( 58,846 ) Cash and cash equivalents at beginning of period 150,466 193,069 Cash and cash equivalents at end of period $ 279,620 $ 134,223 Supplemental disclosures of cash flow information: Income taxes paid, net $ 65,171 $ 58,301 Non-cash investing and financing activities: Equity issued in conjunction with the NuVasive merger $ 2,153,860 $ — Accrued purchases of property and equipment $ 5,971 $ 5,341 See accompanying notes to unaudited condensed consolidated financial statements. 7 GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited) NOTE 1. BACKGROUND (a) The Company Globus Medical, Inc., together with its majority-owned or controlled subsidiaries, is a medical device company that develops and commercializes healthcare solutions with a mission to improve the quality of life of patients with musculoskeletal disorders. We are primarily focused on implants that promote healing in patients with musculoskeletal disorders, including the use of a robotic guidance and navigation system and products to treat patients who have experienced orthopedic traumas. We are an engineering-driven company with a history of rapidly developing and commercializing advanced products and procedures to assist surgeons in effectively treating their patients and to address new treatment options. We offer a comprehensive portfolio of innovative and differentiated technologies that address a variety of musculoskeletal pathologies, anatomies, and surgical approaches. We are headquartered in Audubon, Pennsylvania, and market and sell our products through our exclusive sales force in the United States, as well as within North, Central & South America, Europe, Asia, Africa and Australia. We sell our products in the U.S. through a sales force comprised primarily of directly-employed and independent sales representatives. Our international sales force is comprised of directly-employed sales personnel, independent sales representatives, as well as exclusive and non-exclusive independent third-party distributors. The terms the “Company,” “Globus,” “we,” “us” and “our” refer to Globus Medical, Inc. and, where applicable, our consolidated subsidiaries. (b) NuVasive Merger As previously announced, 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 wholly owned subsidiary of the Company (“Merger Sub”). On September 1, 2023, pursuant to the terms of the Merger Agreement, Merger Sub merged with and into NuVasive (the “Merger”), with NuVasive surviving as a wholly owned subsidiary of the Company. Upon the consummation of the Merger, each issued and outstanding share of common stock of NuVasive, $ 0.001 par value per share, was converted into 0.75 fully paid and non-assessable shares of the Company’s Class A Common Stock, and the right to receive cash in lieu of fractional shares. Refer to Note 3, Asset acquisitions and Business Combinations for further information. Globus Medical was deemed to be the accounting acquirer of NuVasive for accounting purposes under U.S. generally accepted accounting principles (“U.S. GAAP”). Accordingly, prior periods within these condensed consolidated financial statements may not be comparable. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation The accompanying interim unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in complete financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2022. In the opinion of management, these condensed consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of our financial position as of September 30, 2023, and results of operations for the three and nine months ended September 30, 2023. The results of operations for any interim period may not be indicative of results for the full year. 8 (b) Prior Period Reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation. “Operating lease right of use assets” was reclassified out of “Other assets”, and “Operating lease liabilities” were reclassified out of “Accrued expenses” and “Other liabilities”, respectively, depending on the short-term and long-term nature, on our consolidated balance sheets. (c) Principles of Consolidation The accompanying unaudited condensed consolidated financial statements include the accounts of Globus and its majority-owned or controlled subsidiaries. All intercompany balances and transactions are eliminated in consolidation. (d) Use of Estimates The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates, in part, on historical experience that management believes to be reasonable under the circumstances. Actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the condensed consolidated financial statements in the period they are determined to be necessary. Significant areas that require estimates include revenue recognition, intangible assets, business acquisition liabilities, allowance for doubtful accounts, stock-based compensation, reserves for excess and obsolete inventory, fair value measurements, useful lives of assets, the outcome of litigation, recoverability of intangible assets and income taxes. We are subject to risks and uncertainties due to changes in the healthcare environment, regulatory oversight, competition, and legislation that may cause actual results to differ from estimated results. (e) Revenue Recognition Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Our Musculoskeletal Solutions products consist primarily of the implantable devices, fixation products, disposables, and unique instruments used in an expansive range of spine, orthopedic trauma, hip, knee and extremity procedures. The majority of these revenue contracts have a single performance obligation and revenue is recognized at a point in time, which is either when consigned inventory, maintained at hospitals or with sales representatives, is used or implanted. For all other of these product transactions, we recognize revenue when title to the goods is transferred, provided there are no remaining performance obligations that can affect the customer’s final acceptance of the sale. Our Enabling Technologies products are advanced hardware and software systems, and related technologies that are designed to enhance a surgeon’s capabilities and streamline surgical procedures by making them less invasive, more accurate, and more reproducible to improve patient care. The majority of these product contracts contain multiple performance obligations, including maintenance and support, and revenue is recognized as we fulfill each performance obligation. When contracts have multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using an observable price to determine the standalone selling price of each distinct good or service in the contract. Our Neuromonitoring Services consists of products which use proprietary software-driven nerve detection and avoidance technology and include intraoperative neuromonitoring (“IONM”), services and disposables, biologics, and our capital equipment, all of which are used to aid spine surgery . Revenue from IONM services is recognized in the period the service is performed for the amount of consideration expected to be received. Revenue associated with products holding rights of return or trade-in are recognized when the Company concludes there is not a risk of significant revenue reversal in future periods for the expected consideration in the transaction. Our policy is to classify shipping and handling costs billed to customers as sales and the related expenses as cost of sales. Contract Balances Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing. Deferred revenue is comprised mainly of unearned revenue related to the sales of certain Enabling Technologies products, which includes maintenance and support services. Maintenance and support services are generally invoiced annually, at the beginning 9 of each contract period, and revenue is recognized ratably over the maintenance period. For the three and nine months ended September 30, 2023, there was an immaterial amount of revenue recognized from previously deferred revenue. (f) Cash and Cash Equivalents The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at acquisition date to be cash equivalents. Cash equivalents, which consist of money market accounts, commercial paper, government securities, and corporate debt securities are stated at fair value. (g) Marketable Securities Our marketable securities include municipal bonds, corporate debt securities, commercial paper, asset-backed securities, and securities of government, federal agency, and other sovereign obligations and are classified as available-for-sale as of September 30, 2023. S hort-term and long-term marketable securities are recorded at fair value on our condensed consolidated balance sheets. Any change in fair value of our available-for-sale securities, that do not result in recognition or reversal of an allowance for credit loss or write-down, are recorded, net of taxes, as a component of accumulated other comprehensive income or loss on our condensed consolidated balance sheets. Premiums and discounts are recognized over the life of the related security as an adjustment to yield using the straight-line method. Realized gains or losses from the sale of marketable securities are determined on a specific identification basis. Realized gains and losses, interest income and the amortization/accretion of premiums/discounts are included as a component of other income/(expense), net, on our condensed consolidated statements of operations and comprehensive income. Interest receivable is recorded as a component of prepaid expenses and other current assets on our condensed consolidated balance sheets. We invest in securities that meet or exceed standards as defined in our investment policy. Our policy also limits the amount of credit exposure to any one issue, issuer or type of security. We review declines in the fair value of our securities to determine whether they are