Globus Medical, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 17, 2022. Globus develops and sells musculoskeletal medical devices, including spine and orthopedic implants, biologics, and surgical imaging, navigation, and robotic systems. It reports one operating segment. International sales were 14.5% of revenue.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $958.1 million | $789.0 million | +21.4% |
| Gross profit / margin | $718.9 million / 75.0% | $571.6 million / 72.4% | Margin +2.6 percentage points |
| Operating income / margin | $172.0 million / 17.9% | $111.4 million / 14.1% | +54.3% |
| Net income | $149.2 million | $102.3 million | +45.9% |
| Diluted EPS | $1.44 | $1.01 | +42.6% |
| Cash from operating activities | $276.3 million | $198.8 million | +$77.5 million |
| Capital expenditures | $56.9 million | $63.7 million | Down $6.8 million |
Musculoskeletal Solutions revenue was $876.8 million, up 17.1%; Enabling Technologies revenue was $81.3 million, up 100.3%. U.S. sales rose 23.3% and international sales rose 11.2%. Management attributed growth mainly to spine sales and higher enabling-technology volume, with comparisons also benefiting from COVID-19-related softness in 2020.
Gross margin improved as manufacturing efficiencies and lower inventory write-downs more than offset higher volume-related costs. Operating expenses included $34.3 million of acquired in-process research and development (expensed because it had no alternative future use), $5.9 million of litigation provision, and $17.0 million of acquisition-related costs. Net inventory write-downs were $6.1 million, versus $17.7 million in 2020.
Financial position and liquidity
- At year-end, cash, cash equivalents, and restricted cash were $193.1 million; marketable securities totaled $812.9 million. Combined, these balances were approximately $1.006 billion, compared with $785.3 million at the end of 2020.
- Total assets were $1.957 billion and total liabilities were $215.9 million. The company had no borrowings under its $125 million revolving credit facility; the agreement was scheduled to terminate August 3, 2022.
- Operating cash flow was $276.3 million. Investing activities used $375.9 million, principally reflecting net purchases of marketable securities; financing provided $54.1 million, including option-exercise proceeds. No shares were repurchased in 2021; $95.3 million remained under the repurchase authorization.
- Management said available cash, cash equivalents, and marketable securities should fund liquidity needs for the foreseeable future. The filing provides no formal numerical earnings or revenue guidance.
Material developments, outlook, and risks
- Globus acquired Capstone Surgical Technologies in the fourth quarter of 2021 for $24.5 million in cash, with additional contingent consideration tied to regulatory approval and performance. It also acquired other robotics-related assets and completed three smaller business acquisitions during 2021.
- Management’s strategy emphasizes product development, expanding U.S. and international sales coverage, growth in enabling technologies, and selective acquisitions. The company launched six products in 2021.
- COVID-19 impacts remained uncertain. Renewed restrictions on elective surgeries could materially affect revenue growth, operating profit, and cash flow. The company also reported slight supply delays and component shortages, which had not created a meaningful sales backlog at year-end.
- Key risks include surgeon and hospital adoption, competition and pricing pressure, reimbursement limits, dependence on selected suppliers, inventory obsolescence, regulatory compliance, and foreign-exchange exposure. Enabling Technologies sales may fluctuate because hospital capital-equipment purchasing cycles are lengthy.
- An FDA warning letter concerning a tissue-processing facility, first received in 2018, remained open at year-end 2021. Globus said it believed the matter could be resolved without a material financial impact but gave no assurance of timing or outcome.
- A patent-infringement lawsuit sought unspecified damages and injunctive relief. The company could not determine the outcome or estimate a loss range and had recorded no liability for that case. The filing notes that litigation costs could materially affect results, financial position, or cash flows.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; controls were reported effective. Inventory valuation was identified as a critical audit matter because demand forecasts require significant judgment.
Important facts for investors to verify
- Whether revenue and margin growth persist after the rebound from the COVID-affected 2020 comparison, especially in Enabling Technologies.
- Whether supply constraints, elective-surgery disruptions, or reimbursement and pricing changes affect demand or profitability.
- Resolution and potential financial consequences of the open FDA warning letter and patent litigation, including any subsequent disclosures.
- Renewal or replacement of the revolving credit facility before its stated August 2022 termination date.
- Cash-flow implications of acquisition contingent consideration, inventory requirements, and continued investment in surgical sets and sales-force expansion.