What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-07 compared with 2023-11-07 · 51 added, 130 removed, 137 unchanged (57% of the section changed)

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Since inception, Globus has listened to the voice of the surgeon to develop practical solutions and products to help surgeons effectively treat patients and improve lives.

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

We offer a comprehensive portfolio of innovative and differentiated technologies that are used to treat a variety of musculoskeletal conditions.

Although we manage our business globally within one operating segment, we separate our products into two major categories:

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

With numerous products launched since the founding of the Company, we offer a comprehensive portfolio of innovative and differentiated technologies that treat a variety of musculoskeletal conditions.

We separate our products and services into two major categories:

Musculoskeletal Solutions and Enabling Technologies .

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Product & Service Categories

While we group our revenue into three categories, Musculoskeletal Solutions, Enabling Technologies, and Neuromonitoring Services, they are not limited to a particular technology, platform or surgical approach.

While we group our revenue into two categories, Musculoskeletal Solutions and Enabling Technologies, they are not limited to a particular technology, platform or surgical approach.

Instead, our goal is to offer a comprehensive product suite that can be used to safely and effectively treat patients based on their specific anatomy and condition, and is customized to the surgeon’s training and surgical preference.

Musculoskeletal Solutions

Our Musculoskeletal Solutions consist primarily of implantable devices, biologics, accessories, and unique surgical instruments used in an expansive range of spinal, orthopedic and neurosurgical procedures.

Our Musculoskeletal Solutions consist primarily of implantable devices, biologics, accessories, unique surgical instruments, and neuromonitoring services, used in an expansive range of spinal, orthopedic and neurosurgical procedures.

Musculoskeletal disorders are a leading driver of healthcare costs worldwide.

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Surgical treatments for musculoskeletal disorders can be instrumented, which include the use of implants, or non-instrumented, which forego the use of hardware but may include biologics.

Our neuromonitoring services use proprietary software-driven nerve detection and avoidance technology and include IONM to aid spine surgery.

Enabling Technologies

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Furthermore, we believe as new technologies such as augmented reality and artificial intelligence are introduced, Enabling Technologies have the potential to transform the way surgery is performed and most importantly, continue to improve patient outcomes.

Neuromonitoring Services

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

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

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

Geographic Information

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

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

During the three months ended March 31, 2024, international net sales accounted for approximately 20.4% of our total net sales.

We have sold our products and services in approximately 61 countries other than the United States through a combination of sales representatives employed by us and exclusive international distributors.

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Results of Operations

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

We manage our business globally within two operating segments, which is consistent with how our management reviews our business, makes investment and resource allocation decisions and assesses operating performance.

We have concluded that these operating segments are aggregated into one reportable segment, based on the aggregation criteria.

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

The following table sets forth, for the periods indicated, our net sales by geography expressed as dollar amounts and the changes in net sales between the specified periods expressed in dollar amounts and as percentages:

Three Months Ended

September 30,

(In thousands, except percentages)

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Total net sales

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

International net sales increased by $37.2 million for the three month period ended September 30, 2023 due to the addition of NuVasive and increased spine product sales resulting from penetration in existing territories.

In the United States, the increase in net sales of $248.8 million for the three month period ended March 31, 2024 was due primarily to the addition of NuVasive, as well as increased spine product sales, including robotic spine instruments, resulting from penetration in existing territories and an increase in sales volume of enabling technologies.

International net sales increased by $81.2 million for the three month period ended March 31, 2024 due to the addition of NuVasive and increased spine product sales resulting from penetration in existing territories.

Cost of Sales

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

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

The $170.7 million increase in cost of sales is due to the addition of NuVasive, amortization of inventory fair value step-up, and increased volume and product mix .

Research and Development Expenses

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

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

The $36.2 million increase in research and development expenses was due primarily to the addition of NuVasive, acquired IPR&D and an increase in personnel related expenses due to our continued investment in product development.

Selling, General and Administrative Expenses

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

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

The $126.3 million increase in selling, general and administrative expenses was due to the addition of NuVasive, and an increase in personnel related expenses resulting primarily from higher product sales, and meeting expenses.

Provision for Litigation, net

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

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

The provision for litigation, net remains immaterial for the three month periods ended March 31, 2024 and March 31, 2023.

Amortization of Intangibles

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

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

Amortization of intangibles increased for the three month period ended March 31, 2024 compared to the three month period ended March 31, 2023, due to the impact of the acquired intangibles from NuVasive.

Acquisition-Related Costs

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

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

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

Other Income/(expense), Net

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

Restructuring Costs

Three Months Ended

September 30,

(In thousands, except percentages)

Other income/(expense), net

Restructuring Costs

Percentage of net sales

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

Income Tax Provision

The restructuring costs for the three months ended March 31, 2024 is due to costs associated with the 2024 Synergy Plan.

These costs were primarily related to employee termination benefits.

Other Income/(expense), Net

Three Months Ended

September 30,

(In thousands, except percentages)

Income tax provision

Effective income tax rate

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

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

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

Results of Operations;

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

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

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

Nine Months Ended

September 30,

(In thousands, except percentages)

United States

International

Total net sales

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

International net sales increased by $53.4 million, which was due primarily to increased spine product sales, including robotic spine instruments, resulting from penetration in existing territories.