resulting from expected credit losses or other factors. If the assessment indicates a credit loss exists, we recognize any measured impairment as an allowance for credit loss in our condensed consolidated statements of operations. Any other impairments not recorded through allowance for credit losses is recognized in our other comprehensive income. (h) Fair Value Measurements Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or the liability in an orderly transaction between market participants on the measurement date. Additionally, a fair value hierarchy was established that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. The level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our assets and liabilities measured at fair value on a recurring basis are classified and disclosed in one of the following three categories: Level 1—quoted prices (unadjusted) in active markets for identical assets and liabilities; Level 2—observable inputs other than quoted prices in active markets for identical assets and liabilities; and Level 3—unobservable inputs in which there is little or no market data available, which require the reporting entity to use significant unobservable inputs or valuation techniques. Contingent consideration represents contingent milestone, performance and revenue-sharing payment obligations related to acquisitions and is measured at fair value, based on significant inputs that are not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation of contingent consideration uses assumptions we believe would be made by a market participant. We assess these assumptions on an ongoing basis as additional data impacting the assumptions is obtained. The fair value of contingent consideration is recorded in business acquisition liabilities on our condensed consolidated balance sheets, and changes in the fair value of contingent consideration are recognized in acquisition related costs in the condensed consolidated statements of operations and comprehensive income. The fair value of contingent restricted stock unit (“RSU”) grants are recorded as additional paid-in capital in the consolidated balance sheet on the day of the grant due to the remote likelihood of forfeiture. The purchase price of business acquisitions is primarily allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the excess recorded as goodwill. We utilize Level 3 inputs in the determination of the initial fair value. 10 (i) Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. The majority of our inventory is finished goods and we utilize both in-house manufacturing and third-party suppliers to produce our products. We periodically evaluate the carrying value of our inventories in relation to estimated forecasts of product demand, which takes into consideration the life cycle of product releases. When quantities on hand exceed estimated sales forecasts, we record a write-down for such excess inventories. Once inventory has been written down, it creates a new cost basis for inventory that is not subsequently written up. (j) Goodwill and Intangible Assets Goodwill represents the excess of purchase price over the fair values of the identifiable assets acquired less the liabilities assumed in the acquisition of a business. Goodwill is tested for impairment at least annually or whenever events or circumstances indicate that a carrying amount may not be recoverable. Goodwill is tested for impairment at the reporting unit level by comparing the reporting unit’s carrying amount to the estimated fair value of the reporting unit. Fair values are estimated using an income and discounted cash flow approach. We perform our annual impairment test of goodwill in the fourth quarter of each year. We consider qualitative indicators of the fair value of a reporting unit when it is unlikely that a reporting unit has impaired goodwill. Intangible assets consist of purchased developed technology, customer relationships, in-process research and development (“IPR&D”), supplier network, patents, re-acquired rights, and non-compete agreements. Intangible assets with finite useful lives are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from 1 to 21 years. Intangible assets with finite useful lives are tested whenever events or circumstances indicate that a carrying amount of an asset (asset group) may not be recoverable. If an impairment is indicated, we measure the amount of the impairment loss as the amount by which the carrying amount exceeds the fair value of the asset. Fair value is generally determined using a discounted future cash flow analysis. IPR&D has an indefinite life and is not amortized until completion of the project at which time the IPR&D becomes an amortizable asset. Intangible assets with indefinite useful lives are tested for impairment annually or whenever events or circumstances indicate that a carrying amount of an asset (asset group) may not be recoverable. If the related project is not completed in a timely manner, we may have an impairment related to the IPR&D, calculated as the excess of the asset’s carrying value over its fair value. During the three and nine months ended September 30, 2023, there were no impairments in goodwill, finite-lived intangible assets, or IPR&D. (k) Stock -Based Compensation The cost of employee and non-employee director awards is measured at the grant date fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period of the equity award. Expense for performance-based restricted stock units is recognized when the performance condition is deemed to be probable. Compensation expense for awards includes the impact of forfeiture in the period when they occur. We estimate the fair value of stock options utilizing the Black-Scholes option-pricing model. Inputs to the Black-Scholes model include our stock price, expected volatility, expected term, risk-free interest rate and expected dividends. Expected volatility is based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected term of the Company’s stock options offering period which is derived from historical experience. The risk-free interest rate assumption is based on observed interest rates of U.S. Treasury securities appropriate for the expected terms of the stock options. The dividend yield assumption is based on the history and expectation of no dividend payouts. The respective fair values of restricted stock units and performance restricted stock units are estimated on the day of grant based on the closing price of the Company’s common stock. We assumed equity-classified awards for certain NuVasive restricted stock units (“RSUs”), and performance restricted stock units (“PRSUs”), as part of the Merger. These RSUs and PRSUs are measured at the grant date based on the estimated fair value of the award. The fair value of equity instruments that are expected to vest is recognized and amortized over the requisite service period. The Company has granted awards with up to five year graded or cliff vesting terms (in each case, with service through the date of vesting being required). No exercise price or other monetary payment is required for receipt of the shares issued in settlement of the respective award; instead, consideration is furnished in the form of the participant’s service to the Company. The fair value of RSUs including PRSUs with pre-defined performance criteria is based on the stock price on the date of grant whereas the expense for PRSUs with pre-defined performance criteria is adjusted with the probability of achievement of such performance criteria at each period end. 11 (l) Derivative Financial Instruments The Company recognizes all derivative instruments as assets or liabilities in its unaudited condensed Consolidated Balance Sheets and measures these instruments at fair value by revaluing these assets and liabilities at the end of each reporting period. Gains and losses are recorded as a component of other expense, net in the unaudited condensed consolidated statements of operations and comprehensive income. The effects of these derivative instruments are immaterial to the Company’s financial statements. (m) Other Comprehensive Income (Loss) Other comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Other comprehensive income (loss) includes net of tax, unrealized gains or losses on the Company’s marketable debt securities and foreign currency translation adjustments. (n) Acquisition Related Costs The Company incurs certain costs related to acquisition, integration and business transition activities, which include severance, relocation, duplicate headcount costs, consulting, leasehold exit costs, costs related to the Merger, third-party acquisition costs and contingent consideration fair value adjustments and other costs directly associated with such activities. Contingent consideration is accrued based on the fair value of the expected payment, and such accruals are subject to increase or decrease based on the assessment of the likelihood that the contingent milestones will be achieved resulting in payment. If an accrual for contingent consideration decreases based upon the assessment during a particular period, it results in a reduction of costs during such period, which the Company records as a benefit. (o) Accounts Receivable and Related Valuation Accounts Accounts receivable in the accompanying unaudited condensed consolidated balance sheets are presented net of allowances for expected credit losses. The Company maintains an allowance for expected credit losses resulting from the inability of its customers, including hospitals, ambulatory surgery centers, and distributors, to make required payments. The Company's exposure to credit losses may also increase if its customers are adversely affected by changes in healthcare laws, coverage and reimbursement, macroeconomic pressures or uncertainty associated with local or global economic recessions, disruption associated with pandemics, or other customer-specific factors. The Company has a diverse customer base and no single customer represented greater than ten percent of net sales or accounts receivable. Historically, the Company’s reserves have been adequate to cover credit losses. (p) Recently Issued Accounting Pronouncements In June 2022, the Financial Accounting Standards Board (the “FASB”), issued Accounting Standards Update (“ASU”), No. 2022-03, Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions , which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU introduces new disclosure requirements to provide investors with information about contractual restrictions, including the nature and remaining duration of such restrictions. This update is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted. The amendments should be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. The Company is currently evaluating the impact the standard will have on its Condensed Consolidated Financial Statements. (q) Recently Adopted Accounting Pronouncements On March 12, 2020, the FASB” issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU became effective for all entities as of March 12, 2020, and applied through December 31, 2022. On December 21, 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the period of time entities can utilize the reference rate reform relief guidance under ASU 2020-04 from December 31, 2022 to December 31, 2024. This adoption did not have a material impact on the Company’s Condensed Consolidated Financial Statements. In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires an entity (acquirer) to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, or ASC 606. This update is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. The amendments should be applied prospectively to business 12 combinations occurring on or after the effective date of the amendments. The Company adopted ASU 2021-08 as of January 1, 2023. The adoption did not have a material impact on the Company’s Condensed Consolidated Financial Statements. NOTE 3. ASSET ACQUISITIONS AND BUSINESS COMBINATIONS Asset Acquisitions During the fourth quarter of 2021, the Company acquired substantially all the assets of Capstone Surgical Technologies, LLC, which engages in the business of advanced drill and robotic surgery platforms. The purchase price consisted of $ 24.5 million of cash paid at closing, subject to net working capital and other post-closing adjustments, if applicable. The transaction also provides for additional consideration contingent upon the developed products obtaining approval from the U.S. Food and Drug Administration (the “FDA”) of up to $ 15.0 million, and additional consideration contingent upon the achievement of certain performance obligations of up to $ 10.0 million. Contingent consideration is not recorded in an asset acquisition until the milestone is met. Also during the fourth quarter of 2021, the Company acquired substantially all the assets of a company that engages in the development of technology for use in robotic surgery platforms which was not considered material to the condensed consolidated financial statements during the periods presented. The purchase price consisted of $ 10.0 million of cash paid at closing and also provides for additional consideration contingent upon the achievement of certain performance obligations of $ 5.0 million. Contingent consideration is not recorded in an asset acquisition until the milestone is met. The Company accounted for both of these transactions as asset acquisitions as substantially all of the fair value of the assets acquired in each transaction was concentrated in a single identified asset, IPR&D of the acquired technology, thus satisfying the requirements of the screen test in ASU 2017-1. At the date of the acquisitions, the Company determined that the development of the projects underway had not yet reached technological feasibility and that the research in process had no alternative future use. Accordingly, the acquired IPR&D of $ 34.3 million was charged to research and development expense in the condensed consolidated statements of operations and comprehensive income for the year ended 2021. Business Combinations During the first quarter of 2023, the Company completed one acquisition that was not considered material to the condensed consolidated financial statements and has been included in our financial statements from the date of acquisition. The purchase price consisted of approximately $ 1.4 million of cash. The Company recorded identifiable assets of $ 0.4 million of instruments and $ 1.0 million of inventory. During the fourth quarter of 2022, the Company acquired the membership interests of Harvest Biologics LLC, which engages in the business of selling systems that produce autologous biologics. The purchase price consisted of approximately $ 30.0 million of cash paid at closing, plus $ 1.4 million of preliminary post-closing adjustments. The Company recorded identifiable net assets, based on their estimated fair values, for inventory of $ 3.3 million, goodwill of $ 15.2 million, customer relationships and other intangibles of $ 10.5 million with a weighted average useful life of 20 years, and developed technology of $ 2.4 million with a weighted average useful life of 8 years. The Company will finalize the purchase price allocation of the assets and liabilities acquired within one year from the date of acquisition. During the second quarter of 2022, the Company completed one acquisition that was not considered material to the overall condensed consolidated financial statements during the periods presented. This acquisition has been included in the condensed consolidated financial statements from the date of acquisition. The purchase price consisted of approximately $ 0.2 million of cash paid at closing and $ 4.4 million of contingent consideration payments, resulting in goodwill of $ 4.6 million based on the estimated fair values. The contingent payments for this acquisition are based upon achieving various performance milestones over a period of 10 years and are payable in a combination of cash and RSUs. During 2021, the Company completed three acquisitions that were not considered material, individually or collectively, to the condensed consolidated financial statements during the periods presented. Two acquisitions were completed in the third quarter, while the third acquisition was completed in the fourth quarter. These acquisitions have been included in the condensed consolidated financial statements from the date of acquisition. The purchase price of the acquisition in the fourth quarter consisted of approximately $ 0.3 million of cash paid at closing and $ 13.0 million of contingent consideration payments, resulting in goodwill of $ 13.3 million based on the estimated fair values. The combined purchase price of the two acquisitions in the third quarter consisted of approximately $ 12.6 million of contingent consideration payments. The Company recorded other intangible assets of $ 1.6 million, with a weighted average useful life of 3.8 years, and goodwill of $ 11.0 million based on their estimated fair values. The contingent payments for all three acquisitions are based upon achieving various performance obligations over a period of 10 years and are payable in a combination of cash and RSUs. NuVasive Merger 13 As previously announced, on February 8, 2023, the Company entered into the Merger Agreement with NuVasive and Zebra Merger Sub Inc, a wholly owned subsidiary of the Company (“Merger Sub”). On September 1, 2023, pursuant to the terms of the Merger Agreement, Merger Sub merged with and into NuVasive (the “Merger”), with NuVasive surviving as a wholly owned subsidiary of the Company. At the consummation of the Merger, each issued and outstanding share of common stock of NuVasive, $ 0.001 par value per share, was converted into 0.75 fully paid and non-assessable shares of the Company’s Class A Common Stock, and the right to receive cash in lieu of fractional shares. As part of the Merger, the Company assumed equity awards for certain NuVasive RSUs and NuVasive PRSUs in accordance with the terms of the Merger Agreement. Certain awards included a change in control provision (single trigger) which accelerated the vesting of the awards on the closing date of the Merger. These awards were considered as part of the total purchase price. The unvested awards will continue to vest in accordance with the terms of the original award agreement, except for certain PRSUs that were converted into RSUs. Once vested, the holders will receive shares of the Company’s Class A Common Stock. Of the total consideration for the assumed equity awards, $ 28.6 million was allocated to the purchase price and $ 38.0 million was deemed compensatory as it was attributable to post acquisition vesting. Of the $ 38.0 million of total compensation related to the assumed awards, $ 12.9 million was expensed on the acquisition date due to accelerated vesting of the awards, recognized as Merger related costs, and $ 25.1 million relates to future services and will be expensed over the remaining service periods of the unvested awards on a straight-line basis. Of the $ 25.1 million related to future services, $ 1.2 million of expense was recognized for the three and nine months ended September 30, 2023. Concurrently with the Merger, the Company repaid the outstanding $ 420.8 million under NuVasive’s revolving senior credit facility in addition to assuming the 0.375 % Senior Convertible Notes due 2025 (“ 2025 Notes”), the privately negotiated call options (“2025 Hedge”) and the privately negotiated warrants (“2025 Warrants”). The aggregate consideration in connection with the closing of the Merger was as follows: (In thousands) NuVasive shares outstanding