UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2019~~2020

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _______________

Commission File No. 001-35621

GLOBUS MEDICAL, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		04-3744954
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2560 General Armistead Avenue, Audubon, PA 19403		(610) 930-1800
(Address of principal executive offices) (Zip Code)		(Registrant’s telephone number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbols	Name of exchange on which registered
Class A Common Stock, par value $.001 per share	GMED	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files):

Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large Accelerated Filer		Accelerated Filer		Non-accelerated Filer		Smaller Reporting Company		Emerging Growth Company	

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.									

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes  No 

The number of shares outstanding of the issuer’s common stock (par value $0.001 per share) as of October ~~31, 2019~~26, 2020 was ~~99,409,253~~98,676,042 shares.

Table of Contents

GLOBUS MEDICAL, INC. AND SUBSIDIARIES

TABLE OF CONTENTS


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets (Unaudited)
	September 30, ~~2019~~2020 and December 31, ~~2018~~2019	3
	Condensed Consolidated Statements of Income (Unaudited)
	Three and nine months ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited)
	Three and nine months ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019	5
	Condensed Consolidated Statements of Equity (Unaudited)
	Three and nine months ended September 30, 2020 and September 30, 2019	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)
	Nine months ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019	67
	Notes to Condensed Consolidated Financial Statements (Unaudited)	78
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2124
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3034
Item 4.	Controls and Procedures	3134
PART II.	OTHER INFORMATION	3236
Item 1.	Legal Proceedings	3236
Item 1A.	Risk Factors	3236
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3236
Item 3.	Defaults Upon Senior Securities	3236
Item 4.	Mine Safety Disclosures	3237
Item 5.	Other Information	3237
Item 6.	Exhibits	3337
	SIGNATURES	3439

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Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GLOBUS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



	September 30,		December 31,		September 30,		December 31,
(In thousands, except par value)	2019		2018		2020		2019
ASSETS
Current assets:
Cash, cash equivalents, and restricted cash	$	166,190	$	139,747	$	250,607	$	195,724
Short-term marketable securities		111,402		199,937		159,030		115,763
Accounts receivable, net of allowances of $6,559 and $4,226, respectively		141,545		137,067
Accounts receivable, net of allowances of $7,011 and $5,599, respectively						143,268		154,326
Inventories		187,060		131,254		231,858		196,314
Prepaid expenses and other current assets		14,835		15,387		19,091		17,243
Income taxes receivable		16,031		7,289		8,097		8,098
Total current assets		637,063		630,681		811,951		687,468
Property and equipment, net of accumulated depreciation of $237,516 and $216,809, respectively		197,098		171,873
Property and equipment, net of accumulated depreciation of $267,364 and $243,732, respectively						215,274		199,841
Long-term marketable securities		383,099		263,117		275,587		409,514
Intangible assets, net		81,969		87,323		81,794		78,812
Goodwill		129,004		123,734		129,662		128,775
Other assets		15,212		10,364		22,851		21,741
Deferred income taxes		8,737		13,578		4,620		5,926
Total assets	$	1,452,182	$	1,300,670	$	1,541,739	$	1,532,077

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	24,137	$	25,895	$	30,022	$	24,614
Accrued expenses		60,695		59,878		61,803		63,283
Income taxes payable		357		917		979		1,057
Business acquisition liabilities		5,603		6,830		997		6,727
Deferred revenue		4,129		2,598		6,179		5,402
Payable to broker						-		10,320
Total current liabilities		94,921		96,118		99,980		111,403
Business acquisition liabilities, net of current portion		3,288		3,288		3,551		2,822
Deferred income taxes		7,023		8,114		4,128		6,023
Other liabilities		8,155		7,634		16,876		9,377
Total liabilities		113,387		115,154		124,535		129,625
Commitments and contingencies (Note 13)
Commitments and contingencies (Note 12)
Equity:
Class A common stock; $0.001 par value. Authorized 500,000 shares; issued and outstanding 76,973 and 76,143 shares at September 30, 2019 and December 31, 2018, respectively		77		76
Class B common stock; $0.001 par value. Authorized 275,000 shares; issued and outstanding 22,430 and 22,430 shares at September 30, 2019 and December 31, 2018, respectively		22		22
Class A common stock; $0.001 par value. Authorized 500,000,000 shares; issued and outstanding 76,241,618 and 77,394,983 shares at September 30, 2020 and December 31, 2019, respectively						76		77
Class B common stock; $0.001 par value. Authorized 275,000,000 shares; issued and outstanding 22,430,097 and 22,430,097 shares at September 30, 2020 and December 31, 2019, respectively						22		22
Additional paid-in capital		339,120		299,869		422,774		357,320
Accumulated other comprehensive loss		(2,826)		(7,172)
Accumulated other comprehensive income (loss)						2,207		(2,898)
Retained earnings		1,002,402		892,721		992,125		1,047,931
Total equity		1,338,795		1,185,516		1,417,204		1,402,452
Total liabilities and equity	$	1,452,182	$	1,300,670	$	1,541,739	$	1,532,077

See accompanying notes to unaudited condensed consolidated financial statements.

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GLOBUS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)



	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
(In thousands, except per share amounts)	2019		2018		2019		2018		2020		2019		2020		2019
Sales	$	196,215	$	169,236	$	573,701	$	517,031
Net sales									$	216,098	$	196,215	$	555,597	$	573,701
Cost of goods sold		45,387		37,849		131,214		113,456		57,097		45,387		156,604		131,214
Gross profit		150,828		131,387		442,487		403,575		159,001		150,828		398,993		442,487

Operating expenses:
Research and development		14,508		15,527		44,577		41,738		14,421		14,508		69,278		44,577
Selling, general and administrative		88,455		75,131		262,618		227,949		89,152		88,455		262,710		262,618
Provision for litigation		1,625		—		1,625		—		—		1,625		197		1,625
Amortization of intangibles		3,620		2,160		10,412		6,525		4,152		3,620		12,043		10,412
Acquisition related costs		559		268		1,245		1,289		1,263		559		1,867		1,245
Total operating expenses		108,767		93,086		320,477		277,501		108,988		108,767		346,095		320,477

Operating income		42,061		38,301		122,010		126,074
Operating income/(loss)										50,013		42,061		52,898		122,010

Other income, net
Interest income/(expense), net		4,377		3,852		12,954		9,114		3,085		4,377		10,999		12,954
Foreign currency transaction gain/(loss)		145		(26)		123		312		(170)		145		(806)		123
Other income/(expense)		169		470		410		5,478		202		169		595		410
Total other income/(expense), net		4,691		4,296		13,487		14,904		3,117		4,691		10,788		13,487

Income before income taxes		46,752		42,597		135,497		140,978
Income/(loss) before income taxes										53,130		46,752		63,686		135,497
Income tax provision		8,445		7,389		25,816		21,254		8,914		8,445		14,358		25,816

Net income	$	38,307	$	35,208	$	109,681	$	119,724
Net income/(loss)									$	44,216	$	38,307	$	49,328	$	109,681

Earnings per share:
Basic	$	0.39	$	0.36	$	1.11	$	1.23	$	0.45	$	0.39	$	0.50	$	1.11
Diluted	$	0.38	$	0.35	$	1.08	$	1.18	$	0.44	$	0.38	$	0.49	$	1.08
Weighted average shares outstanding:
Basic		99,238		98,328		98,998		97,671		98,217		99,238		98,453		98,998
Dilutive stock options		2,862		3,476		2,687		3,604		2,268		2,862		2,370		2,687
Diluted		102,100		101,804		101,685		101,275		100,485		102,100		100,823		101,685

Anti-dilutive stock options excluded from weighted average calculation		5,108		1,950		4,939		1,892		5,101		5,108		6,130		4,939

See accompanying notes to unaudited condensed consolidated financial statements.

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GLOBUS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
(In thousands)	2019		2018		2019		2018		2020		2019		2020		2019
Net income	$	38,307	$	35,208	$	109,681	$	119,724
Net income/(loss)									$	44,216	$	38,307	$	49,328	$	109,681
Other comprehensive income/(loss):
Unrealized gain/(loss) on marketable securities, net of tax		244		96		4,027		29		(770)		244		2,285		4,027
Foreign currency translation gain/(loss)		(1,342)		(116)		319		50		1,679		(1,342)		2,820		319
Total other comprehensive income/(loss)		(1,098)		(20)		4,346		79		909		(1,098)		5,105		4,346
Comprehensive income	$	37,209	$	35,188	$	114,027	$	119,803
Comprehensive income/(loss)									$	45,125	$	37,209	$	54,433	$	114,027

See accompanying notes to unaudited condensed consolidated financial statements.

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GLOBUS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)



	Class A ‎Common Stock			Class B ‎Common Stock			Additional paid-in		Accumulated other comprehensive		Retained
(In thousands)	Shares	$		Shares	$		capital		income/(loss)		earnings		Total
Balance at December 31, 2019	77,394	$	77	22,431	$	22	$	357,320	$	(2,898)	$	1,047,931	$	1,402,452
Cumulative effects of adoption of accounting standards	—		—	—		—		—		—		(468)		(468)
Stock-based compensation	—		—	—		—		6,902		—		—		6,902
Exercise of stock options	190		1	—		—		5,762		—		—		5,763
Comprehensive income/(loss)	—		—	—		—		—		(3,368)		25,949		22,581
Repurchase and retirement of common stock	(1,920)		(2)	—		—		—		—		(73,862)		(73,864)
Balance at March 31, 2020	75,664	$	76	22,431	$	22	$	369,984	$	(6,266)	$	999,550	$	1,363,366
Stock-based compensation	—		—	—		—		7,426		—		—		7,426
Exercise of stock options	434		—	(1)		—		10,201		—		—		10,201
Comprehensive income/(loss)	—		—	—		—		—		7,564		(20,837)		(13,273)
Repurchase and retirement of common stock	(771)		(1)	—		—		—		—		(30,804)		(30,805)
Balance at June 30, 2020	75,327	$	75	22,430	$	22	$	387,611	$	1,298	$	947,909	$	1,336,915
Stock-based compensation	—		—	—		—		7,007		—		—		7,007
Exercise of stock options	915		1	—		—		28,156		—		—		28,157
Comprehensive income/(loss)	—		—	—		—		—		909		44,216		45,125
Balance at September 30, 2020	76,242	$	76	22,430	$	22	$	422,774	$	2,207	$	992,125	$	1,417,204


	Class A ‎Common Stock			Class B ‎Common Stock			Additional paid-in		Accumulated other comprehensive		Retained
(In thousands)	Shares	$		Shares	$		capital		income/(loss)		earnings		Total
Balance at December 31, 2018	76,144	$	76	22,431	$	22	$	299,869	$	(7,172)	$	892,721	$	1,185,516
Stock-based compensation	—		—	—		—		6,541		—		—		6,541
Exercise of stock options	407		1	—		—		10,255		—		(1)		10,255
Comprehensive income/(loss)	—		—	—		—		—		1,692		33,210		34,902
Balance at March 31, 2019	76,551	$	77	22,431	$	22	$	316,665	$	(5,480)	$	925,930	$	1,237,214
Stock-based compensation	—		—	—		—		6,381		—		—		6,381
Exercise of stock options	96		—	—		—		2,015		—		1		2,016
Comprehensive income/(loss)	—		—	—		—		—		3,752		38,163		41,915
Balance at June 30, 2019	76,647	$	77	22,431	$	22	$	325,061	$	(1,728)	$	964,094	$	1,287,526
Stock-based compensation	—		—	—		—		6,978		—		—		6,978
Exercise of stock options	326		—	—		—		7,081		—		1		7,082
Comprehensive income/(loss)	—		—	—		—		—		(1,098)		38,307		37,209
Balance at September 30, 2019	76,973	$	77	22,431	$	22	$	339,120	$	(2,826)	$	1,002,402	$	1,338,795

See accompanying notes to unaudited condensed consolidated financial statements.

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GLOBUS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Nine Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2019		2018		2020		2019
Cash flows from operating activities:
Net income	$	109,681	$	119,724	$	49,328	$	109,681
Adjustments to reconcile net income to net cash provided by operating activities:
Acquired in-process research and development						24,418		—
Depreciation and amortization		38,688		29,694		45,970		38,688
Amortization of premium (discount) on marketable securities		(1,008)		1,808		215		(1,008)
Write-down for excess and obsolete inventories		1,939		8,326		12,411		1,939
Stock-based compensation expense		19,647		17,078		21,138		19,647
Allowance for doubtful accounts		2,732		388		2,741		2,732
Change in fair value of business acquisition liabilities		579		592		1,027		579
Change in deferred income taxes		2,434		1,606		(4,458)		2,434
(Gain)/loss on disposal of assets, net		518		(3,694)		714		518
Payment of business acquisition related liabilities						(700)		—
(Increase)/decrease in:
Accounts receivable		(5,367)		(2,900)		8,412		(5,367)
Inventories		(40,869)		(23,042)		(47,271)		(40,869)
Prepaid expenses and other assets		(3,044)		(81)		(4,381)		(3,044)
Increase/(decrease) in:
Accounts payable		(158)		(4,858)		5,401		(158)
Accrued expenses and other liabilities		1,225		(1,965)		3,749		1,225
Income taxes payable/receivable		(9,331)		(5,324)		(105)		(9,331)
Net cash provided by operating activities		117,666		137,352		118,609		117,666
Cash flows from investing activities:
Purchases of marketable securities		(277,446)		(382,347)		(57,418)		(277,446)
Maturities of marketable securities		205,818		210,066		100,830		205,818
Sales of marketable securities		46,474		85,234		39,944		46,474
Purchases of property and equipment		(54,957)		(42,538)		(49,595)		(54,957)
Proceeds from sale of assets		—		4,000
Acquisition of businesses, net of cash acquired and purchases of intangible and other assets		(24,135)		(14,825)
Acquisition of businesses, net of cash acquired, and purchases of intangible and other assets						(31,991)		(24,135)
Net cash used in investing activities		(104,246)		(140,410)		1,770		(104,246)
Cash flows from financing activities:
Payment of business acquisition liabilities		(6,096)		(6,513)
Payment of business acquisition related liabilities						(5,327)		(6,096)
Proceeds from exercise of stock options		19,350		36,245		44,121		19,350
Net cash provided by financing activities		13,254		29,732
Repurchase of common stock						(104,669)		—
Net cash used in/provided by financing activities						(65,875)		13,254
Effect of foreign exchange rate on cash		(231)		(196)		379		(231)
Net increase in cash, cash equivalents, and restricted cash		26,443		26,478		54,883		26,443
Cash, cash equivalents, and restricted cash at beginning of period		139,747		118,817		195,724		139,747
Cash, cash equivalents, and restricted cash at end of period	$	166,190	$	145,295	$	250,607	$	166,190
Supplemental disclosures of cash flow information:
Interest paid		57		—
Income taxes paid	$	34,056	$	24,894	$	19,328	$	34,056
Purchases of property and equipment included in accounts payable and accrued expenses					$	3,931	$	5,959

See accompanying notes to unaudited condensed consolidated financial statements.

