What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-05 · 43 added, 163 removed, 142 unchanged (59% of the section changed)

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes for the year ended December 31, 2023, which are included in our Annual Report on Form 10-K filed with the SEC on February 21, 2024.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes for the year ended December 31, 2024, which are included in our Annual Report on Form 10-K filed with the U.S.

Securities and Exchange Commission on February 20, 2025.

Globus Medical, Inc.

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Musculoskeletal Solutions and Enabling Technologies .

NuVasive Merger

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

(“NuVasive”) and Zebra Merger Sub Inc.

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

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

Product & Service Categories

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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, 2024, international net sales accounted for approximately 20.6% of our total net sales.

During the three months ended March 31, 2025, international net sales accounted for approximately 19.1% of our total net sales.

We have sold our products and services in approximately 62 countries other than the United States through a combination of sales representatives employed by us and exclusive international distributors.

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The preparation of the condensed consolidated financial statements requires us to make assumptions, estimates and judgments that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities as of the date of the condensed consolidated financial statements, and the reported amounts of sales and expenses during the reporting periods.

Except for updates to accounting policies and estimates as a result of the Merger described in Note 2 to the accompanying condensed consolidated financial statements, there have been no material changes to the critical accounting policies and estimates as previously disclosed in Part II, Item 7 of our Annual Report on Form 10-K for the year-ended December 31, 2023 .

There have been no material changes to the critical accounting policies and estimates as previously disclosed in Part II, Item 7 of our Annual Report on Form 10-K for the year-ended December 31, 2024 .

Results of Operations

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

Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024

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 was $186.5 million, or 60.3%, for the three month period ended September 30, 2024 and was significantly driven by the Merger.

From a product standpoint, domestic musculoskeletal solutions sales increased by $172.9 million, mainly driven by sales increases in spine products of $146.1 million, and neuromonitoring solution product and services of $17.1 million.

Domestic enabling technology sales increased by $13.5 million compared to the prior year, driven by higher unit placement.

International net sales increased by $55.6 million, or 74.8% for the three month period ended September 30, 2024 and was significantly driven by the Merger.

From a product standpoint, the increase was mainly due to musculoskeletal solutions sales increase of $58.5 million, primarily due to spine products.

Regionally, the increase was driven by sales growth in the Europe and Middle East (“EMEA”) region by $27.1 million, Latin America (“LATAM”) region by $6.4 million and Asia Pacific (“APAC”) region by $21.5 million.

International enabling technology sales decreased by $2.9 million compared to the three months ended September 30, 2023 .

In the United States, the increase in net sales was $0.9 million, or 0.2%, for the three month period ended March 31, 2025.

From a product standpoint, domestic musculoskeletal solutions sales increased by $7.9 million, mainly driven by sales increases in spine products of $8.9 million, offset by a decrease in neuromonitoring solutions products and services of $3.2 million.

Domestic enabling technology sales decreased by $7.0 million compared to the prior year, driven by lower unit placement.

International net sales decreased by $9.5 million, or 7.7% for the three month period ended March 31, 2025.

From a product standpoint, the decrease was mainly due to musculoskeletal solutions sales of $6.7 million, primarily driven by a decrease in sales of spine products.

Regionally, the decline was mainly due to the Europe and Middle East region by $4.6 million, Latin America region by $3.4 million and Asia Pacific region by $1.4 million.

International enabling technology sales decreased by $2.8 million compared to the three months ended March 31, 2024, driven by lower unit placement .

Cost of Sales

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

The $135.1 million or 99.8% increase in cost of sales was driven primarily by increases to inventory product costs of $59.4 million from increased volume significantly due to the Merger.

Additionally, there was increased amortization of inventory fair value step-up of $41.7 million, due to three months of post-acquisition amortization occurring in the current period as compared to one month in the prior period.

Further, increases in costs of sales were also impacted by increased depreciation of $9.9 million, and increased changes in excess and obsolete inventory reserves of $5.2 million.

The $46.1 million or 19.1% decrease in cost of sales was driven primarily by decreased amortization of inventory fair value step-up of $ 53.6 million, a decrease to inventory product costs of $7.6 million and changes in excess and obsolete inventory reserves of $4.2 million, offset by an increase in depreciation of $11.6 million.

Research and Development Expenses

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

The $6.1 million or 20.6% increase in research and development expenses shows our continued investment in product development.

This increase was primarily driven by increased personnel related expenses of $4.7 million due to increased headcount and parts expended in development of $1.3 million.