as of September 1, 2023 52,451 NuVasive accelerated equity awards 632 Globus exchange ratio 0.75 Globus Class A Common Stock issued in exchange for NuVasive shares 39,813 Globus closing share price $ 54.10 Total Value Class A Common Stock $ 2,153,860 2025 Warrants 579 Repayment of revolving credit facility 420,762 Fair value of assumed equity awards 28,635 Total purchase price $ 2,603,836 We accounted for the Merger using the acquisition method of accounting, which requires the NuVasive assets and liabilities to be recorded on our balance sheet at fair value as of the acquisition date. We will complete a final determination of the fair value of certain assets and liabilities within the one-year measurement period from the date of the acquisition as required by FASB ASC Topic 805, “Business Combinations”. The preliminary fair value estimates for the assets acquired and liabilities assumed were based upon preliminary calculations, valuations, and assumptions that are subject to change as the Company obtains additional information during the measurement period . The following table summarizes the preliminary purchase price allocation for the Merger as of September 1, 2023: (In thousands) Cash and cash equivalents $ 127,362 Accounts receivable 249,591 Inventories 570,300 Prepaid expenses and other current assets 30,750 Property and equipment 361,118 Operating lease right-of-use assets 90,457 Intangible assets 1,222,000 Income tax receivable 221 Other assets 25,753 Deferred income taxes 4,837 Total assets $ 2,682,389 Accounts payable $ 57,048 14 Accrued expenses 104,307 Operating lease liabilities 10,774 Income taxes payable 22,516 Business acquisition liabilities 66,873 Deferred revenue 1,304 Senior Convertible Notes due 2025 409,500 Deferred income taxes 194,553 Operating lease liabilities, long-term 98,336 Other liabilities 37,496 Total liabilities $ 1,002,707 Fair value of acquired identifiable assets and liabilities $ 1,679,682 Purchase price $ 2,603,836 Less: Fair value of acquired identifiable assets and liabilities $ ( 1,679,682 ) Goodwill $ 924,154 The excess of the purchase price over the net tangible and intangible assets is recorded to Goodwill and primarily reflects the assembled workforce and expected synergies. The majority of goodwill is non-deductible for tax purposes. During the three and nine months ended September 30, 2023, total transaction costs incurred in connection with the Merger were $ 44.5 million and $ 48.3 million, respectively. These transaction costs were recognized as acquisition related costs in the condensed consolidated statements of operations and comprehensive income. Details of our valuation methodology and significant inputs for fair value measurements are included below. The fair value measurements for property, plant and equipment and intangible assets are based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements. The preliminary fair value of work-in-process and finished goods inventory utilizes a sales comparison approach which estimates the selling price of the inventory in completed condition less costs of disposal and a reasonable profit allowance for the selling effort. The preliminary fair value of property and equipment utilizes a combination of the cost approach, income approach, and sales comparison approach less amounts for capitalized research and development costs existing on NuVasive’s closing balance sheet. The preliminary fair value of the identifiable intangible assets was determined using variations of the income approach, namely the multi-period excess earnings and relief from royalty methodologies. The most significant assumptions applied in the development of the intangible asset fair values include: the amount and timing of future cash flows, the selection of discount and royalty rates, and the assessment of the asset’s economic life. The identifiable intangible assets acquired are amortized on a straight-line basis over their estimated useful lives. The following table summarizes the estimated fair value of NuVasive’s identifiable intangible assets acquired and their remaining amortization period (in years): Fair Value as of (In thousands) September 30, 2023 Useful Life Developed Technology $ 942,000 9 Customer Relationships 280,000 11 Preliminary fair value of the 2025 Notes was determined using the publicly traded price. NuVasive’s results have been included in the Company’s financial statements for the period subsequent to the date of the acquisition on September 1, 2023. NuVasive contributed revenues and net loss of $ 102.4 million and $ 41.9 million, respectively, for the period from September 1, 2023, through September 30, 2023. The following unaudited pro forma information for the Company presents net sales and net income as if the acquisition had occurred January 1, 2022 : 15 Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2023 2022 2023 2022 Pro forma net sales $ 585,478 $ 549,428 $ 1,779,278 $ 1,644,838 Pro forma net income 47,583 ( 14,058 ) 99,512 ( 94,883 ) The unaudited pro forma net income for the three and nine months ended September 30, 2023 was adjusted to exclude $ 90.0 million and $ 108.8 million of acquisition related costs incurred in 2023, respectively. The unaudited pro forma net income for the nine months ended September 30, 2022 was adjusted to include the aforementioned charges. NOTE 4. NET SALES The following table represents net sales by product category: Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2023 2022 2023 2022 Musculoskeletal Solutions $ 347,460 $ 230,060 $ 855,922 $ 681,704 Enabling Technologies 27,661 24,088 87,502 66,641 Neuromonitoring Services 8,518 — 8,518 — Total net sales $ 383,639 $ 254,148 $ 951,942 $ 748,345 NOTE 5. MARKETABLE SECURITIES The composition of our short-term and long-term marketable securities was as follows: September 30, 2023 (In thousands) Amortized ‎ Cost Gross ‎ Unrealized ‎ Gains Gross Unrealized Losses Fair ‎ Value Short-term: Municipal bonds $ 34,750 $ — $ ( 675 ) $ 34,075 Corporate debt securities 125,742 — ( 2,575 ) 123,167 Asset-backed securities 4,200 — ( 45 ) 4,155 Government, federal agency, and other sovereign obligations 28,248 — ( 331 ) 27,917 Total short-term marketable securities $ 192,940 $ — $ ( 3,626 ) $ 189,314 Long-term: Municipal bonds $ 30,106 $ — $ ( 626 ) $ 29,480 Corporate debt securities 127,299 — ( 3,498 ) 123,801 Asset-backed securities 82,540 — ( 1,860 ) 80,680 Government, federal agency, and other sovereign obligations 43,114 — ( 1,117 ) 41,997 Total long-term marketable securities $ 283,059 $ — $ ( 7,101 ) $ 275,958 December 31, 2022 (In thousands) Amortized ‎ Cost Gross ‎ Unrealized ‎ Gains Gross ‎ Unrealized ‎ Losses Fair ‎ Value Short-term: Municipal bonds $ 83,279 $ 9 $ ( 1,680 ) $ 81,608 Corporate debt securities 187,174 2 ( 3,438 ) 183,738 Commercial paper 5,583 — ( 1 ) 5,582 Asset-backed securities 4,200 — ( 181 ) 4,019 Government, federal agency, and other sovereign obligations 21,102 1 ( 458 ) 20,645 Total short-term marketable securities $ 301,338 $ 12 $ ( 5,758 ) $ 295,592 Long-term: Municipal bonds $ 61,986 $ 44 $ ( 1,549 ) $ 60,481 Corporate debt securities 268,524 72 ( 8,947 ) 259,649 Asset-backed securities 120,929 217 ( 2,795 ) 118,351 Government, federal agency, and other sovereign obligations 58,453 18 ( 1,100 ) 57,371 Total long-term marketable securities $ 509,892 $ 351 $ ( 14,391 ) $ 495,852 16 The short-term marketable securities have effective maturity dates of less than one year and the long-term marketable securities have effective maturity dates ranging from one to three years as of September 30, 2023 and December 31, 2022, respectively. NOTE 6. FAIR VALUE MEASUREMENTS Assets and liabilities measured at fair value on a recurring basis included the following: (In thousands) Balance at ‎ September 30, ‎ 2023 Level 1 Level 2 Level 3 Assets: Cash equivalents $ 46,631 $ 46,631 $ — $ — Municipal bonds 63,555 — 63,555 — Corporate debt securities 246,968 — 246,968 — Asset-backed securities 84,835 — 84,835 — Government, federal agency, and other sovereign obligations 69,914 — 69,914 — 2025 Hedge 1,664 — 1,664 — Liabilities: Bifurcated Conversion Option of the Senior Convertible Notes due 2025 1,664 — 1,664 — Business acquisition liabilities 129,966 — — 129,966 (In thousands) Balance at ‎ December 31, ‎ 2022 Level 1 Level 2 Level 3 Assets: Cash equivalents $ 17,655 $ 17,655 $ — $ — Municipal bonds 142,089 — 142,089 — Corporate debt securities 443,387 — 443,387 — Commercial paper 5,582 — 5,582 — Asset-backed securities 122,369 — 122,369 — Government, federal agency, and other sovereign obligations 78,016 — 78,016 — Liabilities: Business acquisition liabilities 68,258 — — 68,258 Our marketable securities and certain cash equivalents are classified as Level 2 within the fair value hierarchy, as we measure their fair value using market prices for similar instruments and inputs such as actual trade data, benchmark yields, broker/dealer quotes and other similar data obtained from quoted market prices or independent pricing vendors. The bifurcated conversion option and 2025 Hedge are classified as Level 2 within the fair value hierarchy, based on implied equity volatility. The estimated fair value of the 2025 Notes, inclusive of the embedded conversion option, at September 30, 2023 was $ 405.0 million. The fair value was determined based on the quoted price of the 2025 Notes in an active market on the last trading day of the reporting period and has been classified as Level 1 within the fair value hierarchy. Fair value of the revenue-based business acquisition liabilities was determined using a discounted cash flow model, probability model, and an option pricing methodology. The significant inputs of such models are not observable in the market, such as certain financial metric growth rates, volatility and discount rates, market price risk adjustment, projections associated with the applicable milestone, the interest rate, and the related probabilities and payment structure in the contingent consideration arrangement. The following are the significant unobservable inputs used in the two valuation techniques: Unobservable input Range Weighted Average* Revenue risk premium 2.3 % - 5.8 % 3.9 % Revenue volatility 11.0 % - 15.8 % 14.8 % Discount rate 6.0 % - 8.5 % 6.9 % Projected year of payment 2023 - 2032 * The weighted average rates were calculated based on the relative fair value of each business acquisition liability. 