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GLOBUS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) The Company

Globus Medical, Inc., together with its subsidiaries, is a medical device company that develops and commercializes healthcare solutions whose mission is to improve the quality of life of patients with musculoskeletal disorders. We are primarily focused on implants that promote healing in patients with musculoskeletal disorders, including the use of a robotic guidance and navigation system and products to treat patients who have experienced orthopedic traumas.

We are an engineering-driven company with a history of rapidly developing and commercializing advanced products and procedures to assist surgeons in effectively treating their patients and address new treatment options. With over ~~200~~210 products on the market, we offer a comprehensive portfolio of innovative and differentiated technologies that address a variety of musculoskeletal pathologies, anatomies, and surgical approaches.

We are headquartered in Audubon, Pennsylvania, and market and sell our products through our exclusive sales force in the United States, as well as within North, Central & South America, Europe, Asia, Africa and Australia. The sales force consists of direct sales representatives and distributor sales representatives employed by exclusive independent distributors.

The terms the “Company,” “Globus,” “we,” “us” and “our” refer to Globus Medical, Inc. and, where applicable, our consolidated subsidiaries.

(b) COVID-19 Pandemic Impact

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide. The pandemic has significantly impacted the economic conditions in the U.S. and globally as federal, state and local governments react to the public health crisis, creating significant uncertainties in the economy. While emergency and time-sensitive surgical procedures continue, as of the date of this filing, the Company has been impacted by temporary postponement of elective surgeries in hospitals and surgical facilities worldwide.

The Company cannot reasonably estimate the length or severity of this pandemic, however, as a result of these developments the Company expects a material adverse impact on its sales, results of operations, and cash flows in fiscal 2020, and potentially fiscal 2021.

In response to these developments, the Company will continue to monitor liquidity and cash flow. The Company has the ability to borrow from our credit facility signed on August 6, 2020, if needed, although we do not expect to do so due to our cash, cash equivalents and short-term marketable securities balances.

The accompanying interim unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in complete financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying footnotes included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

In the opinion of management, the statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of our financial position and of the results for the three and nine month periods presented. The results of operations for any interim period are not indicative of results for the full year.

~~(c)~~(d) Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Globus and its wholly-owned subsidiaries. All intercompany balances and transactions are eliminated in consolidation.

~~(d)~~

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GLOBUS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(e) Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates, in part, on historical experience that management believes to be reasonable under the circumstances. Actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the condensed consolidated financial statements in the period they are determined to be necessary.

Significant areas that require management’s estimates include intangible assets, business acquisition liabilities, ~~allowance for doubtful accounts,~~ stock-based compensation, write-down for excess and obsolete inventory, useful lives of assets, the outcome of litigation, recoverability of intangible assets and income taxes. We are subject to risks and uncertainties due to changes in the healthcare environment, regulatory oversight, competition, and legislation that may cause actual results to differ from estimated results.

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~~GLOBUS MEDICAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~(e)~~(f) Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows:



	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
(In thousands)	2019		2018		2018		2017		2020		2019		2019		2018
Cash and cash equivalents	$	166,090	$	139,647	$	145,295	$	118,817	$	250,607	$	195,474	$	166,090	$	139,647
Restricted cash		100		100		—		—		—		250		100		100
Total cash, cash equivalents, and restricted cash as presented in the condensed consolidated statement of cash flows	$	166,190	$	139,747	$	145,295	$	118,817	$	250,607	$	195,724	$	166,190	$	139,747

~~(f)~~(g) Marketable Securities

Our marketable securities include municipal bonds, corporate debt securities, commercial paper, securities of government, federal agency, and other sovereign obligations, and asset-backed securities, and are classified as available-for-sale as of September 30, 2020 and December 31, 2019. Available-for-sale securities are recorded at fair value in both short-term and long-term marketable securities on our condensed consolidated balance sheets. The change in fair value for available-for-sale securities, that do not result in recognition or reversal of an allowance for credit loss or write-down, is recorded, net of taxes, as a component of accumulated other comprehensive income or loss on our condensed consolidated balance sheets. Premiums and discounts are recognized over the life of the related security as an adjustment to yield using the straight-line method. Realized gains or losses from the sale of our marketable securities are determined on a specific identification basis. Realized gains and losses, along with interest income and the amortization/accretion of premiums/discounts are included as a component of other income/(expense), on our condensed consolidated statements of income. Interest receivable is recorded as a component of prepaid expenses and other current assets on our condensed consolidated balance sheets.

We maintain a portfolio of various holdings, types and maturities, though most of the securities in our portfolio could be liquidated at minimal cost at any time. We invest in securities that meet or exceed standards as defined in our investment policy. Our policy also limits the amount of credit exposure to any one issue, issuer or type of security. We review our securities for other-than-temporary impairment at each reporting period. If an unrealized loss for any security is ~~considered to be other-than-temporary,~~expected, the loss will be recognized on an allowance basis, consistent with ASC 326-30, in our condensed consolidated statement of income in the period the determination is made.

~~(g)~~(h) Fair Value Measurements

Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis

Under the accounting for fair value measurements and disclosures, fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or the liability in an orderly transaction between market participants on the measurement date. Additionally, a fair value hierarchy was established that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. The level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

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Our assets and liabilities measured at fair value on a recurring basis are classified and disclosed in one of the following three categories:

Level 1—quoted prices (unadjusted) in active markets for identical assets and liabilities;

Level 2—observable inputs other than quoted prices in active markets for identical assets and liabilities; and

Level 3—unobservable inputs in which there is little or no market data available, which require the reporting entity to use significant unobservable inputs or valuation techniques.

Assets and Liabilities That Are Measured at Fair Value on a Nonrecurring Basis

The purchase price of business acquisitions is primarily allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition dates, with the excess recorded as goodwill. We utilize Level 3 inputs in the determination of the initial fair value. Non-financial assets such as goodwill, intangible assets, and property, plant, and equipment are subsequently measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment is recognized. We assess the impairment of intangible assets annually or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. The fair value of our goodwill and intangible assets is not estimated if there is no change in events or circumstances that indicate the carrying amount of an intangible asset may not be recoverable.

Contingent consideration represents our contingent milestone, performance and revenue-sharing payment obligations related to our acquisitions and is measured at fair value, based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation of contingent consideration uses assumptions we believe would be made by a market participant. We assess these assumptions on an ongoing basis as additional data impacting the assumptions is obtained. The balances of the fair value of contingent consideration are recognized within business acquisition liabilities on our condensed consolidated balance sheets, and the changes in the fair value of contingent consideration are recognized within acquisition related costs in the condensed consolidated statements of income.

(i) Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. The majority of our inventories are finished goods and we utilize both in-house manufacturing and third-party suppliers to source our products. We periodically evaluate the carrying value of our inventories in relation to our estimated forecast of product demand, which takes into consideration the estimated life cycle of product releases. When quantities on hand exceed estimated sales forecasts, we record a write-down for such excess inventories. Once inventory has been written down, it creates a new cost basis for inventory that is not subsequently written up.

~~(h) Property and Equipment~~

~~Purchases of property and equipment included in accounts payable and accrued expenses were $6.0 million and $7.9 million during the nine months ended September 30, 2019 and 2018, respectively.~~

~~(i)~~(j) Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. ~~Incidental items that are immaterial in the context of the contract are recognized as expense.~~ For purposes of disclosing disaggregated revenue, we disaggregate our revenue into two categories, Musculoskeletal Solutions and Enabling ~~Technologies, based on the timing of revenue recognition.~~Technologies. Our Musculoskeletal Solutions products consist primarily of the implantable devices, disposables, and unique instruments used in an expansive range of spine, orthopedic trauma, hip, knee and extremity procedures. The majority of our Musculoskeletal Solutions contracts have a single performance obligation and revenue is recognized at a point in time. Our Enabling Technologies products are the advanced hardware and software systems and related technologies that are designed to enhance a surgeon’s capabilities and streamline surgical procedures by making them less invasive, more accurate, and more reproducible to improve patient care. The majority of our Enabling Technologies product contracts typically contain multiple performance obligations, including maintenance and support, and revenue is recognized as we fulfill each performance

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obligation. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. Our policy is to classify shipping and handling costs billed to customers as sales and the related expenses as cost of goods sold.

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Nature of Products and Services

A significant portion of our Musculoskeletal Solutions product revenue is generated from consigned inventory maintained at hospitals or with sales representatives. Revenue from the sale of consigned ~~Musculoskeletal~~musculoskeletal products is recognized when we transfer control, which occurs at the time the product is used or implanted. For all other Musculoskeletal Solutions product transactions, we recognize revenue when we transfer title to the goods, provided there are no remaining performance obligations that will affect the customer’s final acceptance of the sale. We use an observable price to determine the stand-alone selling price for the identified performance obligation.

Revenue from the sale of Enabling Technologies products is generally recognized when control transfers to the customer which occurs at the time the product is shipped or delivered. Depending on the terms of the arrangement, we may also defer the recognition of a portion of the consideration received as we have to satisfy a future performance obligation to provide maintenance and support. We use an observable price to determine the stand-alone selling price for each separate performance obligation.

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing.

Deferred revenue is comprised mainly of unearned revenue related to the sales of certain Enabling Technologies products, which includes maintenance and support services. Deferred revenue is generally invoiced annually at the beginning of each contract period and recognized ratably over the coverage period. For the three and nine months ended September 30, ~~2019,~~2020, there was an immaterial amount of revenue recognized from previously deferred revenue.

Disaggregation of Revenue

~~The following table represents total~~Net sales ~~by revenue stream:~~for the three and nine months ended September 30, 2020 and 2019, respectively included the following:



	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
(In thousands)	2019		2018		2019		2018		2020		2019		2020		2019
Musculoskeletal Solutions products	$	182,324	$	163,068	$	540,620	$	484,400	$	207,063	$	182,324	$	533,085	$	540,620
Enabling Technologies products		13,891		6,168		33,081		32,631		9,035		13,891		22,512		33,081
Total sales	$	196,215	$	169,236	$	573,701	$	517,031
Total net sales									$	216,098	$	196,215	$	555,597	$	573,701

~~(j)~~(k) Recently Issued Accounting Pronouncements

In ~~June 2016,~~December 2019, the FASB issued ASU ~~2016-13,~~No. 2019-12, ~~Financial Instruments - Credit Losses~~Income Taxes (Topic ~~326)~~740): ~~Measurement of Credit Losses on Financial Instruments.~~ Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU ~~2016-13 replaces~~2019-12 removes certain exceptions to the ~~incurred loss impairment methodology for measuring~~general principles in Topic 740 and ~~recognizing credit losses with a methodology that reflects expected credit losses~~also clarifies and ~~requires consideration of a broader range of reasonable and supportable information~~amends existing guidance to ~~inform credit loss estimates.~~improve consistent application. This ~~amendment~~guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2019.~~ 2020, with early adoption permitted. The Company ~~does not plan to early adopt~~is currently evaluating the impact of this ~~ASU and the Company does not believe there will be a material impact to the~~standard on its consolidated financial statements ~~as a result of adopting this ASU.~~and related disclosures.

~~In January 2017,~~On March 12, 2020, the FASB ~~released~~issued ASU ~~2017-04,~~No. 2020-04, ~~Intangibles - Goodwill and Other (Topic 805): Simplifying~~Facilitation of the ~~Test for Goodwill Impairment~~Effects of Reference Rate Reform on Financial Reporting ~~(“ASU 2017-04”)~~, which ~~eliminates the Step 2 calculation~~provides optional expedients and exceptions for ~~the implied fair value of goodwill~~applying generally accepted accounting principles to ~~measure a goodwill impairment charge. Under the updated standard, an entity will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value.~~contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU 2017-04 does not change the guidance on completing Step 1 of the goodwill impairment test and still allows an entity to perform the optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. This update is effective for ~~annual~~all entities as of March 12, 2020, and ~~interim goodwill impairment tests in fiscal years beginning after~~will apply through December ~~15, 2019 with early adoption permitted for any impairment test performed on testing dates after January 1, 2017.~~31, 2022. The Company ~~does not plan to early adopt~~is currently evaluating the impact of this ~~ASU~~standard on its consolidated financial statements and ~~the Company~~related disclosures.

Management does not believe ~~there will be~~that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material ~~impact to~~effect on the Company’s consolidated financial ~~statements as a result of adopting this ASU.~~statements.

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In August 2018, the FASB released ASU 2018-13, Fair Value Measurement (Topic 820), (“ASU 2018-13”), which modifies the disclosure requirements on fair value measurements in Topic 820, including the consideration of costs and benefits. This update is effective for public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. ~~The Company does not plan to early adopt this ASU and the Company does not believe there will be a material impact to the financial statements as a result of adopting this ASU.~~

~~(k)~~(l) Recently Adopted Accounting Pronouncements

~~In May 2014, the FASB issued Accounting Standards Update 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~ ~~(“ASU 2014-09”)~~. ~~ASU 2014-09 amends the guidance in former Topic 605,~~ ~~Revenue Recognition~~, and most other existing revenue guidance in US GAAP. Under the new standard, an entity will recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the payment to which the entity expects to be entitled in exchange for those goods or services and provide additional disclosures. As amended, the effective date for public entities is annual reporting periods beginning after December 15, 2017 and interim periods therein. We adopted the standard on January 1, 2018, using the modified retrospective method. We implemented internal controls to enable the preparation of financial information upon adoption. The adoption of this standard did not have a material impact on our financial position and results of operations. See ~~“Note 1. Background and Summary of Significant Accounting Policies;~~ ~~(i) Revenue Recognition~~” ~~above for more detail regarding our disclosures.~~

~~In October 2016, the FASB released ASU 2016-16,~~ ~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory~~ (“ASU 2016-16”). ASU 2016-16 removes the current exception in US GAAP prohibiting entities from recognizing current and deferred income tax expenses or benefits related to transfer of assets, other than inventory, within the consolidated entity. The current exception to defer the recognition of any tax impact on the transfer of inventory within the consolidated entity until it is sold to a third party remains unaffected. This update is effective for public entities for annual reporting periods beginning after December 15, 2017. We adopted ASU 2016-16 on January 1, 2018. This standard did not have a material impact on our financial position, results of operations, and disclosures.

~~In November 2016, the FASB released ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~ (“ASU 2016-18”), which requires that amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. Transfers between cash and cash equivalents and restricted cash and restricted cash equivalents will no longer be presented in the statement of cash flows. The amendments in this update should be applied using a retrospective transition method to each period presented. This update is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years; early adoption is permitted, including adoption in an interim period. We adopted ASU 2016-18 on January 1, 2018. This standard did not have a material impact on our financial position, results of operations, and disclosures.

~~In January 2017, the FASB released ASU 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~ (“ASU 2017-01”), which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amendments in this ASU should be applied prospectively and are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early application permitted. No disclosures are required at transition. We adopted ASU 2017-01 on January 1, 2018. This standard did not have a material impact on our financial position, results of operations, and disclosures.

~~In May 2017, the FASB released ASU 2017-09,~~ ~~Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting~~ (“ASU 2017-09”), which clarifies the changes to terms or conditions of a share-based payment award that requires application of modification accounting under Topic 718. A change to an award should be accounted for as a modification unless the fair value of the modified award is the same as the original award, the vesting conditions do not change, and the classification as an equity or liability instrument does not change. This update is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017. Early application is permitted and prospective application is required for awards modified on or after the adoption date. We adopted ASU 2017-09 on January 1, 2018. This standard did not have a material impact on our financial position, results of operations, and disclosures.

In February 2016, the FASB released ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases with terms greater than 12 months, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted, and permits modified retrospective method or cumulative-effect adjustment method. We adopted the standard on January 1, 2019, using the cumulative-effect adjustment transition method. As part of the adoption, we elected the package of practical expedients permitted under the transition guidance within

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the new standard, which among other things, allowed carry forward of historical lease classifications. The adoption of this standard did not have a material impact on our financial position and results of operations. See “Note ~~14.~~13. Leases” for more detail regarding our disclosures.

In February 2018, the FASB released ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). Prior to ASU 2018-02, GAAP required the remeasurement of deferred tax assets and liabilities as a result of a change in tax laws or rates to be presented in net income from continuing operations, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income. As a result, such items, referred to as stranded tax effects, did not reflect the appropriate tax rate. Under ASU 2018-02, entities are permitted, but not required, to reclassify from accumulated other comprehensive income to retained earnings those stranded tax effects resulting from the U.S. legislation commonly referred to as the Tax ~~Act.~~Cuts and Jobs Act enacted in December 2017. ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. We adopted ASU 2018-02 on January 1, 2019. Adoption of the standard did not have a material impact on our financial position, results of operations and disclosures.

In June 2018, the FASB released ASU 2018-07, Compensation—Stock Compensation (Topic 718), (“ASU 2018-07”), which expanded the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. This update is effective for public entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. We adopted ASU 2018-07 on January 1, 2019. Adoption of the standard did not have a material impact on our financial position, results of operations, and disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).ASU 2016-13 replaces the incurred loss impairment methodology for measuring and recognizing credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This amendment is effective for fiscal years beginning after December 15, 2019. We adopted the updated guidance on January 1, 2020 on a prospective basis recording $0.5 million as a cumulative effect adjustment to retained earnings and as a result, prior period amounts were not adjusted. Adoption of the standard did not have a material impact on our financial position, results of operations, and disclosures.

In January 2017, the FASB released ASU 2017-04, Intangibles - Goodwill and Other (Topic 805): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which eliminates the Step 2 calculation for the implied fair value of goodwill to measure a goodwill impairment charge. Under the updated standard, an entity will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. ASU 2017-04 does not change the guidance on completing Step 1 of the goodwill impairment test and still allows an entity to perform the optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. This update is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019 with early adoption permitted for any impairment test performed on testing dates after January 1, 2017. We adopted ASU 2017-04 on January 1, 2020. Adoption of the standard did not have a material impact on our financial position, results of operations, and disclosures.

In August 2018, the FASB released ASU 2018-13, Fair Value Measurement (Topic 820), (“ASU 2018-13��), which modifies the disclosure requirements on fair value measurements in Topic 820, including the consideration of costs and benefits. This update is effective for public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. We adopted ASU 2018-13 on January 1, 2020. Adoption of the standard did not have a material impact on our financial position, results of operations, and disclosures.

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NOTE 2. ASSET ACQUISITIONS AND BUSINESS COMBINATIONS

Asset Acquisitions

During the second quarter of 2020, the Company acquired Synoste Oy (“Synoste”), a Finnish engineering company that specializes in the research and development of a limb lengthening system. The fair value of the net assets acquired was $25.3 million, and the consideration consisted of approximately $22.8 million of cash paid at closing plus $2.5 million of a contractual holdback obligation payable eighteen months from the closing date of the transaction, subject to net working capital and other post-closing adjustments, if applicable. The contractual holdback obligation is included in Other Liabilities in the Condensed Consolidated Balance Sheet.

The Company accounted for the transaction as an asset acquisition as substantially all of the estimated fair value of the gross assets acquired was concentrated in a single identified asset, in-process research and development (“IPR&D”) of the limb lengthening system, thus satisfying the requirements of the screen test in ASU 2017-1. Acquired IPR&D in the asset acquisition was accounted for in accordance with FASB ASC Topic 730, “Research and Development” (ASC 730). At the date of acquisition, the Company determined that the development of the projects underway at Synoste had not yet reached technological feasibility and that the research in process had no alternative future use. Accordingly, the acquired IPR&D of $24.4 million was charged to Research and Development expense in the Condensed Consolidated Statements of Income on the acquisition date. The Company also recorded the remaining immaterial identifiable net assets based on their estimated fair values, which primarily consisted of cash and assembled workforce.

The transaction also provides for additional consideration contingent upon the developed product obtaining approval from the U.S. Food and Drug Administration (the “FDA”) of $8.0 million within the third anniversary, or $4.0 million within the fourth anniversary of the acquisition closing date, respectively. Contingent consideration is not recorded in an asset acquisition until the milestone is met.

Business Combinations

During the second quarter of 2019, the Company acquired substantially all of the assets of StelKast, Inc. (the “StelKast Acquisition”), a privately held company that designs, manufactures and distributes orthopedic implants for knee and hip replacement surgeries. The Company has included the financial results from the StelKast Acquisition in our condensed financial statements from the acquisition date, and the results from the StelKast Acquisition were not material to our condensed financial statements. ~~The~~At the acquisition date, the fair value of the net assets acquired ~~is $28.4~~was $28.1 million, which consisted of approximately ~~$24.1~~$23.8 million of cash paid at closing, plus a potential $4.3 million contingent consideration payment based on product sales milestones. The Company recorded identifiable net assets, based on their ~~preliminary~~ estimated fair values, related to inventory of $15.3 million, fixed assets of $4.2 million and customer relationships of $3.9 million and goodwill of ~~$5.2~~$4.7 million.

~~As of September 30, 2019, the maximum aggregated undiscounted amount of~~The contingent consideration ~~potentially~~ payable related to this acquisition isof $5.0 ~~million.~~

~~NOTE 3. NOTE RECEIVABLE~~

~~On September 1, 2016 (the “Closing Date”), in connection with~~million was paid during the third quarter of 2020. The payment up to the amount of the contingent consideration liability recognized at the acquisition date of $4.3 million is presented as a financing activity and the excess cash payment of $0.7 million is presented as an operating activity on the Condensed Consolidated Statement of Cash Flows as of the ~~international operations and distribution channel~~nine months ended September 30, 2020 in accordance with FASB ASC Topic 230, “Statement of Alphatec Holdings, Inc. (“Alphatec”), we entered into a Credit, Security and Guaranty Agreement (the “Credit Agreement”) with Alphatec and Alphatec Spine, Inc. (“Alphatec Spine” and together with Alphatec, the “Alphatec Borrowers”), pursuant to which we made available to the Alphatec Borrowers a senior secured term loan facility in an amount not to exceed $30 million. The term loan interest rate for the first two years following the Closing Date was priced at the London Interbank Offered Rate (“LIBOR”) plus 8.0%, subject to a 9.5% floor. The term loan interest rate thereafter was LIBOR plus 13.0%Cash Flows” (ASC 230). On the Closing Date, we made an initial loan of $25 million and the Alphatec Borrowers issued a note for such amount to us. On December 20, 2016, the remaining $5 million was drawn by the Alphatec Borrowers and added to the note. On November 7, 2018, the Alphatec Borrowers repaid all of the then outstanding principal and interest under the Credit Agreement in a total amount of $29.3 million.

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NOTE 4.3. GOODWILL AND INTANGIBLE ASSETS

~~A summary~~Intangible assets as of ~~intangible assets is presented below:~~September 30, 2020 included the following:



		September 30, 2019							September 30, 2020
(In thousands)	Weighted Average Amortization Period (in years)	Gross ‎Carrying ‎Amount		Accumulated ‎Amortization		Intangible ‎Assets, ‎net		Weighted Average Amortization Period (in years)	Gross ‎Carrying ‎Amount		Accumulated ‎Amortization		Intangible ‎Assets, ‎net
Supplier network	10.0	$	4,000	$	(1,967)	$	2,033	10.0	$	4,000	$	(2,367)	$	1,633
Customer relationships & other intangibles	7.0		47,285		(23,007)		24,278	7.0		48,256		(29,506)		18,750
Developed technology	8.6		57,314		(8,457)		48,857	8.0		71,736		(16,745)		54,991
Patents	16.3		8,372		(1,571)		6,801	16.1		8,894		(2,474)		6,420
Total intangible assets		$	116,971	$	(35,002)	$	81,969		$	132,886	$	(51,092)	$	81,794

Due to the ~~FDA 510(k) clearance for AQRate, a robotic guidance and navigation system,~~completion of contractual milestones related to the 2018 acquisition of Nemaris, in the first quarter of ~~2019, $19.8~~2020, $13.0 million ~~of IPR&D~~ was ~~transferred~~capitalized to Developed technology and began to be amortized over a period of ~~8.5~~5.4 years.

Intangible assets as of December 31, 2019 included the following:



		December 31, 2018							December 31, 2019
(In thousands)	Weighted Average Amortization Period (in years)	Gross ‎Carrying ‎Amount		Accumulated ‎Amortization		Intangible ‎Assets, ‎net		Weighted Average Amortization Period (in years)	Gross ‎Carrying ‎Amount		Accumulated ‎Amortization		Intangible ‎Assets, ‎net
In-process research & development	—	$	19,813	$	—	$	19,813
Supplier network	10.0		4,000		(1,667)		2,333	10.0		4,000		(2,067)		1,933
Customer relationships & other intangibles	6.7		42,413		(17,746)		24,667	7.0		46,766		(24,264)		22,502
Developed technology	8.6		37,547		(3,498)		34,049	8.6		57,577		(10,189)		47,388
Patents	16.5		7,764		(1,303)		6,461	16.0		8,662		(1,673)		6,989
Total intangible assets		$	111,537	$	(24,214)	$	87,323		$	117,005	$	(38,193)	$	78,812

~~On September 5, 2018, we acquired Nemaris, Inc. (“Nemaris”), a privately held company that markets and develops Surgimap®, a surgical planning software platform (“Nemaris Acquisition”).~~ The ~~assets acquired~~change in the Nemaris Acquisition consist primarily of developed technology. We determined that substantially all the fair value of the gross assets on the date of acquisition is captured in the developed technology and as a result, the Nemaris Acquisition was accounted for as an asset purchase. We allocated the consideration paid of $15.2 million on a pro rata basis to the assets acquired on their respective fair values. The useful lives of the developed technology is seven years and will be amortized on a straight-line basis. In addition to the cash paid at closing, there is a potential $10.0 million contingent consideration payment based on product development milestones.

~~A summary of the net~~ carrying ~~value~~amount of goodwill ~~is presented below:~~during the twelve months ended December 31, 2019 and the nine months ended September 30, 2020, respectively included the following:



(In thousands)
December 31, ~~2017~~2018	$	~~123,890~~
~~Additions and adjustments~~		—
~~Foreign exchange~~		~~(156)~~
~~December 31, 2018~~		123,734
Additions and adjustments		~~5,173~~4,817
Foreign exchange		97224
December 31, 2019		128,775
Additions and adjustments		(123)
Foreign exchange		1,010
September 30, ~~2019~~2020	$	~~129,004~~129,662

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 5.4. MARKETABLE SECURITIES

~~The composition of our short-term~~Short-term and long-term marketable securities is as ~~follows:~~of September 30, 2020 and December 31, 2019, respectively included the following:



		September 30, 2019									September 30, 2020
(In thousands)	Contractual ‎Maturity ‎(in years)	Amortized ‎Cost		Gross ‎Unrealized ‎Gains		Gross Unrealized Losses		Fair ‎Value		Contractual ‎Maturity ‎(in years)	Amortized ‎Cost		Gross ‎Unrealized ‎Gains		Gross Unrealized Losses		Fair ‎Value
Short-term:
Municipal bonds	Less than 1	$	4,665	$	24	$	—	$	4,689	Less than 1	$	23,965	$	191	$	—	$	24,156
Corporate debt securities	Less than 1		50,539		188		—		50,727	Less than 1		99,461		849		—		100,310
Commercial paper	Less than 1		41,229		3		(5)		41,227	Less than 1		7,984		15		—		7,999
U.S. government and agency securities	Less than 1		9,994		1		—		9,995
Asset-backed securities	Less than 1		4,760		4		(0)		4,764	Less than 1		13,962		106		—		14,068
Government, federal agency, and other sovereign obligations										Less than 1		12,380		117		—		12,497
Total short-term marketable securities		$	111,187	$	220	$	(5)	$	111,402		$	157,752	$	1,278	$	—	$	159,030

Long-term:
Municipal bonds	1 - 3	$	29,935	$	246	$	(1)	$	30,180	1 - 2	$	26,209	$	561	$	—	$	26,770
Corporate debt securities	1 - 3		189,283		2,673		—		191,956	1 - 3		119,164		3,559		—		122,723
Asset-backed securities	1 - 3		151,206		1,868		(23)		153,051	1 - 2		123,778		2,316		—		126,094
U.S. government and agency securities	1 - 2		7,842		70		—		7,912
Total long-term marketable securities		$	378,266	$	4,857	$	(24)	$	383,099		$	269,151	$	6,436	$	—	$	275,587



		December 31, 2018									December 31, 2019
(In thousands)	Contractual ‎Maturity ‎(in years)	Amortized ‎Cost		Gross ‎Unrealized ‎Gains		Gross ‎Unrealized ‎Losses		Fair ‎Value		Contractual ‎Maturity ‎(in years)	Amortized ‎Cost		Gross ‎Unrealized ‎Gains		Gross ‎Unrealized ‎Losses		Fair ‎Value
Short-term:
Municipal bonds	Less than 1	$	14,923	$	—	$	(25)	$	14,898	Less than 1	$	7,840	$	23	$	(1)	$	7,862
Corporate debt securities	Less than 1		118,823		—		(185)		118,638	Less than 1		69,091		247		(3)		69,335
Commercial paper	Less than 1		50,202		3		(11)		50,194	Less than 1		34,747		6		(1)		34,752
U.S. government and agency securities	Less than 1		4,497		—		(1)		4,496
Asset-backed securities	Less than 1		11,765		—		(54)		11,711	Less than 1		3,808		6		—		3,814
Total short-term marketable securities		$	200,210	$	3	$	(276)	$	199,937		$	115,486	$	282	$	(5)	$	115,763

Long-term:
Municipal bonds	1 - 2	$	2,676	$	—	$	(4)	$	2,672	1 - 3	$	45,010	$	254	$	(8)	$	45,256
Corporate debt securities	1 - 3		127,676		196		(295)		127,577	1 - 3		186,356		2,578		(5)		188,929
Asset-backed securities	1 - 3		128,297		262		(89)		128,470	1 - 3		161,347		1,583		(33)		162,897
U.S. government and agency securities	1 - 3		4,411		—		(13)		4,398
Government, federal agency, and other sovereign obligations										1 - 2		12,366		66		—		12,432
Total long-term marketable securities		$	263,060	$	458	$	(401)	$	263,117		$	405,079	$	4,481	$	(46)	$	409,514

Table of Contents

GLOBUS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 6.5. FAIR VALUE MEASUREMENTS