Cost of Sales

Nine Months Ended

September 30,

(In thousands, except percentages)

Cost of sales

Percentage of net sales

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

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

Research and Development Expenses

Nine Months Ended

September 30,

(In thousands, except percentages)

Research and development

Percentage of net sales

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

Selling, General and Administrative Expenses

Nine Months Ended

September 30,

(In thousands, except percentages)

Selling, general and administrative

Percentage of net sales

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

Provision for Litigation, net

Nine Months Ended

September 30,

(In thousands, except percentages)

Provision for litigation, net

Percentage of net sales

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

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

Amortization of Intangibles

Nine Months Ended

September 30,

(In thousands, except percentages)

Amortization of intangibles

Percentage of net sales

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

Acquisition Related Costs

Nine Months Ended

September 30,

(In thousands, except percentages)

Acquisition related costs

Percentage of net sales

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

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

Other income/(expense), net

Nine Months Ended

September 30,

(In thousands, except percentages)

Other income, net

Percentage of net sales

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

The decrease in other income/(expense), is due primarily to foreign currency losses and interest expense from a lower average marketable securities portfolio size in the current period.

Income Tax Provision

Nine Months Ended

September 30,

Three Months Ended

(In thousands, except percentages)

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Effective income tax rate

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

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

The decrease in the effective tax rate is due primarily to lower pretax earnings over the comparative period, and one-time tax adjustments as a percentage of pretax earnings.

A discussion of our Results of Operations for the three months ended March 31, 2023 can be found in “ Part I, Item 2.

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

Results of Operations;

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

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

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

” on our Form 10-Q filed on May 4, 2023 .

Liquidity and Capital Resources

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

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

Our principal liquidity requirements are to fund working capital, research and development, including clinical trials, capital expenditures primarily related to investment in surgical sets required to maintain and expand our business, service our 2025 Notes, and potential future business or intellectual property acquisitions.

We expect to continue to make investments in surgical sets as we launch new products, increase the size of our U.S.

sales force, and expand into international markets.

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

business strategy.

Additionally, we have varying needs for cash in connection with our Senior Convertible Notes, of which $450 million are due March 2025, as well as for certain acquisition-related obligations and contingent consideration achievements.

Future litigation or requirements to escrow funds could also materially impact

our liquidity and our ability to invest in and operate our business on an ongoing basis.

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

To the extent that we require new sources of liquidity, we may consider incurring debt, including borrowing against our existing credit facility, convertible debt instruments, and/or raising additional funds through an equity offering.

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

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

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

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 September 2023 Credit Agreement) 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 March 31, 2024, we have not borrowed under the September 2023 Credit Agreement and we are in compliance with all covenants.

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

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

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Cash Provided by Operating Activities

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

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

The higher net cash provided by operating activities for the three month period ended March 31, 2024 was primarily the result of higher net income after adjusting out non-cash add-backs and non-cash expenses, such as amortization of purchase accounting related fair value step up, amortization, and stock-based compensation, partially offset by unfavorable changes in accounts receivable and accrued expenses and other liabilities.

Cash Used in Investing Activities

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

The higher cash used in investing activities for the three month period ended March 31, 2024 was primarily net outflows for acquisition of businesses, net of cash acquired , h igher purchases of property and equipment, and net purchases of marketable securities.

Cash Used in Financing Activities

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

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

The higher net cash used in financing activities for the three month period ended March 31, 2024 was primarily the result of higher repurchases of Class A common stock, payments of business acquisition related liabilities and lower proceeds from exercise of stock options.

A discussion of our Cash Flows for the three months ended March 31, 2023 can be found in “ Part I, Item 2.

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

Results of Operations;

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

” on our Form 10-Q filed on May 4, 2023 .

Contractual Obligations and Commitments

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

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

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

Despite such delays, we believe our supplier relationships and facilities will support our capacity needs for the foreseeable future.

However, it is possible that a prolonged COVID-19 disruption could cause a

backlog of sales orders.

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

We stock inventory in our warehouse facilities and retain title to consigned inventory which is maintained with our field representatives and hospitals in sufficient quantities so that products are available when needed for surgical procedures.

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

Recently Adopted and Recently Issued Accounting Pronouncements

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Forward-looking statements are only predictions and are subject to many risks, uncertainties and other factors that may affect our businesses and operations and could cause actual results to differ materially from those predicted.

These risks and uncertainties include, but are not limited to, the risks and costs associated with the integration of, and our ability to integrate the NuVasive business successfully and to achieve anticipated synergies, health epidemics, pandemics and similar outbreaks, including the COVID-19 pandemic, factors affecting our quarterly results, our ability to manage our growth, our ability to sustain our profitability, demand for our products, our ability to compete successfully (including without limitation our ability to convince surgeons to use our products and our ability to attract and retain sales and other personnel), our ability to rapidly develop and introduce new products, our ability to develop and execute on successful business strategies, our ability to comply with changes and applicable laws and regulations that are applicable to our businesses, our ability to safeguard our intellectual property, our success in defending legal proceedings brought against us, trends in the medical device industry, and general economic conditions, and other risks set forth in this Quarterly Report on Form 10-Q and throughout our Annual Report on Form 10-K for the year ended December 31, 2022 , particularly those set forth under “Item 1.

These risks and uncertainties include, but are not limited to, the risks and costs associated with the integration of the NuVasive business and our ability to successfully integrate and achieve anticipated synergies with the integration, health epidemics, pandemics and similar outbreaks, factors affecting our quarterly results, our ability to manage our growth, our ability to sustain our profitability, demand for our products, our ability to compete successfully (including without limitation our ability to convince surgeons to use our products and our ability to attract and retain sales and other personnel), our ability to rapidly develop and introduce new products, our ability to develop and execute on successful business strategies, our ability to comply with changes and applicable laws and regulations that are applicable to our businesses, our ability to safeguard our intellectual property, our success in defending legal proceedings brought against us, trends in the medical device industry, and general economic conditions, and other risks set forth in this Quarterly Report on Form 10-Q and throughout our Annual Report on Form 10-K for the year-ended December 31, 2023 , particularly those set forth under “Item 1.

Business,” “Item 1A.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis