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Press release content from Globe Newswire. The AP news staff was not involved in its creation.

Globus Medical Reports First Quarter 2019 Results

May 2, 2019

AUDUBON, Pa., May 02, 2019 (GLOBE NEWSWIRE) -- Globus Medical, Inc. (NYSE:GMED), a leading musculoskeletal solutions company, today announced its financial results for the first quarter ended March 31, 2019.

-- Worldwide sales were $182.9 million, an increase of 4.9% as reported -- First quarter net income was $33.2 million, a decrease of 16.0% -- Diluted earnings per share (EPS) was $0.33 and non-GAAP diluted EPS was $0.36 -- Non-GAAP diluted EPS decreased 13.4% compared to first quarter of 2018 -- Non-GAAP adjusted EBITDA was 31.1% of sales

“Our first quarter results demonstrate continued strong momentum in the Musculoskeletal Solutions portion of our business, growing at 8.7% on an as reported basis and 9.6% in constant currency, well above the overall market,” said Dave Demski, President and CEO. “Enabling Technologies contributed $7.2 million and the impressive level of surgeon adoption in accounts with our ExcelsiusGPS® robotic system continues to validate our vision of the future of computer assisted spine surgery.”

Worldwide sales for the first quarter were $182.9 million, an increase of 4.9% over the first quarter of 2018 on an as-reported basis and 5.7% on a constant currency basis. First quarter sales in the U.S., including robotics, increased by 1.3% as quarterly seasonality and longer sales cycles dampened robotic sales compared to the first quarter of 2018. International sales increased by 23.0% over the first quarter of 2018 on an as-reported basis and 27.9% on a constant currency basis.

First quarter GAAP net income was $33.2 million, a decrease of 16.0% over the same period last year. Diluted EPS for the first quarter was $0.33, as compared to $0.39 for the first quarter 2018. Non-GAAP diluted EPS for the first quarter was $0.36, compared to $0.41 in the first quarter of 2018, a decrease of 13.4%.

The company generated net cash provided by operating activities of $39.2 million and non-GAAP free cash flow of $11.0 million in the first quarter, and ended the quarter with cash, cash equivalents and marketable securities of $621.5 million. The company remains debt free.

The company today announced Rob Liptak stepped down from the Globus Medical Board of Directors effective May 1, 2019. “Rob joined the Board as part of our Series E financing in 2007 led by Clarus Ventures. He has been a valuable contributor to our success for nearly twelve years and we will miss him,” said Mr. Demski. Mr. Liptak has assumed a role that precludes him from serving on public company Boards. The company also announced the appointment of Steve Zarrilli to the Globus Medical Board of Directors, effective May 1, 2019. Mr. Zarrilli is currently President and CEO of University Science Center in Philadelphia, the oldest and largest urban research hub in the US. Prior to his current role, Mr. Zarrilli was President and CEO of Safeguard Scientifics, a public company that provides growth equity capital to technology and healthcare enterprises.

2019 Annual GuidanceThe company today confirmed guidance for full year 2019 sales of $770 million and non-GAAP diluted earnings per share of $1.72.

Conference Call InformationGlobus Medical will hold a teleconference to discuss its 2019 first quarter results with the investment community at 4:30 p.m. Eastern Time today. Globus invites all interested parties to join the call by dialing:

1-855-533-7141 United States Participants 1-720-545-0060 International Participants

There is no pass code for the teleconference.

For interested parties who do not wish to ask questions, the teleconference will be webcast live and may be accessed through a link on the Globus Medical website at investors.globusmedical.com.

The call will be archived until Thursday, May 9, 2019. The audio archive can be accessed by calling 1-855-859-2056 in the U.S. or 1-404-537-3406 from outside the U.S. The passcode for the audio replay is 1012-6393.

About Globus Medical, Inc.Based in Audubon, Pennsylvania, Globus Medical, Inc. was founded in 2003 by an experienced team of professionals with a shared vision to create products that enable surgeons to promote healing in patients with musculoskeletal disorders. Additional information can be accessed at www.globusmedical.com.