~~Table of Contents~~

~~GLOBUS MEDICAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Our assets~~Assets and liabilities measured at fair value on a recurring basis ~~are classified~~as of September 30, 2020 and ~~disclosed in one of~~December 31, 2019, respectively included the ~~following three categories:~~

~~Level 1—quoted prices (unadjusted) in active markets for identical assets and liabilities;~~

~~Level 2—observable inputs other than quoted prices in active markets for identical assets and liabilities; and~~

~~Level 3—unobservable inputs in which there is little or no market data available, which require the reporting entity to use significant unobservable inputs or valuation techniques.~~

~~The fair value of our assets and liabilities measured at fair value on a recurring basis was as follows:~~following:



(In thousands)	Balance at ‎September 30, ‎2019		Level 1		Level 2		Level 3		Balance at September 30, 2020		Level 1		Level 2		Level 3
Assets
Assets:
Cash equivalents	$	35,712	$	750	$	34,962	$	—	$	96,953	$	96,953	$	—	$	—
Municipal bonds		34,869		—		34,869		—		50,926		—		50,926		—
Corporate debt securities		242,684		—		242,684		—		223,033		—		223,033		—
Commercial paper		41,227		—		41,227		—		7,999		—		7,999		—
Asset-backed securities		157,815		—		157,815		—		140,162		—		140,162		—
Government, federal agency, and other sovereign obligations		17,907		—		17,907		—		12,497		—		12,497		—
Liabilities
Liabilities:
Business acquisition liabilities		8,891		—		—		8,891		4,548		—		—		4,548



(In thousands)	Balance at ‎December 31, ‎2018		Level 1		Level 2		Level 3		Balance at December 31, 2019		Level 1		Level 2		Level 3
Assets
Assets:
Cash equivalents	$	48,040	$	259	$	47,781	$	—	$	18,218	$	4,988	$	13,230	$	—
Municipal bonds		17,570		—		17,570		—		53,118		—		53,118		—
Corporate debt securities		246,215		—		246,215		—		258,264		—		258,264		—
Commercial paper		50,194		—		50,194		—		34,752		—		34,752		—
Asset-backed securities		140,181		—		140,181		—		166,711		—		166,711		—
Government, federal agency, and other sovereign obligations		8,894		—		8,894		—		12,432		—		12,432		—
Liabilities
Liabilities:
Business acquisition liabilities		10,118		—		—		10,118		9,549		—		—		9,549

Our marketable securities are classified as Level 2 within the fair value hierarchy, as we measure their fair value using market prices for similar instruments and inputs such as actual trade data, benchmark yields, broker/dealer quotes and other similar data obtained from quoted market prices or independent pricing vendors.

Assets and Liabilities That Are Measured at Fair Value on a Nonrecurring Basis

The purchase price of business acquisitions is primarily allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition dates, with the excess recorded as goodwill. We utilizerecurring Level 3 fair value measurements of our business acquisition liabilities include the following significant unobservable inputs, which have not materially changed since December 31, 2019, exclusive of the contractual payable reclassification to Accrued Expenses in the determination of the initial fair value. Non-financial assets such as goodwill, intangible assets, and property, plant, and equipment are subsequently measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment is recognized. We assess the impairment of intangible assets annually or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. The fair value of our goodwill and intangible assets is not estimated if there is no change in events or circumstances that indicate the carrying amount of an intangible asset may not be recoverable.Condensed Consolidated Balance Sheet:



(In thousands)	Fair Value at September 30, 2020		Valuation technique	Unobservable input	Range
				Discount rate	8.5%
Revenue-based payments	$	4,548	Discounted cash flow	Probability of payment	75%	-	100%
				Projected year of payment	2020	-	2029

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

~~measurement within~~

The change in the fair value hierarchy. The valuation of contingent consideration uses assumptions we believe would be made by a market participant. We assess these estimates on an ongoing basis as additional data impacting the assumptions is obtained. The balances of the faircarrying value of ~~contingent consideration are recognized within~~the business acquisition liabilities on our condensed consolidated balance sheets, and the changes in the fair value of contingent consideration are recognized within acquisition related costs in the condensed consolidated statements of income. ~~As part of the StelKast Acquisition~~ during the ~~second quarter of~~three and nine months ended September 30, 2020 and 2019, ~~we incurred a milestone-based contingent consideration liability.~~

~~The recurring Level 3 fair value measurements of our business acquisition liabilities include~~respectively included the ~~following significant unobservable inputs, which have not materially changed since December 31, 2018:~~following:



								Three Months Ended				Nine Months Ended
								September 30,				September 30,
(In thousands)	Fair Value at September 30, 2019		Valuation ‎technique	Unobservable ‎input	Range			2020		2019		2020		2019
				Discount rate	4.7%	-	8.5%
Revenue-based payments	$	8,891	Discounted cash flow	Probability of payment	75%	-	100%
				Projected year of payment	2019	-	2029
Beginning balance								$	4,216	$	9,304	$	9,549	$	10,118
Purchase price contingent consideration									—		—		—		4,299
Changes resulting from foreign currency fluctuations									—		—		—		(9)
Contingent payments									(175)		(463)		(1,028)		(6,096)
Changes in fair value of business acquisition liabilities									507		50		970		579
Contractual payable reclassification									—		—		(4,943)		—
Ending balance								$	4,548	$	8,891	$	4,548	$	8,891

~~The following table provides a reconciliation~~

NOTE 6. INVENTORIES

Inventories as of September 30, 2020 and December 31, 2019, respectively included the ~~beginning and ending balances of business acquisition liabilities:~~following:

Three Months Ended
Nine Months Ended
September 30,
September 30,
(In thousands)
2019
2018
2019
2018
Beginning balance
$
9,304
$
10,322
$
10,118
$
15,919
Purchase price contingent consideration
—
—
4,299
—
Changes resulting from foreign currency fluctuations
—
135
(9)
72
Contingent payments
(463)
(563)
(6,096)
(6,513)
Changes in fair value of business acquisition liabilities
50
177
579
593
Ending balance
$
8,891
$
10,071
$
8,891
$
10,071



	September 30,		December 31,
(In thousands)	2020		2019
Raw materials	$	34,198	$	33,025
Work in process		19,314		15,940
Finished goods		178,346		147,349
Total inventories	$	231,858	$	196,314

~~NOTE 7. INVENTORIES~~During the three months ended September 30, 2020 and 2019, net adjustments to cost of sales related to excess and obsolete inventory were $5.2 million and ($0.6) million, respectively. The net adjustments for the three months ended September 30, 2020 and 2019 reflect a combination of additional expense for excess and obsolete related provisions ($7.9 million and $1.2 million, respectively) offset by sales and disposals ($2.7 million and $1.8 million, respectively) of inventory for which an excess and obsolete provision was provided previously through expense recognized in prior periods.

During the nine months ended September 30, 2020 and 2019, net adjustments to cost of sales related to excess and obsolete inventory were $12.4 million and $1.9 million, respectively. The net adjustments for the nine months ended September 30, 2020 and 2019 reflect a combination of additional expense for excess and obsolete related provisions ($18.9 million and $7.8 million, respectively) offset by sales and disposals ($6.5 million and $5.9 million, respectively) of inventory for which an excess and obsolete provision was provided previously through expense recognized in prior periods.

During the third quarter of 2020, the Company initiated a voluntary Class II recall of specific lots of ALTERA^® Spacers. This recall was initiated because specific lots of ALTERA^® implants have internal components that were manufactured using stainless steel rather than the specified cobalt chromium molybdenum alloy. Only devices made after February 12, 2020 from specific lots were affected, and some parts in some lots may not be affected. No reports of adverse reactions related to the affected ALTERA^® implants have been received to date. A recall notification was issued to all relevant parties and Globus has collected and replaced impacted field inventory. The Company recorded an accrual in the second quarter of approximately $1.3 million in costs associated with this recall of which $1.0 million was charged to Cost of Goods Sold in the Condensed Consolidated Statements of Income.

September 30,
December 31,
(In thousands)
2019
2018
Raw materials
$
32,107
$
20,740
Work in process
14,756
13,179
Finished goods
140,197
97,335
Total inventories
$
187,060
$
131,254

Table of Contents

GLOBUS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 8.7. ACCRUED EXPENSES

Accrued expense as of September 30, 2020 and December 31, 2019, respectively included the following:

September 30,
December 31,
(In thousands)
2019
2018
Compensation and other employee-related costs
$
32,238
$
32,465
Legal and other settlements and expenses
4,468
6,684
Accrued non-income taxes
4,166
3,593
Royalties
2,159
2,500
Other
17,664
14,636
Total accrued expenses
$
60,695
$
59,878



	September 30,		December 31,
(In thousands)	2020		2019
Compensation and other employee-related costs	$	37,579	$	37,178
Legal and other settlements and expenses		960		1,538
Accrued non-income taxes		3,800		4,996
Royalties		2,656		2,370
Other		16,808		17,201
Total accrued expenses	$	61,803	$	63,283

~~Table of Contents~~

~~GLOBUS MEDICAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

NOTE 9.8. DEBT

Line of Credit

On August 6, 2020, we entered into a credit agreement with Citizens Bank, N.A. (the “Credit Agreement”) that provides a revolving credit facility permitting borrowings up to $125.0 million (the “Revolving Credit Facility”), and has a termination date of August 5, 2021. The Revolving Credit Facility includes up to a $25.0 million sub limit for letters of credit. Revolving loans under the Credit Agreement will bear interest, at the Company’s option, at either a base rate or the Adjusted LIBOR Rate (as defined in the Credit Agreement), plus, in each case, an applicable margin, as determined in accordance with the provisions of the Credit Agreement. The base rate will be the highest of: the rate of interest announced publicly by Citizens Bank, N.A. from time to time as its “prime rate”; the federal funds effective rate plus 1/2 of 1%; and the Adjusted LIBOR Rate for a one-month period plus 1%. The applicable margin is subject to adjustment as provided in the Credit Agreement. The Credit Agreement contains financial and other customary covenants, including a maximum leverage ratio.

In May 2011, we entered into a credit agreement with Wells Fargo Bank related to a revolving credit facility that ~~provides~~provided for borrowings up to $50.0 million. In June 2018, we amended the credit agreement to increase the revolving credit facility amount from $50.0 million to $125.0 million. At our request, and with the approval of the bank, the amount of borrowings available under the revolving credit facility ~~can be~~ increased to $150.0 million. The revolving credit facility ~~includes~~included up to a $25.0 million sub-limit for letters of credit. As amended to date, the revolving credit facility ~~expires~~with Wells Fargo Bank expired in May 2020. ~~Cash advances bear interest at our option either at a fluctuating rate per annum equal to the daily LIBOR in effect for a~~ ~~one-month~~ ~~period plus 0.75%, or a fixed rate for a~~ ~~one- or~~ ~~three-month~~ period equal to LIBOR plus 0.75%. The credit agreement governing the revolving credit facility also subjects us to various restrictive covenants, including the requirement to maintain maximum consolidated leverage. The covenants also include limitations on our ability to repurchase shares, to pay cash dividends or to enter into a sale transaction. As of September 30, 2019, we were in compliance with all financial covenants under the credit agreement, there were 0 outstanding borrowings under the revolving credit facility and available borrowings were $125.0 million. We may terminate the credit agreement at any time on ten days’ notice without premium or penalty.

NOTE ~~10.~~9. EQUITY

Our amended and restated Certificate of Incorporation provides for a total of 785,000,000 authorized shares of common stock. Of the authorized number of shares of common stock, 500,000,000 shares are designated as Class A common stock (“Class A Common”), 275,000,000 shares are designated as Class B common stock (“Class B Common”) and 10,000,000 shares are designated as Class C common stock (“Class C Common”).Stock Repurchases

~~Our issued~~Under the current stock repurchase plan, announced on March 11, 2020, the Company is authorized to repurchase up to $200 million of the Company’s Class A common stock. As of September 30, 2020, $95.3 million of this authorization is remaining. The timing and ~~outstanding common~~actual number of shares ~~by Class were as follows:~~repurchased will depend on various factors including price, corporate and regulatory requirements, debt covenant requirements, alternative investment opportunities and other market conditions. We continue to expect funding of share repurchases will come from operating cash flows and excess cash.

(Shares)
Class A
‎Common
Class B
‎Common
Class C
‎Common
Total
September 30, 2019
76,972,926
22,430,097
—
99,403,023
December 31, 2018
76,143,257
22,430,097
—
98,573,354

Shares repurchased by the Company are accounted for under the constructive retirement method, in which the shares repurchased, are immediately retired, as there is no plan to reissue. The ~~following table summarizes changes in total equity:~~

Three Months Ended
Nine Months Ended
September 30,
September 30,
(In thousands)
2019
2018
2019
2018
Total equity, beginning of period
$
1,287,526
$
1,097,186
$
1,185,516
$
967,778
Net income
38,307
35,208
109,681
119,724
Stock-based compensation cost
6,978
5,631
19,902
17,291
Exercise of stock options
7,082
3,112
19,350
36,245
Other comprehensive income
(1,098)
(20)
4,346
79
Total equity, end of period
$
1,338,795
$
1,141,117
$
1,338,795
$
1,141,117

Company made an accounting policy election to charge the excess of repurchase price over par value entirely to retained earnings.

1618

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table summarizes the activity related to share repurchases:

(In thousands except for per share prices)


Period	Total number of shares repurchased	Average Price Paid per Share		Dollar amount of shares repurchased ⁽¹⁾		Approximate dollar value of shares that may yet be purchased under the plan
January 1, 2020 - March 31, 2020	1,920	$	38.49	$	73,902	$	126,098
April 1, 2020 - June 30, 2020	771		39.95		30,804		95,294
July 1, 2020 - September 30,2020	—		—		—		95,294
January 1, 2020 - September 30, 2020	2,691	$	38.91	$	104,706

⁽¹⁾ Inclusive of an immaterial amount of commission fees

Common Stock

Our amended and restated Certificate of Incorporation provides for a total of 775,000,000 authorized shares of common stock. Of the authorized number of shares of common stock, 500,000,000 shares are designated as Class A common stock (“Class A Common”), and 275,000,000 shares are designated as Class B common stock (“Class B Common”).

Each share of our Class B common stock is convertible at any time at the option of the holder into one share of our Class A common stock. In addition, each share of our Class B common stock will convert automatically into one share of our Class A common stock upon any transfer, whether or not for value, except for permitted transfers. For more details relating to the conversion of our Class B common stock please see “Exhibit 4.2, Description of Securities of the Registrant filed with our amended Form 10-K on March 2, 2020.”