The $24.2 million or 42.3% decrease in research and development expenses was primarily driven by a decrease of $12.6 million in acquired intellectual property research and development, a decrease in personnel related expenses of $9.1 million due to a decrease in headcount and a decrease in parts expended in development of $2.5 million.

Selling, General and Administrative Expenses

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

The increase of $84.5 million or 54.1% in selling, general and administrative expenses was primarily driven by increases to personnel related expenses by $60.3 million due to increased headcount primarily from the Merger, increases to taxes and fees by $4.6 million, consulting and outside service expenses by $4.6 million, and rent expenses by $4.1 million.

Provision for Litigation, net

Three Months Ended

September 30,

(In thousands, except percentages)

Provision for litigation, net

Percentage of net sales

The $3.6 million decrease in provision for litigation, net was due to a favorable legal settlements of $0.7 million during the three months ended September 30, 2024, as compared to the provision expense recorded during the three months ended September 30, 2023.

The decrease of $5.9 million or 2.4% in selling, general and administrative expenses was primarily driven by a decrease in consulting and outside service expenses by $7.2 million, offset by an increase in taxes and fees of $2.6 million.

Amortization of Intangibles

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

Amortization of intangibles increased by $16.3 million or 118.6% for the three month period ended September 30, 2024 compared to the three month period ended September 30, 2023, due to the impact of the intangibles acquired from NuVasive, which had $25.9 million amortization in the current period.

Amortization of intangibles decreased by $0.9 million or 2.9% for the three month period ended March 31, 2025 due to the finalization of re-acquired rights expenses in the current period, as compared to the three month period ended March 31, 2024.

Acquisition-Related Costs

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

The decrease in acquisition-related costs compared to prior year was due primarily to the closing of the merger with NuVasive during the three months ended September 30, 2023.

During the prior period, costs incurred primarily related to employee-related costs of $34.0 million and banking and legal fees contingent on the merger closing of $9.5 million.

In the current period, a benefit of $3.6 million was recognized due to an adjustment in the classification of associated costs.

The decrease in acquisition-related costs compared to prior year was due primarily to minimal acquisition-related expenses in the current period compared to the three months ended March 31, 2024.

Restructuring Costs

Three Months Ended

September 30,

(In thousands, except percentages)

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Percentage of net sales

The restructuring costs of $5.2 million for the three months ended September 30, 2024 were driven by 2024 Synergy Plan employee termination benefits.

Other Income/(expense), Net

Three Months Ended

September 30,

(In thousands, except percentages)

The decrease in restructuring costs of $19.1 million compared to prior year was due primarily to the 2024 Synergy Plan employee termination benefit expenses for the three months ended March 31, 2024.

Other Income/(Expense), Net

Percentage of net sales

The increase of $6.8 million in other income/(expense), was primarily due to $15.6 million of foreign currency gain offset by increases in interest expense of $6.0 million, from amortization of the fair value adjustment on the 2025 Notes from acquisition accounting and other contractual interest incurred.

Additionally, interest income decreased by $2.5 million driven by a lower average marketable securities portfolio size in the current period.

Income Tax Provision

Three Months Ended

September 30,

(In thousands, except percentages)

Income tax provision

Effective income tax rate

The decrease in the effective tax rate was due primarily to a benefit from a release of tax reserves of $2.9 million in the current period and a higher stock compensation windfall benefit of $1.5 million, partially offset by higher income before income taxes of $54.5 million.

A discussion of our Results of Operations for the three months ended September 30, 2023 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, 2023 Compared to the Three Months Ended September 30 2022.

” on our Form 10-Q filed on November 7, 2023 .

Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

Nine Months Ended

September 30,

(In thousands, except percentages)

United States

International

Total net sales

In the United States, the increase in net sales was $689.3 million, or 87.4% for the nine month period ended September 30, 2024 and was significantly driven by the Merger.

From a product standpoint, domestic musculoskeletal solutions increased by $667.6 million, mainly driven by sales increases in spine products of $556.1 million and neuromonitoring solution product and services of $77.4 million.

Enabling technology increased by $21.7 million compared to the prior year, driven by higher unit placement.

International net sales increased by $220.9 million for the nine month period ended September 30, 2024 and was driven significantly by the Merger.

From a product standpoint, it was mainly due to musculoskeletal solutions sales increase of $223.0 million, primarily due to spine products.

The increase was driven by sales growth in the EMEA region by $95.8 million, the LATAM region by $25.7 million and the APAC region by $80.8 million, respectively.

International enabling technology decreased by $2.1 million compared to the nine months ended September 30, 2023 .