17 The change in the carrying value of the business acquisition liabilities during the three and nine months ended September 30, 2023 and 2022, respectively included the following: Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2023 2022 2023 2022 Beginning balance $ 65,352 $ 68,314 $ 68,258 $ 70,525 Purchase price contingent consideration 66,873 — 66,873 4,414 Contingent cash payments ( 2,754 ) ( 2,657 ) ( 8,278 ) ( 7,264 ) Contingent RSU grants ( 951 ) ( 1,116 ) ( 1,510 ) ( 1,532 ) Changes in fair value of business acquisition liabilities 1,151 ( 653 ) 4,431 ( 2,043 ) Contractual payable reclassification 295 406 192 194 Ending balance $ 129,966 $ 64,294 $ 129,966 $ 64,294 Purchase price contingent consideration includes obligations acquired in the NuVasive Merger. Changes in the fair value of business acquisition liabilities are driven by changes in market conditions and the achievement of certain performance conditions. NOTE 7. INVENTORIES Inventories included the following: September 30, December 31, (In thousands) 2023 2022 Raw materials $ 94,576 $ 60,324 Work in process 40,709 18,699 Finished goods 769,692 219,958 Total inventories $ 904,977 $ 298,981 As part of the NuVasive Merger, a step up in the value of inventory of $ 284.3 million was recorded, which was composed of $ 3.0 million for work in process and $ 281.3 million for finished goods. The amortization of the inventory step up recorded in product cost of sales was $ 19.0 million for the three months and nine months ended September 30, 2023, respectively. As of September 30, 2023, the total remaining balance of inventory step up was $ 265.3 million. During the three months ended September 30, 2023 and 2022, net adjustments to cost of sales related to excess and obsolete inventory were $ 2.7 million and $ 1.8 million, respectively. The net adjustments for the three months ended September 30, 2023 and 2022 reflect a combination of additional expense for excess and obsolete related provisions ($ 4.7 million and $ 10.4 million, respectively) offset by sales and disposals ($ 2.0 million and $ 8.6 million, respectively) of inventory for which an excess and obsolete provision was provided previously through expense recognized in prior periods. During the nine months ended September 30, 2023 and 2022, net adjustments to cost of sales related to excess and obsolete inventory were $ 6.7 million and $ 5.9 million, respectively. The net adjustments for the nine months ended September 30, 2023 and 2022 reflect a combination of additional expense for excess and obsolete related provisions ($ 11.6 million and $ 19.0 million, respectively) offset by sales and disposals ($ 4.9 million and $ 13.1 million, respectively) of inventory for which an excess and obsolete provision was provided previously through expense recognized in prior periods. 18 NOTE 8. PROPERTY AND EQUIPMENT Property and equipment included the following: Useful September 30, December 31, (In thousands) Life 2023 2022 Land — $ 9,735 $ 8,277 Buildings and improvements 31.5 99,041 51,510 Equipment 5 - 15 204,295 148,803 Instruments, modules, and cases 5 661,283 360,078 Other property and equipment 3 - 5 20,373 18,097 994,727 586,765 Less: accumulated depreciation and amortization ( 387,816 ) ( 343,036 ) Total $ 606,911 $ 243,729 Instruments are hand-held devices used by surgeons to install implants during surgery. Modules and cases are used to store and transport the instruments and implants. Depreciation expense related to property and equipment was as follows: Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2023 2022 2023 2022 Depreciation $ 23,627 $ 13,254 $ 50,662 $ 38,113 NOTE 9. GOODWILL AND INTANGIBLE ASSETS The change in the carrying amount of goodwill during the twelve months ended December 31, 2022 and the nine months ended September 30, 2023, respectively included the following: (In thousands) December 31, 2021 $ 179,708 Additions and adjustments 18,799 Foreign exchange ( 1,036 ) December 31, 2022 197,471 Additions and adjustments 925,189 Foreign exchange ( 232 ) September 30, 2023 $ 1,122,428 Intangible assets as of September 30, 2023 included the following: September 30, 2023 (In thousands) Weighted Average Amortization Period (in years) Gross ‎ Carrying ‎ Amount Accumulated ‎ Amortization Intangible ‎ Assets, ‎ net Supplier network 10.0 $ 4,000 $ ( 3,567 ) $ 433 Customer relationships & other intangibles 10.6 339,289 ( 46,126 ) 293,163 Developed technology 8.9 1,015,969 ( 52,615 ) 963,354 Patents 16.1 8,964 ( 4,297 ) 4,667 Total intangible assets $ 1,368,222 $ ( 106,605 ) $ 1,261,617 19 Intangible assets as of December 31, 2022 included the following: December 31, 2022 (In thousands) Weighted Average Amortization Period (in years) Gross ‎ Carrying ‎ Amount Accumulated ‎ Amortization Intangible ‎ Assets, ‎ net Supplier network 10.0 $ 4,000 $ ( 3,267 ) $ 733 Customer relationships & other intangibles 8.7 62,324 ( 41,651 ) 20,673 Developed technology 8.0 75,087 ( 37,984 ) 37,103 Patents 16.1 8,885 ( 3,820 ) 5,065 Total intangible assets $ 150,296 $ ( 86,722 ) $ 63,574 The following table summarizes amortization of intangible assets for future periods as of September 30, 2023 : (In thousands) Annual ‎ Amortization Remaining 2023 $ 36,048 2024 144,105 2025 139,819 2026 136,376 2027 135,296 Thereafter 669,973 Total $ 1,261,617 NOTE 10. ACCRUED EXPENSES Accrued expenses as of September 30, 2023 and December 31, 2022, respectively included the following: September 30, December 31, (In thousands) 2023 2022 Compensation and other employee-related costs $ 136,631 $ 53,352 Legal and other settlements and expenses 16,037 5,564 Accrued non-income taxes 25,426 10,029 Royalties 9,413 4,375 Rebates 24,433 10,501 Other 9,730 8,348 Total accrued expenses $ 221,670 $ 92,169 NOTE 11. DEBT The carrying values of the Company’s 2025 Notes, acquired in the NuVasive merger, as of September 30, 2023, were as follows: September 30, (In thousands) 2023 0.375 % Senior Convertible Notes due 2025: Principal $ 450,000 Unamortized fair value adjustment for acquisition accounting 41,941 0.375 % Senior Convertible Notes due 2025 408,059 Embedded Conversion Option 1,664 Debt, net of unamortized fair value adjustments for acquisition accounting $ 409,723 September 30, 2023 Interest expense: Contractual coupon interest $ 141 Amortization of fair value adjustments for acquisition accounting 223 20 Total interest expense recognized on Senior Convertible Notes due 2025 $ 364 Effective interest rates: Senior Convertible Notes due 2025 1.1 % Line of Credit In September 2023, we entered into an unsecured credit agreement with U.S. Bank National Association, as administrative agent, Citizens Bank, N.A., as syndication agent, Royal Bank of Canada, as documentation agent, U.S. Bank National Association and Citizens Bank, N.A., as joint lead arrangers and joint book runners, and the other lenders referred to therein (the “September 2023 Credit Agreement”) 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 0.25 to 1.00 less than the applicable Leverage Ratio then required under the September 2023 Credit Agreement, an unlimited amount. Revolving Loans under the September 2023 Credit Agreement bear interest at either a base rate or the Term SOFR Rate (as defined in the Revolving Credit Facility) plus, in each case, an applicable margin, as determined in accordance with the provisions of the September 2023 Credit Agreement. The Applicable Margin ranges from 0.125 % to 0.625 % for the Base Rate and 1.125 % to 1.625 % for the Term SOFR Rate. We may also request Swingline Loans (as defined in the September 2023 Credit Agreement) at either the Base Rate or the Daily Term SOFR Rate. The September 2023 Credit Agreement is guaranteed by certain direct or indirect wholly owned subsidiaries of the Company. The September 2023 Credit Agreement contains financial and other customary covenants, including a funded net indebtedness to adjusted EBITDA ratio. As of September 30, 2023, we have no t borrowed under the September 2023 Credit Agreement and we were in compliance with all covenants. 