Accumulated Other Comprehensive Income (Loss)

The tables below present the changes in each component of accumulated other comprehensive income/(loss), including current period other comprehensive income/(loss) and reclassifications out of accumulated other comprehensive income/(loss): for the nine months ended September 30, 2020 and 2019, respectively:



(In thousands)	Unrealized ‎gain/(loss) on ‎marketable ‎securities, ‎net of tax		Foreign ‎currency ‎translation ‎adjustments		Accumulated ‎other ‎comprehensive ‎loss
Accumulated other comprehensive loss, net of tax, at December 31, 2019	$	3,599	$	(6,497)	$	(2,898)
Other comprehensive (loss)/income before reclassifications		3,001		2,820		5,821
Amounts reclassified from accumulated other comprehensive income, net of tax		(716)		—		(716)
Other comprehensive (loss)/income, net of tax		2,285		2,820		5,105
Accumulated other comprehensive loss, net of tax, at September 30, 2020	$	5,884	$	(3,677)	$	2,207



(In thousands)	Unrealized ‎gain/(loss) on ‎marketable ‎securities, ‎net of tax		Foreign ‎currency ‎translation ‎adjustments		Accumulated ‎other ‎comprehensive ‎loss
Accumulated other comprehensive loss, net of tax, at December 31, 2018	$	(168)	$	(7,004)	$	(7,172)
Other comprehensive (loss)/income before reclassifications		5,266		319		5,585
Amounts reclassified from accumulated other comprehensive income, net of tax		(1,239)		—		(1,239)
Other comprehensive (loss)/income, net of tax		4,027		319		4,346
Accumulated other comprehensive loss, net of tax, at September 30, 2019	$	3,859	$	(6,685)	$	(2,826)

(In thousands)
Unrealized
‎gain/(loss) on
‎marketable
‎securities,
‎net of tax
Foreign
‎currency
‎translation
‎adjustments
Accumulated
‎other
‎comprehensive
‎loss
Accumulated other comprehensive loss, net of tax, at December 31, 2017
$
(313)
$
(6,594)
$
(6,907)
Other comprehensive (loss)/income before reclassifications
42
50
92
Amounts reclassified from accumulated other comprehensive income, net of tax
(13)
—
(13)
Other comprehensive (loss)/income, net of tax
29
50
79
Accumulated other comprehensive loss, net of tax, at September 30, 2018
$
(284)
$
(6,544)
$
(6,828)

Table of Contents

GLOBUS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE ~~11.~~10. STOCK-BASED COMPENSATION

We have 3 stock plans: our Amended and Restated 2003 Stock Plan, our 2008 Stock Plan, and our 2012 Equity Incentive Plan (the “2012 Plan”). The 2012 Plan is the only remaining active stock plan. The purpose of these stock plans was, and the 2012 Plan is, to provide incentive to employees, directors, and consultants of Globus. The Plans are administered by the Board of Directors of Globus (the “Board”) or its delegates. The number, type of option, exercise price, and vesting terms are determined by the Board or its delegates in accordance with the terms of the Plans. The options granted expire on a date specified by the Board, but generally not more than ten years from the grant date. Option grants to employees generally vest in varying installments over a ~~four~~four-year~~-year~~ period.

The 2012 Plan was approved by our Board in March 2012, and by our stockholders in June 2012. Under the 2012 Plan, the aggregate number of shares of Class A Common stock that may be issued subject to options and other awards is equal to the sum of (i) 3,076,923 shares, (ii) any shares available for issuance under the 2008 Plan as of March 13, 2012, (iii) any shares underlying awards outstanding under the 2008 Plan as of March 13, 2012 that, on or after that date, are forfeited, terminated, expired or lapse for any reason, or are settled for cash without delivery of shares and (iv) starting January 1, 2013, an annual increase in the number of shares available under the 2012 Plan equal to up to 3% of the number of shares of our common and preferred stock outstanding at the end of the previous year, as determined by our Board. The number of shares that may be issued or transferred pursuant to incentive stock options under the 2012 Plan is limited to 10,769,230 shares. The shares of Class A Common stock issuable under the 2012 Plan include authorized but unissued shares, treasury shares or shares of common stock purchased on the open market.

As of September 30, ~~2019,~~2020, pursuant to the 2012 Plan, there were ~~14,905,194~~17,899,947 shares of Class A Common stock reserved and ~~909,737~~2,206,992 shares of Class A Common stock available for future grants.

The weighted average grant date fair value per share of the options awarded to employees for the three and nine months ended September 30, 2020 and 2019, respectively were as follows:

Three Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
September 30,
2019
2018
2019
2018
Weighted average grant date fair value per share
$
13.43
$
15.87
$
13.61
$
14.81



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Weighted average grant date fair value per share	$	16.98	$	13.43	$	14.54	$	13.61

Stock option activity during the nine months ended September 30, 2020 is summarized as follows:



	Option ‎Shares (thousands)	Weighted ‎average ‎exercise ‎price		Weighted ‎average ‎remaining ‎contractual ‎life (years)	Aggregate ‎intrinsic ‎value ‎(thousands)
Outstanding at December 31, 2019	10,650	$	35.80
Granted	2,071		52.43
Exercised	(1,539)		28.69
Forfeited	(488)		47.41
Outstanding at September 30, 2020	10,694	$	39.50	7.2	$	117,826
Exercisable at September 30, 2020	5,204	$	31.71	5.9	$	93,761
Expected to vest at September 30, 2020	5,490	$	46.85	8.4	$	24,065

1720

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

~~Stock option activity during the nine months ended September 30, 2019 is summarized as follows:~~

Option
‎Shares (thousands)
Weighted
‎average
‎exercise
‎price
Weighted
‎average
‎remaining
‎contractual
‎life (years)
Aggregate
‎intrinsic
‎value
‎(thousands)
Outstanding at December 31, 2018
9,668
$
31.45
Granted
2,643
45.77
Exercised
(829)
23.45
Forfeited
(525)
39.77
Outstanding at September 30, 2019
10,957
$
35.10
7.5
$
177,212
Exercisable at September 30, 2019
5,031
$
26.70
6.1
$
123,055
Expected to vest at September 30, 2019
5,926
$
42.24
8.6
$
54,157

The intrinsic value of stock options exercised and the compensation cost related to stock options granted to employees and non-employees under our stock plans for the three and nine months ended September 30, 2020 and 2019, respectively was as follows:



	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
(In thousands)	2019		2018		2019		2018		2020		2019		2020		2019
Intrinsic value of stock options exercised	$	8,849	$	7,565	$	19,533	$	55,719	$	23,268	$	7,565	$	39,425	$	19,533

Stock-based compensation expense	$	6,898	$	5,545	$	19,647	$	17,078	$	7,020	$	5,545	$	21,138	$	19,647
Net stock-based compensation capitalized into inventory		80		86		255		213		(13)		86		197		255
Total stock-based compensation cost	$	6,978	$	5,631	$	19,902	$	17,291	$	7,007	$	5,631	$	21,335	$	19,902

As of ~~June~~September 30, ~~2019,~~2020, there was ~~$64.2~~$62.0 million of unrecognized compensation expense related to unvested employee stock options that are expected to vest over a weighted average period of three years.

NOTE ~~12.~~11. INCOME TAXES

In computing our income tax provision, we make certain estimates and management judgments, such as estimated annual taxable income or loss, annual effective tax rate, the nature and timing of permanent and temporary differences between taxable income for financial reporting and tax reporting, and the recoverability of deferred tax assets. Our estimates and assumptions may change as new events occur, additional information is obtained, or as the tax environment changes. Should facts and circumstances change during a quarter causing a material change to the estimated effective income tax rate, a cumulative adjustment is recorded.

The following table provides a summary of our effective tax ~~rate:~~

Three Months Ended
Nine Months Ended
September 30,
September 30,
2019
2018
2019
2018
Effective income tax rate
18.1%
17.3%
19.1%
15.1%

~~The change in effective income tax rates~~rate for the three and nine months ended September 30, 2020 and 2019, respectively:



	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2020	2019	2020	2019
Effective income tax rate	16.8%	18.1%	22.5%	19.1%

The change in the effective income tax rates for the three month period ended September 30, 2020 and ~~2018 are~~2019 is primarily ~~driven by changes~~a result of tax benefits due to an increase in ~~state tax laws.~~stock option exercises in the current year. The change in the effective income tax rates for the nine ~~months~~month period ended September 30, ~~2019~~2020 and ~~2018~~2019 is primarily driven by the ~~reduction~~non-deductible expense of acquired IPR&D of $24.4 million, offset by tax benefits ~~related~~due to an increase in stock option exercises in the ~~exercise of stock based compensation (ASU 2016-09).~~current year.

NOTE ~~13.~~12. COMMITMENTS AND CONTINGENCIES

We are involved in a number of proceedings, legal actions, and ~~claims.~~claims arising in the ordinary course of business. Such matters are subject to many uncertainties, and the outcomes of these matters are not within our control and may not be known for prolonged periods of time. In some actions, the claimants seek damages, as well as other relief, including injunctions prohibiting us from engaging in certain activities, which, if granted, could require significant expenditures and/or result in lost revenues. We record a liability in the condensed consolidated financial statements

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

for these actions when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded. While it is not possible to predict the outcome for most of the matters discussed, we believe it is possible that costs associated with them could have a material adverse impact on our consolidated earnings, financial position or cash flows.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

L5 Litigation

In December 2009, we filed suit in the Court of Common Pleas of Montgomery County, Pennsylvania against our former exclusive independent distributor L5 Surgical, LLC and its principals, seeking an injunction and declaratory judgment concerning certain restrictive covenants made to L5 by its sales representatives. L5 brought counterclaims against us alleging tortious interference, unfair competition and conspiracy. The injunction phase was resolved in September 2010 and the remaining claims were fully resolved through settlement by the parties on February 6, 2019.

~~Bianco~~Moskowitz Family LLC Litigation

On March 21, 2012, Sabatino Bianco filed suit against us in the Federal District Court for the Eastern District of Texas claiming that we misappropriated his trade secret and confidential information and improperly utilized it in developing our CALIBER^® ~~product. On October 1, 2013, Bianco amended his complaint to claim that his trade secrets and confidential information were also used improperly in developing our RISE~~^® ~~and CALIBER~~^®~~-L products.~~

On September 13, 2017, we settled this matter with Bianco for $11.5 million in cash, which resulted in the reversal of a previously recorded accrual of $2.5 million and the recording of $9.0 million in other assets that will be amortized through June 30, 2022, as a component of cost of goods sold.

~~Flexuspine, Inc. Litigation~~

~~On March 11, 2015, Flexuspine, Inc.~~November 20, 2019, Moskowitz Family LLC filed suit against us in the U.S. District Court for the ~~Eastern~~Western District of Texas for patent infringement. ~~Flexuspine, Inc. alleged~~Moskowitz, a non-practicing entity, alleges that Globus willfully ~~infringed 1~~infringes one or more claims of 5eight patents by making, using, offering for sale or selling the ~~CALIBER~~COALITION^®, COALITION MIS^®, COALITION AGX^®, MONUMENT^®, MAGNIFY^®-S, HEDRON IA^TM, HEDRON IC^TM, INDEPENDENCE^®, INDEPENDENCE MIS^®, FORTIFY^®and XPAND^® families, SABLE^TM, RISE^®, RISE^® INTRALIF, RISE^®-L, ELSA^®, ELSA^® ATP, RASS, ALTERA^®, ARIEL^®, LATIS^®, CALIBER^®~~-L,~~ and ~~ALTERA~~CALIBER^®-L products. Moskowitz seeks an unspecified amount in damages and injunctive relief. On ~~August 19, 2016, a jury returned a verdict in our favor finding no infringement of~~July 2, 2020, this suit was transferred from the ~~asserted patents. On January 19, 2018 the United States~~U.S. District Court ~~of Appeals~~ for the ~~Federal Circuit affirmed~~Western District of Texas to the ~~decisions of the lower court. On February 19, 2018, Flexuspine, Inc. filed a petition for panel rehearing in the United States~~U.S. District Court ~~of Appeals~~ for the ~~Federal Circuit. On March 7, 2018,~~Eastern District of Pennsylvania and was stayed on September 25, 2020 pending the ~~United States Court~~outcome of ~~Appeals for~~earlier filed Inter Partes Reviews. The probable outcome of this litigation cannot be determined, nor can we estimate a range of potential loss. Therefore, in accordance with authoritative guidance on the ~~Federal Circuit denied Flexuspine Inc.’s petition for panel rehearing.~~

~~In addition,~~evaluation of loss contingencies, we ~~are subject~~have not recorded an accrual related to ~~legal proceedings arising in the ordinary course of business.~~this litigation.

NOTE ~~14.~~13. LEASES

The Company leases certain equipment, vehicles, and facilities under operating leases. ~~Our leases have initial lease terms ranging from one year to fourteen years.~~ Certain leases contain options to extend terms beyond the lease termination date. In these leases, we use judgment to determine whether it is reasonably possible that we will extend the lease beyond the initial term and for how long. Leases that have terms of less than 12 months are treated as short-term and are not recognized as right of use assets or lease liabilities. As most leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. As of September 30, ~~2019,~~2020, the Company’s short-term lease commitments and sublease income are immaterial.

The Company classifies right-of-use assets as Other assets, short-term lease liabilities as Accrued expenses, and long-term lease liabilities as Other liabilities on the Condensed Consolidated Balance Sheet. Lease expense is recognized, on a straight-line basis over the term of the lease, as a component of operating income on the Condensed Consolidated Statement of Income.

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~~GLOBUS MEDICAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

Amounts reported in the Condensed Consolidated Balance Sheet as of ~~the nine months ended~~ September 30, ~~2019~~2020 were as follows:



(In thousands, except weighted average lease term and discount rate)
Operating leases:
Right of use assets	$	~~2,129~~4,255

Lease liability - short term		~~1,258~~1,645
Lease liability - long term		~~871~~2,610
Total operating lease liability	$	~~2,129~~4,255

Lease expense as of September 30, ~~2019~~2020	$	~~2,318~~2,652

Weighted-average remaining lease term - operating leases (in years)		~~2.6~~3.2

Weighted-average discount rate		~~4.0%~~3.0%

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Future minimum lease payments under non-cancellable leases as of ~~the quarter ended~~ September 30, ~~2019~~2020 are as follows:



(In thousands)	Operating ‎Leases		Operating ‎Leases
2019 (excluding the nine months ended September 30, 2019)	$	375
2020		1,095
2020 (excluding the nine months ended September 30, 2020)			$	526
2021		348		1,515
2022		225		1,231
2023		165		676
Thereafter		89
2024				506
2025				136
Total undiscounted leases payments	$	2,297	$	4,590
Less : imputed interest		168
Less: imputed interest				335
Total lease liabilities	$	2,129	$	4,255

NOTE ~~15.~~14. SEGMENT AND GEOGRAPHIC INFORMATION

Operating segments are defined as components of an enterprise for which separate discrete financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. We globally manage the business within 1 operating segment. Segment information is consistent with how management reviews the business, makes investing and resource allocation decisions and assesses operating performance.

The following table represents total net sales by geographic area, based on the location of the ~~customer:~~customer for the three and nine months ended September 30, 2020 and 2019, respectively:



	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
(In thousands)	2019		2018		2019		2018		2020		2019		2020		2019
United States	$	162,697	$	139,097	$	470,224	$	429,823	$	182,104	$	162,697	$	465,705	$	470,224
International		33,518		30,139		103,477		87,208		33,994		33,518		89,892		103,477
Total sales	$	196,215	$	169,236	$	573,701	$	517,031
Total net sales									$	216,098	$	196,215	$	555,597	$	573,701

2023

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Item 2. 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 ~~together~~in conjunction with our unaudited ~~interim~~ 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, 2019, which are included ~~elsewhere~~ in ~~this report.~~

~~Unless otherwise noted,~~our Annual Report on Form 10-K filed with the ~~figures in the following discussions are unaudited.~~SEC on February 20, 2020.