Non-GAAP Financial Measures

To supplement our financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), management uses certain non-GAAP financial measures. For example, non-GAAP adjusted EBITDA, which represents net income before interest income, net and other non-operating expenses, provision for income taxes, depreciation and amortization, stock-based compensation, provisions for litigation, and acquisition related costs/licensing, and net gain from the sale of assets, is useful as an additional measure of operating performance, and particularly as a measure of comparative operating performance from period to period, as it is reflective of changes in pricing decisions, cost controls and other factors that affect operating performance, and it removes the effect of our capital structure, asset base, income taxes and interest income and expense. Our management also uses non-GAAP adjusted EBITDA for planning purposes, including the preparation of our annual operating budget and financial projections. Provision for litigation represents costs incurred for litigation settlements or unfavorable verdicts when the loss is known or considered probable and the amount can be reasonably estimated, or in the case of a favorable settlement, when income is realized. Acquisition related costs/licensing represents the change in fair value of business acquisition related contingent consideration; costs related to integrating recently acquired businesses including but not limited to costs to exit or convert contractual obligations, severance, and information system conversion; and specific costs related to the consummation of the acquisition process such as banker fees, legal fees, and other acquisition related professional fees, as well as one-time licensing fees. Net gain from sale of assets represents the gain on sale of assets and the offsetting impact of costs incurred through the sale.

In addition, for the period ended March 31, 2019 and for other comparative periods, we are presenting non-GAAP net income and non-GAAP diluted earnings per share, which represent net income and diluted earnings per share excluding the provision for litigation, amortization of intangibles, acquisition related costs/licensing, net gain from the sale of assets and the tax effects of such adjustments. We believe these non-GAAP measures are also useful indicators of our operating performance, and particularly as additional measures of comparative operating performance from period to period as they remove the effects of litigation, amortization of intangibles, acquisition related costs/licensing, net gain from the sale of assets and the tax effects of such adjustments, which we believe are not reflective of underlying business trends. Additionally, for the periods ended March 31, 2019 and for other comparative periods, we also define the non-GAAP measure of free cash flow as the net cash provided by operating activities, adjusted for the impact of restricted cash, less the cash impact of purchases of property and equipment. We believe that this financial measure provides meaningful information for evaluating our overall financial performance for comparative periods as it facilitates an assessment of funds available to satisfy current and future obligations and fund acquisitions. Furthermore, the non-GAAP measure of constant currency sales growth is calculated by translating current year sales at the same average exchange rates in effect during the applicable prior year period. We believe constant currency sales growth provides insight to the comparative increase or decrease in period sales, in dollar and percentage terms, excluding the effects of fluctuations in foreign currency exchange rates.

Non-GAAP adjusted EBITDA, non-GAAP net income, non-GAAP diluted earnings per share, free cash flow and constant currency sales growth are not calculated in conformity with U.S. GAAP. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for financial measures prepared in accordance with U.S. GAAP. These measures do not include certain expenses that may be necessary to evaluate our liquidity or operating results. Our definitions of non-GAAP adjusted EBITDA, non-GAAP net income, non-GAAP diluted earnings per share, free cash flow and constant currency sales growth may differ from that of other companies and therefore may not be comparable. Additionally, we have recast prior periods for non-GAAP net income and non-GAAP diluted earnings per share.

Safe Harbor Statements

All statements included in this press release other than statements of historical fact are forward-looking statements and may be identified by their use of words such as “believe,” “may,” “might,” “could,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “plan” and other similar terms. These forward-looking statements are based on our current assumptions, expectations and estimates of future events and trends. 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, 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 successfully integrate the international operations acquired from Alphatec, both in general and on our anticipated timeline, our ability to transition Alphatec’s international customers to Globus products, our ability to realize the expected benefits to our results from the Alphatec acquisition, our ability to comply with laws and regulations that are or may become 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, general economic conditions, and other risks. For a discussion of these and other risks, uncertainties and other factors that could affect our results, you should refer to the disclosure contained in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission, including the sections labeled “Risk Factors” and “Cautionary Note Concerning Forward-Looking Statements,” and in our Forms 10-Q, Forms 8-K and other filings with the Securities and Exchange Commission. These documents are available at www.sec.gov. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for us to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements contained in this press release speak only as of the date of this press release. 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.