0.375% Senior Convertible Notes due 2025 On September 1, 2023, in connection with the closing of the Merger, the Company, NuVasive and Wilmington Trust National Association, as trustee (the “Trustee”) entered into a supplemental agreement (the “First Supplemental Indenture”) to the Indenture, dated March 2, 2020 (the “Base Indenture”), by and between NuVasive and the Trustee, relating to NuVasive’s $ 450.0 million in aggregate principal amount of 0.375 % Convertible Senior Notes due 2025. As of the closing date of the Merger, $ 450 million of aggregate principal amount of the 2025 Notes were outstanding. Pursuant to the First Supplemental Indenture, the 2025 Notes are convertible into the Company’s Class A Common at a conversion rate of 8.0399 shares per $ 1,000 principal amount of 2025 Notes, which is equivalent to a conversion price of approximately $ 124.38 per share, subject to adjustments. The 2025 Notes may be settled in cash, stock, or a combination thereof, solely at the Company’s discretion. Pursuant to the terms of the First Supplemental Indenture, Globus agreed to guarantee NuVasive’s obligations under the Indenture. The 2025 Notes bear interest at a rate of 0.375 % per annum, payable semi-annually in arrears on March 15 and September 15 of each year. The 2025 Notes mature on March 15, 2025 , unless earlier converted, redeemed, or repurchased in accordance with their terms. The Merger constituted a Merger Event as defined in the Base Indenture. In the event of a Merger Event, the Company is required to execute a supplemental indenture providing for (i) each holder of 2025 Notes with the right to convert each $ 1,000 principal amount of 2025 Notes into the same type of consideration that holders would have been entitled to receive if such holders had held a number of shares of NuVasive Common Stock equal to the applicable conversion rate in effect immediately prior to such Merger Event, and (ii) subsequent adjustments to the conversion rate set forth in the Base Indenture. Prior to September 15, 2024, holders may convert their 2025 Notes only under the following conditions: (a) during any calendar quarter commencing after the calendar quarter ending on June 30, 2020 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day; (b) during the five business day period after any five consecutive trading day period, or the measurement period, in which the trading price of the 2025 Notes per $ 1,000 principal amount of notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the conversion rate on such trading day; (c) if the Company calls any or all of the 2025 Notes for redemption, at any time prior to the close of business on the second scheduled trading day preceding the redemption date; or (d) upon the occurrence of specified corporate events, as defined in the 2025 Notes. 21 On or after September 15, 2024, until the close of business on the second scheduled trading day immediately preceding March 15, 2025, holders may convert their 2025 Notes at any time, regardless of the foregoing conditions. In addition, following certain corporate events that occur prior to the maturity date or if the Company issues a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its 2025 Notes in connection with such a corporate event or in connection with such redemption in certain circumstances. The Company may redeem the 2025 Notes, at its option, in whole or in part, until the close of business on the business day immediately preceding September 15, 2024, if the last reported sale price of the Company’s common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company delivers written notice of a redemption. The redemption price will be equal to 100 % of the principal amount of such 2025 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date. No principal payments are due on the 2025 Notes prior to maturity. Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the 2025 Notes do not contain any financial covenants and do not restrict the Company from conducting significant restructurings, paying dividends or issuing or repurchasing any of its other securities. Upon the initial recognition of the 2025 Notes pursuant to the purchase accounting for the Merger, the embedded conversion feature does not meet the equity scope exception described in ASC 815-40, Contracts in Entity’s Own Equity. The embedded conversion feature is bifurcated and presented as a liability on the consolidated balance sheet with subsequent measurement at fair value with changes in fair value recognized as “Other income/(expense)” . The Company recognized, at Merger closing, the embedded conversion feature at fair value of $ 1.7 million and allocated the residual $ 407.8 million of the 2025 Notes fair value to the host debt instrument. As of the September 30, 2023, the fair value of the embedded conversion feature was $ 1.7 million. As a result of the Merger and recognizing the fair value of the 2025 Notes, along with the embedded conversion feature, as of the acquisition date, the company recorded $ 42.2 million debt discount to be accreted as interest expense over the life of the notes. 2025 Hedges On September 1, 2023, in connection with the closing of the Merger, the Company, NuVasive, and certain dealers entered into amendment and guarantee agreements with respect to privately negotiated call option transactions (“2025 Hedges”) pursuant to which NuVasive purchased options from such dealers exercisable into its own common stock in connection with the sale of the 2025 Notes. Pursuant to such amendment and guarantee agreements, the 2025 Hedges are exercisable into Globus Class A Common in certain circumstances and the Company guaranteed NuVasive’s obligations under the 2025 Hedges. Subject to the amended 2025 Hedge, the Company is entitled to purchase up to 3,617,955 shares of the Company’s Class A Common at a strike price of $ 124.38 . The 2025 Hedge will expire on the second scheduled trading day immediately preceding March 15, 2025 and is expected to reduce the potential equity dilution upon conversion of the 2025 Notes if the daily volume-weighted average price per share of the Company’s common stock exceeds the strike price of the 2025 Hedge. In accordance with ASC 805, the Company recognized the 2025 Hedge at an acquisition date fair value of $ 1.7 million. The 2025 Hedge does not meet the equity scope exception described in ASC 815-40, Contract in Entity’s Own Equity, and will be presented as asset on the consolidated balance sheet with subsequent measurement at fair value with changes in fair value recognized as “Other income/(expense)”. As of September 30, 2023, the fair value of the 2025 Hedge is $ 1.7 million recorded within the Other Assets with the consolidated balance sheet. An assumed exercise of the 2025 Hedge by NuVasive is considered anti-dilutive since the effect of the inclusion would always be anti-dilutive with respect to the calculation of diluted earnings per share. 2025 Warrants On September 1, 2023, in connection with the closing of the Merger, the Company, NuVasive, and certain dealers entered into amendment and guarantee agreements with respect to privately negotiated warrant transactions (“2025 Warrants”), pursuant to which NuVasive sold warrants to such dealers for its own common stock in connection with the initial sale of the 2025 Notes. Pursuant to such amendment and guarantee agreements, the warrants are exercisable into Globus Class A Common in certain circumstances and the Company guaranteed NuVasive’s obligations under the 2025 Warrants. Subject to the amended 2025 Warrants, the holders of the 2025 Warrants are entitled to purchase up to 3,617,955 shares of the Company’s common stock at a strike price of $ 170.45 . The 2025 Warrants will expire on various dates from June 2025 through October 2025 and may be settled in net shares or cash, at the Company’s election. In accordance with ASC 805, the Company recognized the 2025 Warrants at an acquisition date fair value of $ 0.6 million within additional paid-in capital. The 2025 Warrants could have a dilutive effect on the Company’s earnings per share to the extent that the price of the Company’s common stock during a given measurement period exceeds the strike price of the 2025 Warrants, which is $ 170.45 per share. The Company uses the treasury share method for assumed exercise of its 2025 Warrants to compute the weighted average common shares outstanding for diluted earnings per share. 22 NOTE 12. EQUITY Share Repurchases On March 11, 2020, the Company announced a share repurchase program, which authorized the Company to repurchase up to $ 200.0 million of the Company’s Class A common stock (“Class A Common”). On March 4, 2022, the share repurchase program was expanded by authorizing the Company to repurchase an additional $ 200.0 million of the Company’s Class A Common. On September 27, 2023, the share repurchase program was expanded by authorizing the Company to repurchase an additional $ 350.0 million of the Company’s Class A Common. The repurchase program has no time limit and may be suspended for periods or discontinued at any time. The Company did no t repurchase any Class A Common during the three and nine months ended September 30, 2023. As of September 30, 2023, the Company has remaining authorization to repurchase a total of $ 500.8 million of Class A Common. The timing and actual number of shares repurchased will depend on various factors including price, corporate and regulatory requirements, debt covenant requirements, alternative investment opportunities and other market conditions. F unding of share repurchases is expected to come from operating cash flows and excess cash. Shares repurchased by the Company are accounted for under the constructive retirement method, in which the shares repurchased, are immediately retired, as there is no plan to reissue the shares. The Company made an accounting policy election to charge the excess of repurchase price over par value entirely to retained earnings. Common Stock Our amended and restated Certificate of Incorporation provides for a total of 775,000,000 authorized shares of common stock. Of the authorized number of shares of common stock, 500,000,000 shares are designated as Class A Common, and 275,000,000 shares are designated as Class B common stock (“Class B Common”). The holders of Class A Common are entitled to one vote for each share of Class A Common held. The holders of Class B Common are entitled to 10 votes for each share of Class B Common held. Each share of our Class B Common is convertible at any time at the option of the holder into one share of our Class A Common. In addition, each share of our Class B Common will convert automatically into one share of our Class A Common upon any transfer, whether or not for value, except for permitted transfers. For more details relating to the conversion of our Class B Common please see “Exhibit 4.2, Description of Securities of the Registrant” filed with our Annual Report on Form 10-K on February 21, 2023. The holders of Class A Common