Overview

Globus Medical, Inc. (together ~~as applicable,~~ with its consolidated subsidiaries, “Globus,” “we,” “us” or “our”), headquartered in Audubon, Pennsylvania, is a medical device company that develops and commercializes healthcare solutions whose mission is to improve the quality of life of patients with musculoskeletal disorders. Founded in 2003, Globus is committed to medical device innovation and delivering exceptional service to hospitals and physicians to advance patient care and improve efficiency. Since inception, Globus has listened to the voice of the surgeon to develop practical solutions and products to help surgeons effectively treat patients and improve lives. With over ~~200~~210 products on the market, we offer a comprehensive portfolio of innovative and differentiated technologies that treat a variety of musculoskeletal conditions of the spine, extremities, pelvis, hip and knee. Although we manage our business globally within one operating segment, we separate our products into two major categories: Musculoskeletal Solutions and Enabling Technologies.

COVID-19 Update

We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities and may need to make changes to our business based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, the Company cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future. However, while the government mandated restrictions, including elective surgeries, are in place, we do expect that it could continue to have a material adverse impact on our revenue growth, operating profit and cash flow and may lead to higher than normal inventory levels, revised payment terms with certain of our customers, and a change in effective tax rate driven by changes in the mix of earnings across the Company's jurisdictions.

We are focused on navigating these recent challenges presented by COVID-19 and believe we are in a strong position to continue to not only sustain, but grow our business once the restrictions are lifted and elective surgeries fully resume. To date, COVID-19 has not materially affected our supply chain or production schedule, although delays may be possible in the future due to the dynamic nature of the situation.

Product Categories

While we group our products into two categories, they are not limited to a particular technology, platform or surgical approach. Instead, our goal is to offer a comprehensive product suite that can be used to effectively treat patients based on their specific anatomy and condition, and is customized to the surgeon’s training and surgical preference.

Musculoskeletal Solutions

Our Musculoskeletal Solutions consist primarily of implantable devices, biologics, accessories, and unique surgical instruments used in an expansive range of spinal, orthopedic and neurosurgical procedures.

Our broad spectrum of spine products addresses the vast majority of conditions affecting the spine including degenerative conditions, deformity, tumors, and trauma. With more than fifteen years in this competitive market, we provide comprehensive solutions that facilitate both open and minimally invasive surgery (“MIS”) techniques. This includes traditional fusion implants such as pedicle screw and rod systems, plating systems, intervertebral spacers and corpectomy devices. We believe we pioneered innovative expandable solutions for interbody fusion, corpectomy and interspinous fixation that allow intraoperative customization of our devices to the patient’s anatomy and save surgical time by eliminating sequential trialing. We have also developed treatment options for motion preservation technologies, such as dynamic stabilization, total disc replacement and interspinous distraction devices; ~~and~~as well as interventional pain management solutions to treat vertebral compression fractures. ~~Regenerative~~Our biologic solutions include regenerative biologic products such as allografts and synthetic alternatives, which are adjunctive treatments typically used in combination with stabilizing implant hardware.

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Our orthopedic trauma solutions are designed to treat a wide variety of orthopedic fracture patterns and patient anatomies in the upper and lower extremities as well as the hip. To date, Globus has received 510(k) clearance from the U.S. Food and Drug Administration ~~(“FDA”~~(the “FDA”) for numerous orthopedic trauma and extremity products covering four major segments of the orthopedic trauma market - fracture plates, compression screws, intramedullary nails, and external fixation. We began marketing these products in 2018 and intend to grow our presence in this field. Fracture plating includes proximal humerus, distal radius, proximal tibia, distal fibula, small fragment, mini-fragment and clavicle plates. Intramedullary nailing includes tibial, trochanteric, and femoral nail systems. Regenerative biologic products such as bone void fillers and allograft struts are also used in orthopedic procedures where applicable.

Our hip and knee joint solutions for the treatment of degenerative conditions or failed previous reconstruction have a long history of clinical use with ~~StelKast.~~StelKast, Inc. Over 4013 different implants have been marketed to date, including modular hip stems and acetabular cups for total hip arthroplasty as well as posterior stabilizing and cruciate retaining knee arthroplasty implants.

Enabling Technologies

Our Enabling Technologies are comprised of imaging, navigation and robotic (“INR”) assisted surgery solutions which are advanced computer-assisted intelligent systems designed to enhance a surgeon’s capabilities, and ~~streamline~~ultimately improve patient care and reduce radiation exposure for all involved, by streamlining surgical procedures to be safer, less invasive, more accurate, and more ~~reproducible, to ultimately improve patient care and reduce radiation exposure for all involved.~~reproducible.

~~Our current enabling technologies are comprised of imaging, navigation and robotic (“INR”) assisted surgery solutions. This includes~~These include the ExcelsiusGPS^® platform which is a robotic guidance and navigation system that supports minimally invasive and open procedures with screw placement applications. The ExcelsiusGPS^® platform has a modular design that can be used for a variety of screw placement applications, and we expect that it will serve as a foundation for future clinical applications using artificial intelligence and augmented reality.

Globus’ innovative Enabling Technologies products offer surgeons more information about patient anatomy and surgical options to help them to make well-informed surgical decisions. We believe the advantages of pre-planning implant position and viewing

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~~GLOBUS MEDICAL, INC. AND SUBSIDIARIES~~

patient anatomy during surgery are self-evident, and also create significant secondary gains such as eliminating radiation exposure altogether.

To date, the primary market for our products has been the United States, where we sell our products through a combination of direct sales representatives employed by us and distributor sales representatives employed by ~~our~~ exclusive independent distributors, who distribute our products ~~on our behalf~~ for a commission that is generally based on a percentage of sales. We believe there is significant opportunity to strengthen our position in the U.S. market by increasing the size of our U.S. sales force and we intend to add additional direct and distributor sales representatives in the future.

During the nine months ended September 30, ~~2019,~~2020, our international net sales accounted for approximately ~~18%~~16% of our total net sales. We have sold our products in approximately 50 countries outside the United States through a combination of ~~direct~~ sales representatives employed by us and exclusive international distributors. We believe there are significant opportunities for us to increase our presence in both existing and new international markets through the continued expansion of our direct and distributor sales forces and through the commercialization of additional products.

~~Results of Operations~~Seasonality

~~Three Months Ended September 30, 2019 Compared to the Three Months Ended September 30, 2018~~

~~Sales~~

~~The following table sets forth, for the periods indicated,~~Our business is generally not seasonal in nature. However, our sales of Musculoskeletal Solutions products may be influenced by ~~geography expressed as dollar amounts~~summer vacation and ~~the changes in sales between the specified~~winter holiday periods ~~expressed in dollar amounts and as percentages:~~

Three Months Ended
September 30,
Change
(In thousands, except percentages)
2019
2018
$
%
United States
$
162,697
$
139,097
$
23,600
17.0%
International
33,518
30,139
3,379
11.2%
Total sales
$
196,215
$
169,236
$
26,979
15.9%

~~In the United States, the increase in sales of $23.6 million was due primarily to increased spine product sales resulting from penetration in existing territories and increased INR technology sales.~~

Internationally, the increase in sales of $3.4 million was due primarily to increased spine product sales in Japan and other existing countries. On a constant currency basis, our international sales grew $3.3 million, or by 11.1%, and our worldwide sales increased 15.9%.

~~Cost of Goods Sold~~

Three Months Ended
September 30,
Change
(In thousands, except percentages)
2019
2018
$
%
Cost of goods sold
$
45,387
$
37,849
$
7,538
19.9%
Percentage of sales
23.1%
22.4%

The $7.5 million net increase in cost of goods sold was primarily due to higher volumes, product mix, and depreciation. These increases were partially offset by lower write-downs of excess and obsolete inventory.

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~~GLOBUS MEDICAL, INC. AND SUBSIDIARIES~~

~~Research and Development Expenses~~

Three Months Ended
September 30,
Change
(In thousands, except percentages)
2019
2018
$
%
Research and development
$
14,508
$
15,527
$
(1,019)
-6.6%
Percentage of sales
7.4%
9.2%

~~The decrease in research and development expenses was due primarily to a one-time licensing fee in the three months ended September 30, 2018,~~during which ~~did not reoccur in the three months ended September 30, 2019.~~

~~Selling, General and Administrative Expenses~~

Three Months Ended
September 30,
Change
(In thousands, except percentages)
2019
2018
$
%
Selling, general and administrative
$
88,455
$
75,131
$
13,324
17.7%
Percentage of sales
45.1%
44.4%

The increase in selling, general and administrative expenses was primarily due to an increase of $8.2 million in selling and marketing expenses relating to continued build out of the U.S., orthopedic trauma and INR technology sales forces,we have experienced fewer surgeries taking place, as well as ~~increases~~more surgeries taking place later in the ~~international~~year when patients have met the deductibles under insurance plans. Our sales ~~forces to further penetrate those markets. This increase was also impacted~~of Enabling Technologies products may be influenced by ~~surgeon education expense of $1.1 million~~longer capital purchase cycles and ~~stock compensation expense of $1.0 million.~~

~~Provision for Litigation~~

Three Months Ended
September 30,
Change
(In thousands, except percentages)
2019
2018
$
%
Provision for litigation
$
1,625
$
—
$
1,625
100.0%
Percentage of sales
0.8%
—

~~The increase in provision for litigation, which includes settlement and verdict costs, was primarily due to the timing and amount of settlements between the two periods.~~

~~Amortization of Intangibles~~

Three Months Ended
September 30,
Change
(In thousands, except percentages)
2019
2018
$
%
Amortization of intangibles
$
3,620
$
2,160
$
1,460
67.6%
Percentage of sales
1.8%
1.3%

~~The increase in the amortization of intangibles is primarily due to the developed technology intangible assets acquired in connection with the StelKast, KB Medical and Nemaris Acquisitions.~~

~~Acquisition Related Costs~~

Three Months Ended
September 30,
Change
(In thousands, except percentages)
2019
2018
$
%
Acquisition related costs
$
559
$
268
$
291
108.7%
Percentage of sales
0.3%
0.2%

~~The increase in acquisition related cost is primarily due to~~ the timing of ~~acquisitions.~~budget approvals for major capital purchases.

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~~GLOBUS MEDICAL, INC. AND SUBSIDIARIES~~

~~Other Income, Net~~

Three Months Ended
September 30,
Change
(In thousands, except percentages)
2019
2018
$
%
Other income, net
$
4,691
$
4,296
$
395
9.2%
Percentage of sales
2.4%
2.5%

~~The increase in other income, net was due primarily to increase in interest income from marketable securities during the three months ended September 30, 2019.~~

~~Income Tax Provision~~

Three Months Ended
September 30,
Change
(In thousands, except percentages)
2019
2018
$
%
Income tax provision
$
8,445
$
7,389
$
1,056
14.3%
Effective income tax rate
18.1%
17.3%

The increase in income tax provision is primarily driven by the increase in income before income taxes. The change in the effective income tax rates between the current year and prior year periods is primarily driven by changes in state tax laws.

~~September 30, 2019 Compared to the Nine Months Ended September 30, 2018~~

~~Sales~~

The following table sets forth, for the periods indicated, our sales by geography expressed as dollar amounts and the changes in sales between the specified periods expressed in dollar amounts and as percentages:

Nine Months Ended
September 30,
Change
(In thousands, except percentages)
2019
2018
$
%
United States
$
470,224
$
429,823
$
40,401
9.3%
International
103,477
87,208
16,269
19.0%
Total sales
$
573,701
$
517,031
$
56,670
11.0%

~~In the United States, the increase in sales of $40.4 million was due primarily to increased spine product sales resulting from penetration in existing territories.~~

Internationally, the increase in sales of $16.3 million was due primarily to increased sales in Japan and other existing countries combined with increased INR technology sales. On a constant currency basis, our international sales grew $18.9 million, or by 21.8%, and our worldwide sales increased 11.4%.

~~Cost of Goods Sold~~

Nine Months Ended
September 30,
Change
(In thousands, except percentages)
2019
2018
$
%
Cost of goods sold
$
131,214
$
113,456
$
17,758
15.7%
Percentage of sales
22.9%
21.9%

The $17.8 million net increase in cost of goods sold was primarily due to higher volumes, product mix, and depreciation. These increases were partially offset by lower write-downs of excess and obsolete inventory.

~~Research and Development Expenses~~



		~~Nine Months Ended~~

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~~GLOBUS MEDICAL, INC. AND SUBSIDIARIES~~

September 30,
Change
(In thousands, except percentages)
2019
2018
$
%
Research and development
$
44,577
$
41,738
$
2,839
6.8%
Percentage of sales
7.8%
8.1%

The increase in research and development expenses was due primarily to an increase in employee compensation costs from additional headcount, including our INR technology group and increased supplies for furthering research activities and developing new innovative products, which increases were partially offset by the one-time licensing fee in the nine months ended September 30, 2018 that did not reoccur in the nine months ended September 30, 2019.

~~Selling, General and Administrative Expenses~~

Nine Months Ended
September 30,
Change
(In thousands, except percentages)
2019
2018
$
%
Selling, general and administrative
$
262,618
$
227,949
$
34,669
15.2%
Percentage of sales
45.8%
44.1%

The increase in selling, general and administrative expenses was primarily due to an increase of $25.4 million in selling and marketing expenses relating to continued build out of the U.S., orthopedic trauma and INR technology sales forces, as well as increases in the international sales forces to further penetrate those markets.

~~Provision for Litigation~~

Nine Months Ended
September 30,
Change
(In thousands, except percentages)
2019
2018
$
%
Provision for litigation
$
1,625
$
—
$
1,625
100.0%
Percentage of sales
0.3%
—

~~The increase in provision for litigation, which includes settlement and verdict costs, was primarily due to the timing and amount of settlements between the two periods.~~

~~Amortization of Intangibles~~

Nine Months Ended
September 30,
Change
(In thousands, except percentages)
2019
2018
$
%
Amortization of intangibles
$
10,412
$
6,525
$
3,887
59.6%
Percentage of sales
1.8%
1.3%

~~The increase in the amortization of intangibles is primarily due to the developed technology intangible assets acquired in connection with the StelKast, KB Medical and Nemaris Acquisitions.~~

~~Acquisition Related Costs~~

Nine Months Ended
September 30,
Change
(In thousands, except percentages)
2019
2018
$
%
Acquisition related costs
$
1,245
$
1,289
$
(44)
-3.4%
Percentage of sales
0.2%
0.2%

~~Acquisition related costs remained consistent for the nine months ended September 30, 2019 as compared to the nine-months ended September 30, 2018.~~

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GLOBUS MEDICAL, INC. AND SUBSIDIARIES

~~Other Income, Net~~Results of Operations

Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019

Net Sales

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,				Change
(In thousands, except percentages)	2020		2019		$		%
United States	$	182,104	$	162,697	$	19,407	11.9%
International		33,994		33,518		476	1.4%
Total net sales	$	216,098	$	196,215	$	19,883	10.1%

In the United States, the increase in net sales of $19.4 million was due primarily to increased spine product sales resulting from penetration in existing territories.