Cost of Sales

Nine Months Ended

September 30,

(In thousands, except percentages)

Cost of sales

Percentage of net sales

The $489.4 million or 173% increase in cost of sales was driven primarily by increases to inventory product costs of $220.0 million from increased volume significantly due to the Merger.

Additionally, there was increased amortization of inventory fair value step-up of $149.0 million due to nine months of post-acquisition amortization occurring in the current period as compared to one month in the prior period.

Further, increases in costs of sales were impacted by increased depreciation of $34.8 million, and increased changes in excess and obsolete inventory reserves of $11.8 million.

Research and Development Expenses

Nine Months Ended

September 30,

(In thousands, except percentages)

Research and development

Percentage of net sales

The $58.6 million or 81.6% increase in research and development expenses shows our continued investment in product development.

This increase was primarily driven by increased personnel related expenses of $35.7 million due to increased headcount, and acquired IPR&D charge of $12.6 million from the asset acquisition closed in the first quarter of 2024.

Selling, General and Administrative Expenses

Nine Months Ended

September 30,

(In thousands, except percentages)

Selling, general and administrative

Percentage of net sales

The net increase of $328.9 million or 82.5% in selling, general and administrative expenses was primarily due to increased personnel related expenses of $240.1 million driven by increased headcount primarily from the Merger.

Additionally, taxes and fees increased by $21.4 million, consulting and outside service expenses by $14.9 million, and rent expenses by $11.3 million.

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 was consistent across the periods, with net provision charge slightly higher in the current period as compared to the prior period .

The main driver in the current period was a case accrual for $0.8 million along with adjustments to other reserves, partially offset by a favorable settlement of $0.7 million.

Amortization of Intangibles

Nine Months Ended

September 30,

(In thousands, except percentages)

Amortization of intangibles

Percentage of net sales

Amortization of intangibles increased by $66.6 million, or 290.5%, for the nine month period ended September 30, 2024, as compared to the nine month period ended September 30, 2023, due to the impact of the intangibles acquired from NuVasive, which had $77.3 million amortization in the current period.

Acquisition-Related Costs

Nine Months Ended

September 30,

(In thousands, except percentages)

Acquisition-related costs

Percentage of net sales

The decrease in acquisition-related costs compared to prior year was due primarily to the closing of the merger with NuVasive during the three months ended September 30, 2023.

During the current period, the cost of $12.5 million was primarily driven by the charge of $8.6 million recorded as a change to the fair value of business acquisition liabilities resulting from changes in contract terms, market conditions and the achievement of certain performance conditions.

Additionally, there was an increase of $1.5 million in employee related costs.

During the prior period, costs incurred are primarily related to the closing of the Merger, including employee-related costs personnel related charges for fees and severance of $34.0 million and banking and legal fees contingent on the merger closing of $9.5 million.

Restructuring Costs

Nine Months Ended

September 30,

(In thousands, except percentages)

Restructuring Costs

Percentage of net sales

The restructuring costs of $23.8 million for the nine months ended September 30, 2024 were due to employee termination benefits associated with the 2024 Synergy Plan .

Other Income/(expense), Net

Nine Months Ended

September 30,

(In thousands, except percentages)

Other income, net

Percentage of net sales

The decrease of $27.0 million in other income/(expense), was primarily due to higher interest expense of $20.7 million, from amortization of the fair value adjustment on the 2025 Notes from acquisition accounting and other contractual interest incurred.

In addition, interest income decreased by $7.0 million driven from a lower average marketable securities portfolio size in the current period.

Income Tax Provision

Nine Months Ended

September 30,

The increase of $23.2 million in other income/(expense), was due primarily to $4.3 million of foreign currency gain in the current period as compared to a $15.4 million loss in the prior period.

Additionally, there was an increase in interest income of $3.4 million driven by higher average balances across the company’s marketable securities, cash and cash equivalents in the current period as compared to the three months ended March 31, 2024.

Income Tax Provision/(Benefit)

Three Months Ended

(In thousands, except percentages)

Income tax provision

Income tax provision/(benefit)

Effective income tax rate

The decrease in the effective tax rate was due primarily to a benefit from a release of tax reserves of $3.7 million in the current period, a higher stock compensation windfall benefit of $2.1 million, and lower income before income taxes of $44.3 million.

A discussion of our Results of Operations for the nine months ended September 30, 2023 can be found in “ Part I, Item 2.