GLOBUS MEDICAL, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF INCOME(unaudited)

Three Months Ended (In thousands, except per share amounts) March 31, March 31, 2019 2018 ---------- ----------- Sales $ 182,947 $ 174,411 Cost of goods sold 41,838 37,970 --------- - Gross profit 141,109 136,441 --------- --------- - Operating expenses: Research and development 14,324 12,689 Selling, general and administrative 85,784 75,694 Amortization of intangibles 3,343 2,187 Acquisition related costs 579 238 --------- - Total operating expenses 104,030 90,808 --------- --------- - Operating income 37,079 45,633 Other income, net Interest income/(expense), net 4,159 2,291 Foreign currency transaction gain/(loss) 189 (5 ) Other income/(expense) 224 158 --------- - Total other income/(expense), net 4,572 2,444 --------- --------- - Income before income taxes 41,651 48,077 Income tax provision 8,441 8,539 --------- --------- - Net income $ 33,210 $ 39,538 - ------- - ------- - Earnings per share: Basic $ 0.34 $ 0.41 - ------- - ------- - Diluted $ 0.33 $ 0.39 - ------- - ------- - Weighted average shares outstanding: Basic 98,727 96,840 Dilutive stock options 2,640 3,656 --------- - Diluted 101,367 100,496 --------- --------- - Anti-dilutive stock options excluded from weighted average calculation 4,687 1,917

(In thousands, except par value) March 31, December 31, 2019 2018 ------------- ------------- ASSETS Current assets: Cash, cash equivalents, and restricted cash $ 129,976 $ 139,747 Short-term marketable securities 190,688 199,937 Accounts receivable, net of allowances of $4,235 and $4,226, respectively 139,616 137,067 Inventories 143,380 131,254 Prepaid expenses and other current assets 12,915 15,387 Income taxes receivable 993 7,289 Total current assets 617,568 630,681 ----------- - ----------- - Property and equipment, net of accumulated depreciation of $223,662 and $216,809, 184,288 171,873 respectively Long-term marketable securities 300,802 263,117 Intangible assets, net 84,269 87,323 Goodwill 123,680 123,734 Other assets 12,962 10,364 Deferred income taxes 12,350 13,578 ----------- - Total assets $ 1,335,919 $ 1,300,670 - --------- - - --------- - LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 25,031 $ 25,895 Accrued expenses 48,605 59,878 Income taxes payable 1,068 917 Business acquisition liabilities 2,000 6,830 Deferred revenue 2,788 2,598 ----------- - Total current liabilities 79,492 96,118 ----------- - ----------- - Business acquisition liabilities, net of current portion 3,289 3,288 Deferred income taxes 7,938 8,114 Other liabilities 7,986 7,634 ----------- - Total liabilities 98,705 115,154 ----------- - ----------- - Commitments and contingencies Equity: Class A common stock; $0.001 par value. Authorized 500,000 shares; issued and outstanding 76,552 and 76,143 shares at March 31, 2019 and December 31, 2018, 77 76 respectively Class B common stock; $0.001 par value. Authorized 275,000 shares; issued and outstanding 22,430 and 22,430 shares at March 31, 2019 and December 31, 2018, 22 22 respectively Additional paid-in capital 316,665 299,869 Accumulated other comprehensive loss (5,480 ) (7,172 ) Retained earnings 925,930 892,721 ----------- - Total equity 1,237,214 1,185,516 ----------- - ----------- - Total liabilities and equity $ 1,335,919 $ 1,300,670 - --------- - - --------- -

GLOBUS MEDICAL, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited)

Three Months Ended (In thousands) March 31, March 31, 2019 2018 ----------- ----------- Cash flows from operating activities: Net income $ 33,210 $ 39,538 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12,254 9,476 Amortization of premium (discount) on marketable securities (396 ) 785 Write-down for excess and obsolete inventories 2,167 2,483 Stock-based compensation expense 6,448 6,053 Allowance for doubtful accounts 33 217 Change in fair value of business acquisition liabilities 579 234 Change in deferred income taxes 1,059 (124 ) (Gain)/loss on disposal of assets, net 94 — (Increase)/decrease in: Accounts receivable (2,533 ) (5,080 ) Inventories (13,844 ) (1,206 ) Prepaid expenses and other assets 848 (1,234 ) Increase/(decrease) in: Accounts payable 2,827 728 Accrued expenses and other liabilities (9,984 ) (7,072 ) Income taxes payable/receivable 6,441 7,497 --------- - --------- - Net cash provided by operating activities 39,203 52,295 --------- - --------- - Cash flows from investing activities: Purchases of marketable securities (127,911 ) (118,403 ) Maturities of marketable securities 90,454 73,330 Sales of marketable securities 11,773 1,333 Purchases of property and equipment (28,155 ) (12,374 ) Net cash used in investing activities (53,839 ) (56,114 ) --------- - --------- - Cash flows from financing activities: Payment of business acquisition liabilities (5,350 ) (5,440 ) Proceeds from exercise of stock options 10,255 9,307 Net cash provided by financing activities 4,905 3,867 --------- - --------- - Effect of foreign exchange rate on cash (40 ) 971 --------- - --------- - Net increase in cash, cash equivalents, and restricted cash (9,771 ) 1,019 Cash, cash equivalents, and restricted cash at beginning of period 139,747 118,817 --------- - --------- - Cash, cash equivalents, and restricted cash at end of period $ 129,976 $ 119,836 - ------- - - ------- - Supplemental disclosures of cash flow information: Interest paid 2 — Income taxes paid $ 1,450 $ 1,197