and Class B Common vote together as one class of common stock. Except for voting rights, the Class A Common and Class B Common have the same rights and privileges. Accumulated Other Comprehensive Income (Loss) The tables below present the changes in each component of accumulated other comprehensive income/(loss), including current period other comprehensive income/(loss) and reclassifications out of accumulated other comprehensive income/(loss) for the nine months ended September 30, 2023 and 2022, respectively: (In thousands) Unrealized loss on marketable securities, net of tax Foreign currency translation adjustments Accumulated other comprehensive loss Accumulated other comprehensive income/(loss), net of tax, at December 31, 2022 $ ( 15,093 ) $ ( 9,537 ) $ ( 24,630 ) Other comprehensive income/(loss) before reclassifications 9,149 ( 1,085 ) 8,064 Amounts reclassified from accumulated other comprehensive income/(loss), net of tax ( 2,170 ) — ( 2,170 ) Other comprehensive income/(loss), net of tax 6,979 ( 1,085 ) 5,894 Accumulated other comprehensive income/(loss), net of tax, at September 30, 2023 $ ( 8,114 ) $ ( 10,622 ) $ ( 18,736 ) 23 (In thousands) Unrealized loss on marketable securities, net of tax Foreign currency translation adjustments Accumulated other comprehensive loss Accumulated other comprehensive income/(loss), net of tax, at December 31, 2021 $ ( 1,053 ) $ ( 5,719 ) $ ( 6,772 ) Other comprehensive income/(loss) before reclassifications ( 23,959 ) ( 7,215 ) ( 31,174 ) Amounts reclassified from accumulated other comprehensive income/(loss), net of tax 5,720 — 5,720 Other comprehensive income/(loss), net of tax ( 18,239 ) ( 7,215 ) ( 25,454 ) Accumulated other comprehensive income/(loss), net of tax, at September 30, 2022 $ ( 19,292 ) $ ( 12,934 ) $ ( 32,226 ) Amounts reclassified from accumulated other comprehensive loss, net of tax, related to unrealized gains/losses on marketable securities were released to other income, net in our condensed consolidated statements of operations and comprehensive income. Earnings Per Common Share The Company computes basic earnings per share using the weighted-average number of common shares outstanding during the period. Diluted earnings per share assumes the conversion, exercise or issuance of all potential common stock equivalents, unless the effect of inclusion would be anti-dilutive. For purposes of this calculation, common stock equivalents include the Company’s stock options, unvested RSUs, and PRSUs. These are included in basic net income per share as of the date that all necessary conditions have been satisfied and are included in the denominator for dilutive calculation for the entire period if such shares would be issuable as of the end of the reporting period assuming the end of the reporting period was the end of the contingency period. The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended Nine Months Ended September 30, September 30, (In thousands, except per share amounts) 2023 2022 2023 2022 Numerator: Net income/(loss) for basic: $ 998 $ 47,431 $ 107,839 $ 140,104 Dilutive potential net income (loss): Interest and amortization of debt discount costs on the 0.375% Senior Convertible Notes due 2025, net of tax — — 364 — Adjusted net income (loss) for diluted $ 998 47,431 108,203 140,104 Denominator for basic and diluted net income per share: Weighted average shares outstanding for basic 113,537 99,652 104,762 100,638 Dilutive stock options, RSUs, and PRSUs 1,708 1,765 1,678 2,151 Senior Convertible Notes due 2025 — — 3,618 — Weighted average shares outstanding for diluted 115,245 101,417 110,058 102,789 Earnings per share: Basic $ 0.01 $ 0.48 $ 1.03 $ 1.39 Diluted $ 0.01 $ 0.47 $ 0.98 $ 1.36 Anti-dilutive stock options and RSUs excluded from the calculation 5,942 4,362 5,698 3,720 Anti-dilutive warrants excluded from the calculation 3,618 — 3,618 — Anti-dilutive Senior Convertible Notes due 2025 excluded from the calculation 3,618 — — — Total 13,178 4,362 9,316 3,720 In accordance with ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20), the Company applies the if-converted method in computing the effect of the Company's 2025 Notes on diluted net income per share. For periods in which the Company reports net income, the numerator of the diluted per share computation is adjusted for interest expense and amortization of debt issuance costs, net of tax, and the denominator is adjusted for the weighted average number of shares into which each of the Company’s 2025 Notes could be converted. The effect is only included in the calculation of diluted net income per share for those 2025 Notes which reduce net income per share. 24 NOTE 13. STOCK-BASED AWARDS We have four stock plans: our 2012 Equity Incentive Plan (the “2012 Plan”) and our 2021 Equity Incentive Plan (the “2021 Plan”), the NuVasive 2014 Equity Incentive Plan (the “NuVasive 2014 Plan”), and the Ellipse Technologies 2015 Incentive Award Plan (the “Ellipse 2015 Plan”). The 2021 Plan, the NuVasive 2014 Plan and the Ellipse 2015 Plan are the only active stock plans. The purpose of the 2012 Plan was, and of the 2021 Plan is, to provide incentive to employees, directors, and consultants of Globus. The 2012 Plan, 2021 Plan, NuVasive 2014 Plan, and Ellipse 2015 Plan are administered by the Board of Directors of Globus (the “Board”) or its delegates. The number, type of option, exercise price, and vesting terms are determined by the Board or its delegates in accordance with the terms of the 2012 Plan and 2021 Plan. The options granted expire on a date specified by the Board, which is ten years from the grant date. Options granted to employees vest in varying installments over a four-year period. The 2012 Plan was approved by our Board in March 2012, and by our stockholders in June 2012. The 2012 Plan terminated as to new awards pursuant to its terms in 2022. Following effectiveness of the 2021 Plan, we have no t issued any additional awards under the 2012 Plan; however, awards previously granted under the 2012 Plan remain outstanding and are administered by our Board under the terms and conditions of the 2012 Plan. Under the 2012 Plan, the aggregate number of shares of Class A Common that were able to be issued subject to options and other awards is equal to the sum of (i) 3,076,923 shares, (ii) any shares available for issuance under the 2008 Equity Incentive Plan as of March 13, 2012, (iii) any shares underlying awards outstanding under the 2008 Plan as of March 13, 2012 that, on or after that date, are forfeited, terminated, expired or lapse for any reason, or are settled for cash without delivery of shares and (iv) starting January 1, 2013, an annual increase in the number of shares available under the 2012 Plan equal to up to 3 % of the number of shares of our common and preferred stock outstanding at the end of the previous year, as determined by our Board. The number of shares that were able to be issued or transferred pursuant to incentive stock options under the 2012 Plan was limited to 10,769,230 shares. The shares of Class A Common covered by the 2012 Plan included authorized but unissued shares, treasury shares or shares of common stock purchased on the open market. The 2021 Plan was approved by our Board in March 2021, and by our stockholders in June 2021. Under the 2021 Plan, as amended to date, the aggregate number of shares of Class A Common that are able to be issued subject to options and other awards is equal to the sum of (i) 8,000,000 shares, (ii) any shares available for issuance under the 2012 Plan as of June 3, 2021 and (iii) any shares underlying awards outstanding under the 2012 Plan or 2021 Plan as of June 3, 2021 that, on or after that date, are forfeited, terminated, expired or lapse for any reason, or are settled for cash without delivery of shares. The number of shares that may be issued or transferred pursuant to incentive stock options under the 2021 Plan is limited to 8,000,000 shares. The shares of Class A Common covered by the 2021 Plan include authorized but unissued shares, treasury shares or shares of common stock purchased on the open market. In connection with the Merger, the Company assumed outstanding awards for the RSUs and PRSUs under the NuVasive 2014 Plan and the Ellipse 2015 Plan in accordance with the terms in the Merger Agreement. The PRSUs ultimate issuance amount is determined by the Company’s Compensation Committee. Share payout levels range from 0 % to 100 % depending on the respective terms of an award. As of September 30, 2023, pursuant to the 2021 Plan, the NuVasive 2014 Plan, and the Ellipse 2015 Plan, there were 9,772,842 shares 1,587,150 , and 263,784 shares respectively of Class A Common reserved and 5,278,170 shares, 1,587,150 shares, 263,784 shares, respectively of Class A Common available for future grants. Stock Options Stock option activity during the nine months ended September 30, 2023 is summarized as follows: Option ‎ Shares (thousands) Weighted ‎ average ‎ exercise ‎ price Weighted ‎ average ‎ remaining ‎ contractual ‎ life (years) Aggregate ‎ intrinsic ‎ value ‎ (thousands) Outstanding at December 31, 2022 10,338 $ 51.86 Granted 1,667 58.87 Exercised ( 352 ) 32.25 Forfeited ( 339 ) 63.32 Outstanding at September 30, 2023 11,314 $ 53.16 6.6 $ 45,005 Exercisable at September 30, 2023 6,772 $ 48.49 5.4 $ 38,986 Expected to vest at September 30, 2023 4,542 $ 60.11 8.3 $ 6,019 The total intrinsic value of stock options exercised was $ 2.2 million and $ 7.9 million during the three months ended September 30, 2023, and 2022, respectively. The total intrinsic value of stock options exercised was $ 10.3 million and $ 15.3 million during the nine months ended September 30, 2023, and 2022, respectively. 