For the three months ended March 31, 2025, the increase in the effective tax rate was due primarily to income before taxes of $103.7 million as compared to a loss of $8.6 million for the three months ended March 31, 2024, and one-time tax adjustments as a percentage of income/(loss) before taxes.

A discussion of our Results of Operations for the three months ended March 31, 2024, 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, 2023 Compared to the Nine Months Ended September 30, 2022.

” on our Form 10-Q filed on November 7, 2023 .

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

” on our Form 10-Q filed on May 7, 2024 .

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, contingent consideration achievement obligations, potential future business or intellectual property acquisitions, and to service our 2025 Notes.

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.

Our Senior Convertible Notes, with a principal balance of $450 million are due March 2025.

We anticipate being able to support this need through existing or new sources of liquidity.

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.

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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.

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.

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The September 2023 Credit Agreement contains financial and other customary covenants, including a funded net indebtedness to adjusted EBITDA ratio.

As of September 30, 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,

As of March 31, 2025, 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 for the three months ended March 31, 2025 and 2024, respectively:

Three Months Ended

(In thousands)

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Cash Provided by Operating Activities

The higher net cash provided by operating activities for the nine month period ended September 30, 2024 was primarily the result of higher net income after adjusting out non-cash add-backs and non-cash expenses, primarily due to the Merger.

These include increased amortization of purchase accounting related fair value step up of inventory of $149.0 million, increased depreciation and amortization of $112.2 million, and increased amortization of the fair value step up with respect to our 2025 Note of $20.0 million, partially offset by unfavorable changes in accounts receivable of $63.6 million, deferred income taxes of $46.7 million, and accrued expenses and other liabilities of $20.2 million.

The higher net cash provided by operating activities for the three month period ended March 31, 2025 was primarily the result of higher net income of $82.6 million and favorable changes in accounts receivable of $59 million, partially offset by a decrease in non-cash expense add backs of $10.0 million.

This is primarily a result of a decrease in amortization of inventory fair value step-up of $53.7 million and acquisition of in-process research and development of $12.6 million.

These were partially offset by a favorable change in deferred income taxes of $45.6 million and an increase in depreciation and amortization of $10.8 million.

Cash Used in Investing Activities

The higher cash used in investing activities for the nine month period ended September 30, 2024 was due primarily to less inflows from net maturities of marketable securities of $289.8 million as we manage our liquidity, as well as increased purchases of property and equipment of $42.9 million primarily from increased production resulting from the Merger.

These were partially offset by decreased outflows for the acquisition of businesses, net of cash acquired of $278.4 million, with immaterial acquisitions occurring in the current period as compared to the prior period that was primarily driven by the Merger.

The higher cash provided by investing activities for the three month period ended March 31, 2025, was primarily due to increased inflows from maturities of marketable securities of $58.5 million and increased sales of marketable securities of $113 million.

Cash Used in Financing Activities

The higher net cash used in financing activities for the nine month period ended September 30, 2024 was primarily the result of increased repurchases of Class A common stock of $84.8 million, and increased payments of business acquisition-related liabilities of $31.1 million, partially offset by higher proceeds from the exercise of stock options of $29.8 million.

A discussion of our Cash Flows for the nine months ended September 30, 2023 can be found in “ Part I, Item 2.

The higher net cash used in financing activities for the three month period ended March 31, 2025, was primarily the result of the repayment of the senior convertible notes of $450.0 million and increased repurchases of Class A common stock of $107.1 million, partially offset by decreased payments of business acquisition-related liabilities of $26.6 million.

A discussion of our Cash Flows for the three months ended March 31, 2024, 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 7, 2023 .

” on our Form 10-Q filed on May 7, 2024 .

Contractual Obligations and Commitments

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

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

In connection with the NuVasive Merger, the Company acquired additional obligations and commitments, including, but not limited to (i) contingent consideration arrangements associated with certain historical NuVasive acquisitions, ii) senior convertible notes, and iii) operating lease and finance lease obligations.

Refer to the Notes to the condensed consolidated financial statements for further description of contingent consideration arrangements (Notes 6), debt (Note 11), and lease obligations (Note 16).

Recently Adopted and Recently Issued Accounting Pronouncements

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Forward-looking statements contained in this Quarterly Report speak only as of the date of this Quarterly Report.

We undertake no

obligation to update any forward-looking statements as a result of new information, events or circumstances or other factors arising or coming to our attention after the date hereof.

We undertake no obligation to update any forward-looking statements as a result of new information, events or circumstances or other factors arising or coming to our attention after the date hereof.

Quantitative and Qualitative Disclosure About Market Risk

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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