Supplemental Financial Information

Sales by Geographic Area:

(Unaudited) Three Months Ended (In thousands) March 31, March 31, 2019 2018 United States $ 147,536 $ 145,618 International 35,411 28,793 --------- --------- Total sales $ 182,947 $ 174,411 - ------- - -------

Sales by Revenue Stream:

(Unaudited) Three Months Ended (In thousands) March 31, March 31, 2019 2018 Musculoskeletal Solutions products $ 175,758 $ 161,689 Enabling Technologies products 7,189 12,722 Total sales $ 182,947 $ 174,411 - ------- - -------

Liquidity and Capital Resources:

(Unaudited) (In thousands) March 31, March 31, 2019 2018 ---------- ---------- Cash, cash equivalents, and restricted cash $ 129,976 $ 139,747 Short-term marketable securities 190,688 199,937 Long-term marketable securities 300,802 263,117 --------- --------- Total cash, cash equivalents, restricted cash and marketable securities $ 621,466 $ 602,801 - ------- - -------

The following tables reconcile GAAP to Non-GAAP financial measures.

Non-GAAP Adjusted EBITDA Reconciliation Table:

(Unaudited) Three Months Ended (In thousands, except percentages) March 31, March 31, 2019 2018 Net income $ 33,210 $ 39,538 Interest income, net (4,159 ) (2,291 ) Provision for income taxes 8,441 8,539 Depreciation and amortization 12,254 9,476 -------- - -------- - EBITDA 49,746 55,262 Stock-based compensation expense 6,448 6,053 Acquisition related costs/licensing 637 392 Adjusted EBITDA $ 56,831 $ 61,707 - ------ - - ------ - Net income as a percentage of sales 18.2 % 22.7 % Adjusted EBITDA as a percentage of sales 31.1 % 35.4 %

Non-GAAP Net Income Reconciliation Table:

(Unaudited) Three Months Ended (In thousands) March 31, March 31, 2019 2018 Net income $ 33,210 $ 39,538 Amortization of intangibles 3,343 2,187 Acquisition related costs/licensing 637 392 Tax effect of adjusting items (807 ) (459 ) -------- - Non-GAAP net income $ 36,383 $ 41,658 - ------ - - ------ -

Non-GAAP Diluted Earnings Per Share Reconciliation Table:

(Unaudited) Three Months Ended March March 31, (Per share amounts) 31, 2019 2018 Diluted earnings per share, as reported $ 0.33 $ 0.39 Amortization of intangibles 0.03 0.02 Acquisition related costs/licensing 0.01 — Tax effect of adjusting items (0.01 ) — Non-GAAP diluted earnings per share $ 0.36 $ 0.41 - ---- - - ---- --

Non-GAAP Free Cash Flow Reconciliation Table:

(Unaudited) Three Months Ended (In thousands) March 31, March 31, 2019 2018 Net cash provided by operating activities $ 39,203 $ 52,295 Purchases of property and equipment (28,155 ) (12,374 ) -------- - Non-GAAP free cash flow $ 11,048 $ 39,921 - ------ - - ------ -

Non-GAAP Sales on a Constant Currency Basis Comparative Table:

(Unaudited) Three Months Ended Currency Constan Reporte Impact on t d Current Currenc (In thousands, except percentages) March 31, 2019 March 31, 2018 Growth Period y Growth ------ ---------- ------ United States $ 147,536 $ 145,618 1.3 % — 1.3 % International 35,411 28,793 23.0 % $ (1,426 ) 27.9 % --------- ---- --------- ---- - ------ - Total sales $ 182,947 $ 174,411 4.9 % $ (1,426 ) 5.7 % - ------- ---- - ------- ---- - ------ -

Contact:Brian KearnsSenior Vice President, Business Development and Investor RelationsPhone: (610) 930-1800Email: investors@globusmedical.comwww.globusmedical.com