25 The fair value of the options was estimated on the date of the grant using a Black-Scholes option pricing model with the following assumptions: Nine Months Ended September 30, 2023 2022 Risk-free interest rate 3.45 % - 4.45 % 1.46 % - 3.51 % Expected term (years) 4.7 - 4.8 4.7 - 9.9 Expected volatility 35.0 % - 38.0 % 33.0 % - 35.0 % Expected dividend yield —% —% The weighted average grant date fair value of stock options granted during the three ended September 30, 2023, and 2022 was $ 20.61 and $ 23.16 per share, respectively. The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2023, and 2022 was $ 21.95 and $ 21.78 per share, respectively. Restricted Stock Units Restricted stock unit activity during the nine months ended September 30, 2023 is summarized as follows: Restricted Stock ‎ Units (thousands) Weighted ‎ average ‎ grant date fair value ‎ per share Weighted ‎ average ‎ remaining ‎ contractual ‎ life (years) Outstanding at December 31, 2022 60 $ 67.40 Granted 1,262 54.09 Vested ( 432 ) — Forfeited ( 5 ) — Outstanding at September 30, 2023 885 $ 54.99 2.57 Performance-Based Restricted Stock Units Performance-based restricted stock unit activity during the nine months ended September 30, 2023 is summarized as follows: Performance-Based Restricted Stock ‎ Units (thousands) Weighted ‎ average ‎ grant date fair value ‎ per share Weighted ‎ average ‎ remaining ‎ contractual ‎ life (years) Outstanding at December 31, 2022 — $ — Granted 78 54.10 Vested — — Forfeited — — Outstanding at September 30, 2023 78 $ 54.10 2.45 Stock-Based Compensation Compensation expense related to stock options granted to employees and non-employees under the Plans was as follows: Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2023 2022 2023 2022 Stock-based compensation expense $ 9,877 $ 8,314 $ 27,418 $ 24,303 Stock-based compensation expense classified in Acquisition Related Costs 12,878 — 12,878 — Net stock-based compensation capitalized into inventory 1 120 130 504 Total stock-based compensation cost $ 22,756 $ 8,434 $ 40,426 $ 24,807 As of September 30, 2023, there was $ 106.3 million of unrecognized compensation expense related to unvested employee stock options, RSUs, and PRSUs that vest over a weighted average period of 2.6 years . 26 NOTE 14. INCOME TAXES In computing our income tax provision, we make certain estimates and judgments, such as estimated annual taxable income or loss, annual effective tax rate, the nature and timing of permanent and temporary differences between taxable income for financial reporting and tax reporting, and the recoverability of deferred tax assets. Our estimates and assumptions may change as new events occur, additional information is obtained, or as the tax environment changes. Should facts and circumstances change during a quarter causing a material change to the estimated effective income tax rate, a cumulative adjustment is recorded. The following table provides a summary of our effective tax rate for the three and nine months ended September 30, 2023 and 2022, respectively: Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Effective income tax rate 60.7 % 22.8 % 23.2 % 22.6 % NOTE 15. LEASES The Company leases certain equipment, vehicles, office and storage facilities via various operating and financing lease agreements. Our leases have initial lease terms ranging from one year to seventeen years . Certain lease agreements require the Company to pay taxes, insurance, and maintenance, and provide for options to extend the term beyond the initial lease termination date. We use judgment to determine whether it is reasonably possible that we will extend the lease beyond the initial term and the length of the possible extension. Leases that have terms of less than 12 months are treated as short-term and we do not recognize right-of-use assets or lease liabilities for such leases. We generally estimate discount rates using our incremental borrowing rate, and based on other information available, at commencement date of a lease when determining the present value of future payments as most of our leases do not provide an implicit rate. The Company includes financing lease right-of-use assets in other assets, short-term financing lease liabilities in accrued expenses, and long-term financing lease liabilities in other liabilities on the condensed consolidated balance sheet. Operating lease expense is recognized, on a straight-line basis over the term of the lease, as a component of operating income on the condensed consolidated statement of operations and comprehensive income. Finance leases amortize the right-of-use assets and amortize the interest on the lease liability over the term of the lease. Amounts reported in the condensed consolidated balance sheet were as follows: September 30, December 31, (In thousands) 2023 2022 Asset: Operating lease right-of-use asset $ 94,831 $ 5,988 Finance lease right-of-use asset 1,309 - Total leased assets $ 96,140 $ 5,988 Liabilities: Current: Operating lease liability 13,385 2,536 Finance lease liability 624 - Long-term: Operating lease liability 99,927 3,475 Finance lease liability 669 - Total lease liabilities $ 114,605 $ 6,011 The table below summarizes the Company’s lease costs arising from the operating and financing lease obligations: Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2023 2022 2023 2022 Lease expense: Operating lease expense $ 2,357 $ 788 $ 4,287 $ 2,588 27 Finance lease expense: Depreciation of right-of-use asset 85 - 85 - Interest expense on lease liabilities 6 - 6 - Total lease expense $ 2,448 $ 788 $ 4,378 $ 2,588 Future minimum lease payments under non-cancellable leases as of September 30, 2023 are as follows: (In thousands) Finance ‎ Leases Operating ‎ Leases Remaining 2023 $ 179 $ 4,853 2024 620 18,036 2025 305 14,754 2026 272 13,354 2027 - 12,306 Thereafter - 85,237 Total minimum lease payments $ 1,376 $ 148,540 Less: amount representing interest ( 83 ) ( 35,228 ) Present value of obligations under leases 1,293 113,312 Less: current portion ( 624 ) ( 13,385 ) Long-term lease obligations $ 669 $ 99,927 The table below summarizes the Company’s supplemental cash flow information and assumptions used: September 30, September 30, (In thousands, except weighted average lease term and discount rate) 2023 2022 Other supplemental cash flow information: Cash paid for amounts included in measurement of lease liabilities Operating cash flows from operating leases $ 3,567 $ 1,576 Operating cash flows for finance leases 6 - Financing cash flows for finance leases 55 - Total cash paid for amounts included in the measurement of lease liabilities $ 3,628 $ 1,576 Right-of-use assets obtained in exchange for lease obligations Operating leases $ 3,146 $ 1,915 Financing leases $ - $ - Weighted-average remaining lease term Operating leases 9.9 2.4 Financing leases 2.8 - Weighted-average discount rate Operating leases 5.2 % 3.5 % Financing leases 4.3 % - 28 NOTE 16. COMMITMENTS AND CONTINGENCIES We are involved in a number of proceedings, legal actions, and claims arising in the ordinary course of business. Such matters are subject to many uncertainties, and the outcomes of these matters are not within our control and may not be known for prolonged periods of time. In some actions, the claimants seek damages, as well as other relief, including injunctions prohibiting us from engaging in certain activities, which, if granted, could require significant expenditures and/or result in lost revenues. We record a liability in the condensed consolidated financial statements for these actions when a loss is considered probable and the amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range, and no amount in the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible, but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded. While it is not possible to predict the outcome for most of the matters discussed, we believe it is possible that costs associated with them could have a material adverse impact on our consolidated earnings, financial position or cash flows. Moskowitz Family LLC Litigation On November 20, 2019, Moskowitz Family LLC filed suit against us in the U.S. District Court for the Western District of Texas for patent infringement. Moskowitz, a non-practicing entity, alleges that Globus willfully infringes one or more claims of six patents by making, using, offering for sale or selling the COALITION MIS ® , CORBEL ® , MAGNIFY ® -S, HEDRON IA TM , INDEPENDENCE MIS ® , INDEPENDENCE MIS AGX ® , FORTIFY ® and XPAND ® families, SABLE ® , RISE ® , RISE ® INTRALIF, RISE ® -L, ELSA ® , ELSA ® ATP, ALTERA ® , ARIEL ® , CALIBER ® and CALIBER ® -L products. Moskowitz seeks monetary damages and injunctive relief. On July 2, 2020, this suit was transferred from the U.S. District Court for the Western District of Texas to the U.S. District Court for the Eastern District of Pennsylvania. Trial is scheduled to begin on December 4, 2023. The outcome of this litigation cannot be determined, nor can we estimate a range of potential loss, therefore, we have no t recorded a liability related to this litigation as of September 30, 2023 . NOTE 17. SEGMENT AND GEOGRAPHIC INFORMATION Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. We manage our business globally within one operating segment, and segment information is consistent with how the chief operating decision makers review the business, make investing and resource allocation decisions and assess operating performance. The following table represents total net sales and property and equipment, net by geographic area, based on the location of the customer: Net Sales Property and Equipment, Net Three Months Ended Nine Months Ended September 30, September 30, September 30, December 31, (In thousands) 2023 2022 2023 2022 2023 2022 United States $ 309,315 $ 217,024 $ 788,924 $ 638,707 $ 544,108 $ 237,680 International 74,324 37,124 163,018 109,638 62,803 6,049 Total $ 383,639 $ 254,148 $ 951,942 $ 748,345 $ 606,911 $ 243,729 29