International net sales increased by $0.5 million, which was due primarily to increased spine product sales resulting from penetration in existing territories, partially offset by the postponement of elective surgeries at hospitals and surgical centers due to the COVID-19 pandemic, particularly in Japan, the U.K. and India.

Cost of Goods Sold



	Three Months Ended
	September 30,				Change
(In thousands, except percentages)	2020		2019		$		%
Cost of goods sold	$	57,097	$	45,387	$	11,710	25.8%
Percentage of net sales		26.4%		23.1%

The $11.7 million increase in cost of goods sold was primarily due to higher write-downs of excess and obsolete inventory on less frequently used product sizes, non-recurring inventory write-offs and other manufacturing expense, depreciation, and increased product costs as a result of higher product sales.

Research and Development Expenses



	Three Months Ended
	September 30,				Change
(In thousands, except percentages)	2020		2019		$		%
Research and development	$	14,421	$	14,508	$	(87)	-0.6%
Percentage of net sales		6.7%		7.4%

Research and development expenses remained consistent with the three months ended September 30, 2019.

Selling, General and Administrative Expenses



	Three Months Ended
	September 30,				Change
(In thousands, except percentages)	2020		2019		$		%
Selling, general and administrative	$	89,152	$	88,455	$	697	0.8%
Percentage of net sales		41.3%		45.1%

The increase in selling, general and administrative expenses was primarily due to an increase in commission expenses resulting from higher product sales and by the continued build out of the spine, INR technology, joints and orthopedic trauma sales forces. These increases were partially offset by decreased travel and surgeon educational activities as a result of COVID-19 restrictions.

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GLOBUS MEDICAL, INC. AND SUBSIDIARIES

Provision for Litigation

Nine Months Ended
September 30,
Change
(In thousands, except percentages)
2019
2018
$
%
Other income, net
$
13,487
$
14,904
$
(1,417)
-9.5%
Percentage of sales
2.4%
2.9%



	Three Months Ended
	September 30,				Change
(In thousands, except percentages)	2020		2019		$		%
Provision for litigation	$	—	$	1,625	$	(1,625)	100.0%
Percentage of net sales		0.0%		0.8%

There was no provision for litigation for the three month period ending September 30, 2020. The provision for litigation for the three month period ending September 30, 2019 includes settlement and verdict costs.

Amortization of Intangibles



	Three Months Ended
	September 30,				Change
(In thousands, except percentages)	2020		2019		$		%
Amortization of intangibles	$	4,152	$	3,620	$	532	14.7%
Percentage of net sales		1.9%		1.8%

The increase in the amortization of intangibles is primarily due to the developed technology intangible asset acquired in connection with the Nemaris acquisition.

Acquisition Related Costs



	Three Months Ended
	September 30,				Change
(In thousands, except percentages)	2020		2019		$		%
Acquisition related costs	$	1,263	$	559	$	704	125.9%
Percentage of net sales		0.6%		0.3%

Acquisition related costs increased due to business development-related activities.

Other Income/(expense), Net



	Three Months Ended
	September 30,				Change
(In thousands, except percentages)	2020		2019		$		%
Other income/(expense), net	$	3,117	$	4,691	$	(1,574)	-33.6%
Percentage of net sales		1.4%		2.4%

The decrease in other income/(expense), net was primarily the result of lower interest income from lower yields on marketable securities during the three month period ended September 30, 2020.

Income Tax Provision



	Three Months Ended
	September 30,				Change
(In thousands, except percentages)	2020		2019		$		%
Income tax provision	$	8,914	$	8,445	$	469	5.6%
Effective income tax rate		16.8%		18.1%

The change in the effective income tax rates between the current year and prior year periods is primarily a result of higher tax benefits resulting from an increase in stock option exercises in the current year period.

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GLOBUS MEDICAL, INC. AND SUBSIDIARIES

Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019

Net Sales



	Nine Months Ended
	September 30,				Change
(In thousands, except percentages)	2020		2019		$		%
United States	$	465,705	$	470,224	$	(4,519)	-1.0%
International		89,892		103,477		(13,585)	-13.1%
Total net sales	$	555,597	$	573,701	$	(18,104)	-3.2%

In the United States, the decrease in net sales of $4.5 million was due to the postponement of elective surgeries at hospitals and surgical centers and longer selling cycles for INR capital equipment due to the COVID-19 pandemic.

International net sales decreased by $13.6 million, and was due primarily to the postponement of elective surgeries at hospitals and surgical centers and longer selling cycles for INR capital equipment due to the COVID-19 pandemic as well as a one-time distributor stocking order in the period ended March 31, 2019.

Cost of Goods Sold



	Nine Months Ended
	September 30,				Change
(In thousands, except percentages)	2020		2019		$		%
Cost of goods sold	$	156,604	$	131,214	$	25,390	19.4%
Percentage of net sales		28.2%		22.9%

The $25.4 million increase in cost of goods sold was primarily due to higher write-downs of excess and obsolete inventory on less frequently used product sizes, non-recurring inventory write-offs and other manufacturing expenses, and depreciation.

Research and Development Expenses



	Nine Months Ended
	September 30,				Change
(In thousands, except percentages)	2020		2019		$		%
Research and development	$	69,278	$	44,577	$	24,701	55.4%
Percentage of net sales		12.5%		7.8%

The increase in research and development expenses was due primarily to $24.4 million of in-process research and development (“IPR&D”) from the acquisition of Synoste Oy (“Synoste”) which was expensed because we determined that it did not have an alternative future use.

Selling, General and Administrative Expenses



	Nine Months Ended
	September 30,				Change
(In thousands, except percentages)	2020		2019		$		%
Selling, general and administrative	$	262,710	$	262,618	$	92	0.0%
Percentage of net sales		47.3%		45.8%

Selling, general and administrative expenses remained consistent with the nine months ended September 30, 2019.

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GLOBUS MEDICAL, INC. AND SUBSIDIARIES

Provision for Litigation



	Nine Months Ended
	September 30,				Change
(In thousands, except percentages)	2020		2019		$		%
Provision for litigation	$	197	$	1,625	$	(1,428)	100.0%
Percentage of net sales		0.0%		0.3%

Provision for litigation was immaterial for the nine month period ending September 30, 2020. The provision for litigation for the nine month period ending September 30, 2019 includes settlement and verdict costs.

Amortization of Intangibles



	Nine Months Ended
	September 30,				Change
(In thousands, except percentages)	2020		2019		$		%
Amortization of intangibles	$	12,043	$	10,412	$	1,631	15.7%
Percentage of net sales		2.2%		1.8%

The increase in the amortization of intangibles is primarily due to the developed technology intangible assets acquired in connection with the Nemaris and StelKast acquisitions.

Acquisition Related Costs



	Nine Months Ended
	September 30,				Change
(In thousands, except percentages)	2020		2019		$		%
Acquisition related costs	$	1,867	$	1,245	$	622	50.0%
Percentage of net sales		0.3%		0.2%

Acquisition related costs increased due to business development-related activities.

Other Income/(expense), Net



	Nine Months Ended
	September 30,				Change
(In thousands, except percentages)	2020		2019		$		%
Other income/(expense), net	$	10,788	$	13,487	$	(2,699)	-20.0%
Percentage of net sales		1.9%		2.4%

The decrease in other income, net was due primarily to ~~the gain~~lower interest income from lower yields on ~~sale of assets of $4.6 million~~marketable securities during the ~~nine-months~~nine month period ended September 30, ~~2018, partially offset by increased interest income from marketable securities.~~2020.

Income Tax Provision



	Nine Months Ended							Nine Months Ended
	September 30,				Change			September 30,				Change
(In thousands, except percentages)	2019		2018		$		%	2020		2019		$		%
Income tax provision	$	25,816	$	21,254	$	4,562	21.5%	$	14,358	$	25,816	$	(11,458)	-44.4%
Effective income tax rate		19.1%		15.1%					22.5%		19.1%

~~The increase in income tax provision is primarily driven by the increase in income before income taxes.~~ The change in the effective income tax ~~rate~~rates between the current year and prior year periods is primarily ~~driven~~the result of the non-deductible expense of acquired IPR&D of $24.4 million, partially offset by higher tax benefits resulting from an increase in stock option exercises in the ~~reduction of benefits related to the exercise of stock based compensation.~~current year period.

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GLOBUS MEDICAL, INC. AND SUBSIDIARIES

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 expense, provision for litigation, acquisition related costs/licensing, acquisition of in-process research and ~~net gain from the sale of assets,~~development, 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~~acquisition related professional fees, as well as one-time licensing fees. ~~Net gain from sale~~Acquisition of ~~assets~~in-process research and development represents the ~~gain on sale~~expensing of acquired assets with no alternative future use and ~~the offsetting impact of costs incurred through the sale.~~related fees.

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~~GLOBUS MEDICAL, INC. AND SUBSIDIARIES~~

The following is a reconciliation of net income to Adjusted EBITDA for the periods presented:



	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
(In thousands, except percentages)	2019		2018		2019		2018		2020		2019		2020		2019
Net income	$	38,307	$	35,208	$	109,681	$	119,724
Interest income, net		(4,377)		(3,852)		(12,954)		(9,114)
Net income/(loss)									$	44,216	$	38,307	$	49,328	$	109,681
Interest income/(expense), net										(3,085)		(4,377)		(10,999)		(12,954)
Provision for income taxes		8,445		7,389		25,816		21,254		8,914		8,445		14,358		25,816
Depreciation and amortization		13,575		10,461		38,688		29,694		16,301		13,575		45,970		38,688
EBITDA		55,950		49,206		161,231		161,558		66,346		55,950		98,657		161,231
Stock-based compensation expense		6,898		5,545		19,647		17,078		7,020		6,898		21,138		19,647
Provision for litigation		1,625		—		1,625		—		—		1,625		197		1,625
Acquisition related costs/licensing		1,040		2,169		2,011		3,847		1,753		1,040		3,179		2,011
Net (gain) loss from sale of assets		—		764		—		(3,593)
Acquisition of in-process research and development										—		—		24,418		—
Adjusted EBITDA	$	65,513	$	57,684	$	184,514	$	178,890	$	75,119	$	65,513	$	147,589	$	184,514

Net income as a percentage of sales		19.5%		20.8%		19.1%		23.2%
Adjusted EBITDA as a percentage of sales		33.4%		34.1%		32.2%		34.6%
Net income as a percentage of net sales										20.5%		19.5%		8.9%		19.1%
Adjusted EBITDA as a percentage of net sales										34.8%		33.4%		26.6%		32.2%

In addition, for the period ended September 30, ~~2019~~ 2020 and for other comparative periods, we are presenting non-GAAP net income and non-GAAP Diluted Earnings Per Share, which represents net income and diluted earnings per share excluding the provision for litigation, amortization of intangibles, acquisition related costs/licensing, ~~net gain from the sale~~acquisition of ~~assets,~~in-process research and ~~adjusted for~~development, and the tax effects of ~~such~~all of the foregoing adjustments. The tax effect adjustment represents the tax effect of the pre-tax non-GAAP adjustments excluded from non-GAAP net income. The tax impact of ~~these~~the non-GAAP adjustments is calculated based on the consolidated effective tax rate on a GAAP basis, applied to the non-GAAP adjustments, unless the underlying item has a materially different tax treatment, in which case the estimated tax rate applicable to the adjustment is used.

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, acquisition of in-process research and development, and the tax effects of ~~such~~all of the foregoing adjustments, which we believe isare not reflective of underlying business trends.

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GLOBUS MEDICAL, INC. AND SUBSIDIARIES

The following is a reconciliation of net income computed in accordance with U.S. GAAP to non-GAAP net income for the periods ~~presented.~~presented:



	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
(In thousands)	2019		2018		2019		2018		2020		2019		2020		2019
Net income	$	38,307	$	35,208	$	109,681	$	119,724
Net income/(loss)									$	44,216	$	38,307	$	49,328	$	109,681
Provision for litigation		1,625		—		1,625		—		—		1,625		197		1,625
Amortization of intangibles		3,620		2,160		10,412		6,525		4,152		3,620		12,043		10,412
Acquisition related costs/licensing		1,040		2,169		2,011		3,847		1,753		1,040		3,179		2,011
Net (gain) loss from sale of assets		—		764		—		(3,593)
Acquisition of in-process research and development										—		—		24,418		—
Tax effect of adjusting items		(1,135)		(884)		(2,659)		(1,248)		(992)		(1,135)		(3,418)		(2,659)
Non-GAAP net income	$	43,457	$	39,417	$	121,070	$	125,255	$	49,129	$	43,457	$	85,747	$	121,070

The following is a reconciliation of Diluted Earnings Per Share as computed in accordance with U.S. GAAP to non-GAAP Diluted Earnings Per Share for the periods ~~presented.~~presented:

Three Months Ended
Nine Months Ended
September 30,
September 30,
(In thousands)
2019
2018
2019
2018
Diluted earnings per share, as reported
$
0.38
$
0.35
$
1.08
$
1.18
Provision for litigation
0.02
—
0.02
—
Amortization of intangibles
0.04
0.02
0.10
0.06
Acquisition related costs/licensing
0.01
0.02
0.02
0.04
Net (gain) loss from sale of assets
—
0.01
—
(0.04)

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~~GLOBUS MEDICAL, INC. AND SUBSIDIARIES~~



									Three Months Ended				Nine Months Ended
									September 30,				September 30,
(Per share amounts)									2020		2019		2020		2019
Diluted earnings per share, as reported									$	0.44	$	0.38	$	0.49	$	1.08
Provision for litigation										—		0.02		—		0.02
Amortization of intangibles										0.04		0.04		0.12		0.10
Acquisition related costs/licensing										0.02		0.01		0.03		0.02
Acquisition of in-process research and development										—		—		0.24		—
Tax effect of adjusting items		(0.01)		(0.01)		(0.03)		(0.01)		(0.01)		(0.01)		(0.03)		(0.03)
Non-GAAP diluted earnings per share	$	0.43	$	0.39	$	1.19	$	1.24	$	0.49	$	0.43	$	0.85	$	1.19

* ~~amounts~~Amounts might not add due to rounding

We also define the non-GAAP measure of Free Cash Flow as the net cash provided by operating activities, less the cash impact of purchases of property and equipment. We believe that this financial measure provides meaningful information for evaluating our overall liquidity for comparative periods as it facilitates an assessment of funds available to satisfy current and future obligations and fund acquisitions.

Below is a reconciliation of net cash provided by operating activities as computed in accordance with U.S. GAAP to Free Cash Flow for the periods ~~presented.~~presented:



	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
(In thousands)	2019		2018		2019		2018		2020		2019		2020		2019
Net cash provided by operating activities	$	55,866	$	51,788	$	117,666	$	137,352	$	53,248	$	55,866	$	118,609	$	117,666
Purchases of property and equipment		(12,062)		(15,371)		(54,957)		(42,538)		(17,325)		(12,062)		(49,595)		(54,957)
Free cash flow	$	43,804	$	36,417	$	62,709	$	94,814	$	35,923	$	43,804	$	69,014	$	62,709

Furthermore, the non-GAAP measure of constant currency net sales growth is calculated by translating current year net sales at the same average exchange rates in effect during the applicable prior year period. We believe constant currency net sales growth provides insight to the comparative increase or decrease in period net sales, in dollar and percentage terms, excluding the effects of fluctuations in foreign currency exchange rates.

