Globus Medical, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited consolidated results. Globus Medical develops and sells musculoskeletal medical devices and surgical-enabling technologies.
Financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $227.3 million | $190.6 million | +19.3% |
| Gross profit / margin | $172.3 million / 75.8% | $141.7 million / 74.4% | Margin +1.4 pts |
| Operating income / margin | $54.5 million / 24.0% | $28.4 million / 14.9% | |
| Net income | $45.3 million | $25.9 million | +74.7% |
| Diluted EPS | $0.44 | $0.25 | |
| Operating cash flow | $63.6 million | $42.3 million | |
| Cash, cash equivalents and restricted cash | $184.8 million | $239.4 million at Dec. 31, 2020 |
At March 31, cash and marketable securities totaled approximately $838.4 million, including $218.7 million of short-term and $434.9 million of long-term securities. Total liabilities were $174.9 million; the company had no borrowings under its $125 million revolving credit facility. The facility was scheduled to terminate August 5, 2021.
Net cash used in investing activities was $125.1 million, primarily reflecting purchases of marketable securities, partly offset by maturities and sales; capital expenditures were $13.7 million. Financing activities provided $7.6 million, versus $68.7 million used in Q1 2020, when the company repurchased shares.
Revenue and changes versus prior year
- Musculoskeletal Solutions sales were $212.4 million, up from $182.5 million; Enabling Technologies sales were $14.9 million, up from $8.0 million.
- U.S. sales rose 22.0% to $193.3 million; international sales increased 5.9% to $34.0 million. International sales were about 15% of total sales.
- Operating income rose as sales grew and gross margin improved. SG&A increased 4.7% to $97.9 million, largely from higher commissions and sales-force expansion, partly offset by lower travel and meeting costs.
- R&D decreased 3.1% to $14.9 million, primarily due to COVID-related reductions in travel and meetings. Cost of goods sold rose 12.6%, with volume, product mix, and higher inventory write-downs partly offset by favorable production variances.
- Net income growth also reflected higher operating income; other income declined to $2.6 million from $4.1 million, mainly because of lower yields on marketable securities. The effective tax rate was 20.7%, versus 20.2%.
Outlook, risks and notable items
- The filing provides no specific revenue or earnings guidance. Management said operating cash flow should fund foreseeable liquidity needs and cited planned investment in surgical sets, R&D, sales-force growth, and international expansion.
- COVID-19 remained a key uncertainty. A resurgence or renewed restrictions on elective procedures could materially adversely affect sales growth, operating profit, and cash flow, and could raise inventory levels or change customer payment terms. Management said COVID-19 had not materially affected supply or production to date, but future delays were possible.
- A patent-infringement action brought by Moskowitz Family LLC seeks unspecified damages and injunctive relief. The company said it could not determine the outcome or estimate a loss range and recorded no liability for the matter at March 31, 2021.
- The company recorded a $1.6 million net inventory-obsolescence adjustment, compared with $0.7 million a year earlier. It reported no goodwill or intangible-asset impairment in either period.
- No shares were repurchased in Q1 2021; approximately $95.3 million remained under the $200 million authorization. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether sales growth, particularly in Enabling Technologies and international markets, continued after Q1 and translated into sustainable margins.
- Cash conversion and working-capital trends: operating cash flow improved, but accounts receivable increased with sales and cash declined amid substantial securities purchases.
- The status and renewal or replacement of the revolving credit facility, which was due to terminate in August 2021.
- Developments in the Moskowitz litigation, contingent acquisition liabilities, and the potential financial effect of any adverse outcomes.
- The continuing effects of COVID-19 on elective surgeries, customer demand, supply chains, and inventory.