Globus Medical, Inc. — FY 2022 Form 10-K
Reporting period: Year ended December 31, 2022; filed February 21, 2023. This is an annual report, not a standalone fourth-quarter report. Globus develops and sells musculoskeletal implants, biologics, surgical instruments, and imaging, navigation, and robotic systems. It reports one operating segment.
Financial performance
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net sales | $1,022.8 million | $958.1 million | +6.8% |
| Gross profit / gross margin | $759.1 million / 74.2% | $718.9 million / 75.0% | Margin down 0.8 percentage points |
| Operating income / operating margin | $228.0 million / 22.3% | $172.0 million / 17.9% | Income +32.6% |
| Net income / net margin | $190.2 million / 18.6% | $149.2 million / 15.6% | Income +27.5% |
| Diluted EPS | $1.85 | $1.44 | +28.5% |
| Operating cash flow | $178.5 million | $276.3 million | Down $97.8 million |
Musculoskeletal Solutions revenue was $926.7 million, up 5.7%; Enabling Technologies revenue was $96.1 million, up 18.2%. U.S. sales rose 6.4% to $871.9 million; international sales rose 8.9% to $150.9 million and represented 14.8% of total sales. Management attributed growth mainly to spine sales and higher Enabling Technologies volume.
Cost of goods sold increased 10.2%, faster than sales, with higher volume, product mix, and freight costs partly offset by lower inventory write-downs and depreciation. R&D expense fell 25.0%, primarily because 2021 included $34.3 million of acquired in-process R&D expense. SG&A rose 5.9%, mainly due to commissions and travel. The effective tax rate rose to 21.7% from 17.3%, primarily because stock-compensation windfall tax benefits were lower.
Financial position and liquidity
- Cash and cash equivalents were $150.5 million; short- and long-term marketable securities totaled $791.4 million. Combined cash and securities were approximately $941.9 million, versus $1,005.9 million at year-end 2021.
- Current assets were $983.3 million and current liabilities $159.2 million. Total liabilities were $229.8 million; the balance sheet reports no long-term borrowings.
- A $125 million revolving credit facility was undrawn at year-end and scheduled to terminate August 2, 2023. The filing notes customary covenants.
- Operating cash flow was $178.5 million. Investing activities used $110.4 million, including $74.0 million of property and equipment purchases and $31.4 million for acquisitions and other assets. Financing activities used $110.0 million, principally reflecting $144.5 million of share repurchases. Cash and cash equivalents declined $42.6 million during the year.
- Inventory increased to $299.0 million from $237.0 million; accounts receivable increased to $213.2 million from $164.4 million. The auditor identified inventory valuation as a critical audit matter because demand forecasts and product life cycles affect excess-inventory estimates.
Material developments, outlook, and risks
- Globus launched eight products in 2022, including Excelsius3D, an imaging system designed to integrate with ExcelsiusGPS. Management said it intends to continue product development, expand sales coverage, grow internationally, and selectively pursue acquisitions; the filing provides no formal numeric financial guidance.
- Harvest Biologics was acquired in the fourth quarter for approximately $30 million, subject to adjustments. The preliminary allocation included $14.2 million of goodwill and $12.9 million of customer-related intangibles and developed technology.
- After year-end, Globus agreed to acquire NuVasive in an all-stock transaction: NuVasive shareholders would receive 0.75 Globus Class A shares per share, with expected post-close ownership of approximately 28% for NuVasive holders and 72% for Globus holders. Closing was expected in mid-2023, subject to shareholder, regulatory, and other conditions. Termination fees may apply in specified circumstances.
- The FDA warning letter concerning a Texas tissue-processing facility, issued in 2018, remained open at December 31, 2022. Globus said it believed it could resolve the matter without material financial impact, but gave no assurance of timing or outcome.
- The company disclosed patent litigation brought by Moskowitz Family LLC seeking damages and injunctive relief. It said the outcome and potential loss range could not be determined and no liability was recorded. More broadly, it cautioned that legal matters could materially affect earnings, financial position, or cash flows.
- Key risks include regulatory and reimbursement changes, product safety and limited long-term clinical data, competition and pricing pressure, dependence on suppliers and sales representatives, inventory obsolescence, foreign-exchange exposure, and cybersecurity and privacy threats. COVID-19-related disruption could again affect elective procedures, supply, sales, and cash flows; management said future impacts could not be reasonably estimated.
- Marketable securities recorded $17.9 million of total other comprehensive loss in 2022, primarily reflecting unrealized losses and foreign-currency translation. The filing states that a hypothetical 10% interest-rate change would not materially affect the underlying valuation of marketable securities.
Investor verification points
- Review the revenue and margin trend alongside the increase in inventory and receivables and the decline in operating cash flow.
- Assess inventory valuation assumptions and product-demand forecasts, a critical audit matter, and the expected need for surgical-set investment.
- Check for updates on the open FDA warning letter, the Moskowitz litigation, and other contingencies in subsequent filings.
- Verify the NuVasive transaction’s closing, financing and integration effects, and any changes to the expected ownership split or deal terms.
- Monitor the undrawn credit facility’s August 2023 maturity, cash and securities levels, and foreign-exchange and interest-rate exposure.
- Consider the governance implications of the dual-class shares: Class B shares carry ten votes each, and the company identifies itself as a controlled company.
Audit: Deloitte & Touche issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective as of December 31, 2022.