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GLOBUS MEDICAL, INC. AND SUBSIDIARIES

Below is a reconciliation of net sales growth as reported in accordance with U.S. GAAP compared to constant currency reflected net sales growth for the periods ~~presented.~~presented:



	Three Months Ended				Reported	Currency ‎Impact on		Constant ‎Currency	Three Months Ended				Reported	Currency ‎Impact on		Constant ‎Currency
	September 30,				Sales	Current		Sales	September 30,				Net Sales	Current		Net Sales
(In thousands, except percentages)	2019		2018		Growth	Period Sales		Growth	2020		2019		Growth	Period Net Sales		Growth
United States	$	162,697	$	139,097	17.0%	$	—	17.0%	$	182,104	$	162,697	11.9%	$	—	11.9%
International		33,518		30,139	11.2%		(37)	11.3%		33,994		33,518	1.4%		348	0.4%
Total Sales	$	196,215	$	169,236	15.9%	$	(37)	16.0%
Total net sales									$	216,098	$	196,215	10.1%	$	348	10.0%



	Nine Months Ended				Reported	Currency ‎Impact on		Constant ‎Currency	Nine Months Ended				Reported	Currency ‎Impact on		Constant ‎Currency
	September 30,				Sales	Current		Sales	September 30,				Net Sales	Current		Net Sales
(In thousands, except percentages)	2019		2018		Growth	Period Sales		Growth	2020		2019		Growth	Period Net Sales		Growth
United States	$	470,224	$	429,823	9.3%	$	—	9.3%	$	465,705	$	470,224	-1.0%	$	—	-1.0%
International		103,477		87,208	19.0%		(2,408)	21.8%		89,892		103,477	-13.1%		(215)	-12.9%
Total Sales	$	573,701	$	517,031	11.0%	$	(2,408)	11.4%
Total net sales									$	555,597	$	573,701	-3.2%	$	(215)	-3.1%

Non-GAAP Adjusted EBITDA, non-GAAP net income, non-GAAP Diluted Earnings Per Share, Free Cash Flow and constant currency reflected net sales growth are not calculated in conformity with U.S. GAAP within the meaning of Item 10(e) of Regulation S-K. 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 reflected net sales growth may differ from that of other companies and therefore may not be comparable.

~~Cash Flows~~

~~The following table summarizes, for the periods indicated, cash flows from operating, investing and financing activities:~~

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~~GLOBUS MEDICAL, INC. AND SUBSIDIARIES~~

Nine Months Ended
September 30,
Change
(In thousands)
2019
2018
$
Net cash provided by operating activities
$
117,666
$
137,352
$
(19,686)
Net cash used in investing activities
(104,246)
(140,410)
36,164
Net cash provided by financing activities
13,254
29,732
(16,478)
Effect of foreign exchange rate changes on cash
(231)
(196)
(35)
Increase (decrease) in cash, cash equivalents, and restricted cash
$
26,443
$
26,478
$
(35)

~~Cash Provided by Operating Activities~~

The decrease in net cash provided by operating activities was primarily due to the decrease of cash flow from inventories and lower net income, which were offset partially by the increase of cash flow from accounts payable and accrued expenses.

~~Cash Used in Investing Activities~~

The decrease in net cash used in investing activities was due primarily to the decrease in net impact of purchases, maturities and sales of marketable securities, partially offset by increased purchases of property and equipment.

~~Cash Provided by Financing Activities~~

~~The decrease in cash provided by financing activities was the result of the decrease in proceeds from option exercises.~~

Liquidity and Capital Resources

The following table highlights certain information related to our liquidity and capital resources:



	September 30,		December 31,		September 30,		December 31,
(In thousands)	2019		2018		2020		2019
Cash, cash equivalents, and restricted cash	$	166,190	$	139,747	$	250,607	$	195,724
Short-term marketable securities		111,402		199,937		159,030		115,763
Long-term marketable securities		383,099		263,117		275,587		409,514
Total cash, cash equivalents, restricted cash and marketable securities	$	660,691	$	602,801	$	685,224	$	721,001

~~In May 2011,~~On August 6, 2020, we entered into a credit agreement with ~~Wells Fargo~~Citizens Bank, ~~related to~~N.A. (the “Credit Agreement”) that provides a revolving credit facility ~~that provides for~~permitting borrowings up to ~~$50.0 million. In June 2018, we amended the credit agreement to increase the revolving credit facility amount from $50.0~~$125.0 million ~~to $125.0 million. At our request,~~(the “Revolving Credit Facility”), and ~~with the approval~~has a termination date of ~~the bank, the amount of borrowings available under the revolving credit facility can be increased to $150.0 million.~~August 5, 2021. The ~~revolving credit facility~~Revolving Credit Facility includes up to a $25.0 million ~~sub-limit~~sub limit for letters of credit. As amended to date, the revolving credit facility expires in May 2020. Cash advances bear interest at our option either at a fluctuating rate per annum equal to the daily LIBOR in effect for a one-month period plus 0.75%, or a fixed rate for a one- or three-month period equal to LIBOR plus 0.75%. The credit agreement governing the revolving credit facility also subjects us to various restrictive covenants, including the requirement to maintain maximum consolidated leverage. The covenants also include limitations on our ability to repurchase shares, to pay cash dividends or to enter into a sale transaction. As of September 30, 2019, we were in compliance with all financial covenants under the credit agreement, there were no outstanding borrowings under the revolving credit facility and available borrowings were $125.0 million. We may terminate the credit agreement at any time on ten days’ notice without premium or penalty.

In addition to our existing cash and marketable securities balances, our principal sources of liquidity are our cash flows from operating activities and our revolving credit ~~facility, which was fully available as of September 30, 2019.~~facility. We believe these sources will provide sufficient liquidity for us to meet our liquidity requirements for the foreseeable future. Our principal liquidity requirements are to meet our working capital, research and development, including clinical trials, and capital expenditure needs, principally for our surgical sets required to maintain and expand our business and potential future business or intellectual property acquisitions. 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. We may, however, require additional liquidity as we continue to execute our business strategy. Our liquidity may be negatively impacted as a result of a decline in sales of our products, including declines due to changes in our customers’ ability to obtain third-party coverage and reimbursement for procedures that use our products, increased pricing pressures resulting from intensifying competition, cost increases and slower product development cycles resulting from a changing regulatory environment; and unfavorable results from litigation which will affect our cash flow. We anticipate that to the extent that we require additional liquidity,

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it will be funded through the incurrence of other indebtedness, additional equity financings or a combination of these potential sources of liquidity. The sale of additional equity may result in dilution to our stockholders. There is no assurance that we will be able to secure such additional funding on terms acceptable to us, or at all.

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Cash Flows

The following table summarizes, for the periods indicated, cash flows from operating, investing and financing activities:



	Nine Months Ended
	September 30,				Change
(In thousands)	2020		2019		$
Net cash provided by operating activities	$	118,609	$	117,666	$	943
Net cash used in investing activities		1,770		(104,246)		106,016
Net cash used in/provided by financing activities		(65,875)		13,254		(79,129)
Effect of foreign exchange rate changes on cash		379		(231)		610
Increase (decrease) in cash, cash equivalents, and restricted cash	$	54,883	$	26,443	$	28,440

Cash Provided by Operating Activities

The increase in net cash provided by operating activities for the nine months ended September 30, 2020 was primarily due to the increase of cash flow from net income and cash flow from accounts receivable as a result of improved collections. These were partially offset by cash outflows for inventories.

The decrease in net cash provided by operating activities for the nine months ended September 30, 2019 was primarily due to the decrease of cash flow from inventories and lower net income, which were offset partially by the increase of cash flow from accounts payable and accrued expenses.

Cash Used in Investing Activities

The increase in net cash provided by investing activities for the nine months ended September 30, 2020 was due primarily to the net inflows of purchases, maturities and sales of marketable securities, which was partially offset by increased purchases of property and equipment and payments related to asset acquisitions.

The decrease in net cash used in investing activities for the nine months ended September 30, 2019 was due primarily to the decrease in net impact of purchases, maturities and sales of marketable securities, partially offset by increased purchases of property and equipment.

Cash Used in Financing Activities

The increase in net cash used in financing activities for the nine months ended September 30, 2020 was primarily the result of the repurchase of common stock and payments for business acquisition related liabilities, partially offset by the increase in proceeds from option exercises.

The decrease in cash provided by financing activities for the nine months ended September 30, 2019 was the result of the decrease in proceeds from option exercises.

Contractual Obligations and Commitments

During the three months ended September 30, 2020 there was a material change in our contractual obligations related to the purchase obligation payables within less than one year. In connection with the Nemaris and StelKast acquisitions completed in 2018 and 2019, respectively, we paid the contingent consideration obligation payables of $10.0 million and $5.0 million, respectively, during the three months ended September 30, 2020.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

~~Seasonality and~~ Backlog

Our business is generally not seasonal in nature. However, our sales of Musculoskeletal Solutions products may be influenced by summer vacation and winter holiday periods during which we have experienced fewer surgeries taking place, as well as more surgeries taking place later in the year when patients have met the deductibles under insurance plans. Our sales of Enabling Technologies products may be influenced by longer capital purchase cycles and the timing of budget approvals for major capital purchases.

We work closely with our suppliers to ensure that our inventory needs are met while maintaining high quality and reliability. To date, we have not experienced significant difficulty in locating and obtaining the materials necessary to fulfill our production requirements, and we have not experienced a meaningful backlog of sales orders.

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The COVID-19 pandemic may lead to higher than normal inventory levels, as there has not been a material effect to our supply chain or production schedule and we may experience decreased revenues while government mandated restrictions on elective surgeries are in place.

Recently Issued Accounting Pronouncements

For further details on recently issued accounting pronouncements, please refer to ~~“Part~~“Part I; Item 1. Financial Statements; Notes to Condensed Consolidated Financial Statements (Unaudited); Note 1. Background and Summary of Significant Accounting Policies; ~~(j)~~(k) Recently Issued Accounting Pronouncements” above.

Cautionary Note Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are forward-looking statements. We have tried to identify forward-looking statements by using words such as “believe,” “may,” “might,” “could,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “plan” and similar words. 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, health epidemics, pandemics and similar outbreaks, including the COVID-19 pandemic,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 comply with changes and applicable laws and regulations that are 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, and general economic conditions, and other risks set forth throughout our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (the “Form 10-K”), particularly those set forth under “Item 1A, Risk Factors” of the Form 10-K, and those discussed in other documents we file with the Securities and Exchange Commission (the “SEC”). 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 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.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

We have evaluated the information required under this item that was disclosed under Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2019 and there have been no significant changes to this information.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of September 30, ~~2019.~~2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation of our disclosure controls and procedures as of September 30, ~~2019,~~2020, our CEO and CFO concluded that, as of such date, our disclosure controls and procedures were effective.

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Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the ~~nine~~three months ended September 30, ~~2019~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our CEO and CFO, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. For example, these inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in a number of proceedings, legal actions and claims. Such matters are subject to many uncertainties, and the outcomes of these matters are not within our control and may not be known for prolonged periods of time. In some actions, the claimants seek damages, as well as other relief, including injunctions prohibiting us from engaging in certain activities, which, if granted, could require significant expenditures and/or result in lost revenues. For further details on the material legal proceedings to which we are currently a party, please refer to ~~“Part~~“Part I; Item 1. Financial Statements; Notes to Condensed Consolidated Financial Statements (Unaudited); Note ~~13.~~12. Commitments and Contingencies” above.

In addition, we are subject to legal proceedings arising in the ordinary course of business.

Item 1A. Risk Factors

~~We are affected by risks specific to us as well as~~The following represents a material change in our risk factors ~~that affect all businesses operating~~from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

The widespread outbreak of a ~~global market. For a discussion of the specific risks that~~communicable disease, or any other public health crisis, could ~~materially~~ adversely affect our ~~business,~~ financial condition ~~or operation~~and results ~~please see our Form 10-K under the heading~~ of operations.~~“Part I; Item 1A. Risk Factors.”~~

We could be negatively affected by the widespread outbreak of a communicable disease, or any other public health crisis that results in disruptions to hospitals and other healthcare facilities.

A novel strain of coronavirus was first identified in Wuhan, China in December 2019, and the disease caused by it, COVID-19, was subsequently declared a pandemic by the World Health Organization in March 2020. The pandemic has significantly impacted the economic conditions in the U.S. and globally, accelerating during March and April, as federal, state and local governments have reacted to the public health crisis, creating significant uncertainties in the economy. While emergency and time-sensitive surgical procedures continue, the outbreak and preventive measures taken to help curb the spread of COVID-19 has negatively impacted the markets we serve, in particular, hospitals and surgical centers globally where elective surgeries have been temporarily postponed. We believe that certain of these patient volume declines reflect a deferral of elective surgeries to a later period, rather than a permanent reduction in demand; however, there is no assurance that will occur. We are considered a provider of “Life-sustaining” goods and services in Pennsylvania and an essential business in other areas. To date, COVID-19 has not materially affected our supply chain or production schedule, although delays may be possible in the future due to the dynamic nature of the situation.

Given the dynamic nature of this situation, the Company cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future. However, while the government mandated restrictions, including elective surgeries, are in place, we do expect that it could continue to have a material adverse impact on our future revenue growth, operating profit and cash flow and may lead to higher than normal inventory levels, revised payment terms with certain of our customers, and a change in effective tax rate driven by changes in the mix of earnings across the Company’s jurisdictions.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

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Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q. Where so indicated, exhibits that were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated in parentheses.

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Exhibit No.		Item
10.1		Executive Employment Agreement, dated August 5, 2020, by and between Globus Medical, Inc. and Kelly Huller (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q filed on August 5, 2020).
10.2		Executive Employment Agreement, dated August 5, 2020, by and between Globus Medical, Inc. and Keith Pfeil (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 10-Q filed on August 5, 2020).
10.3		Credit Agreement, dated as of August 6, 2020, by and among Globus Medical, Inc. and Globus Medical North America, Inc., as borrowers, and Citizens Bank, N.A., as lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed on August 10, 2020).
31.1*		Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32**		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*		Filed herewith.
**		Furnished herewith.

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~~SIGNATURES~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		GLOBUS MEDICAL, INC.


Dated:	~~November 6, 2019~~October 28, 2020	/s/ DAVID M. DEMSKI

		David M. Demski
		Chief Executive Officer
		President
		(Principal Executive Officer)

Dated:	~~November 6, 2019~~October 28, 2020	/s/ KEITH PFEIL

		Keith Pfeil
		Senior Vice President
		Chief Financial Officer Chief Accounting Officer
		(Principal Financial Officer)

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(Shares)	Class A ‎Common	Class B ‎Common	Class C ‎Common	Total
September 30, 2019	76,972,926	22,430,097	—	99,403,023
December 31, 2018	76,143,257	22,430,097	—	98,573,354