NuVasive Reports Third Quarter 2011 Financial Results

Marketwired

SAN DIEGO, CA--(Marketwire -10/27/11)- NuVasive, Inc. (NASDAQ: NUVA - News)

  • Total revenue of $132.9 million, up 10.5% over third quarter 2010
  • GAAP loss of $67.6 million, or $1.69 per share
  • Non-GAAP earnings of $10.6 million, or $0.26 per share
  • Non-GAAP operating margin of 16.8%

NuVasive, Inc. (NASDAQ: NUVA - News), a medical device company focused on developing minimally disruptive surgical products and procedures for the spine, announced today financial results for the quarter ended September 30, 2011.

NuVasive reported third quarter 2011 revenue of $132.9 million, a 10.5% increase over the $120.3 million for the third quarter 2010 and in line with the $133.0 million reported for the second quarter 2011.

Gross profit for the third quarter 2011 was $106.9 million and gross margin was 80.4%, compared to a gross profit of $98.7 million and a gross margin of 82.1% for the third quarter 2010. For the second quarter 2011, gross profit was $107.5 million and gross margin was 80.8%.

Total operating expenses for the third quarter 2011 were $198.3 million compared to $89.1 million in the third quarter 2010 and $96.0 million in the second quarter 2011. The higher operating expenses in the third quarter 2011 compared to the prior year resulted primarily from a charge related to a litigation liability and additional costs associated with higher revenue and infrastructure expansion.

On a GAAP basis, the Company reported a net loss of $67.6 million, or $1.69 per share, for the third quarter 2011.

On a Non-GAAP basis, the Company reported net income of $10.6 million, or $0.26 per share, for the third quarter 2011. The Non-GAAP earnings per share calculations for the third quarter exclude (i) non-cash stock-based compensation of $8.1 million; (ii) certain intellectual property litigation expenses of $103.7 million; (iii) amortization of intangible assets of $1.5 million; (iv) acquisition related items of $441 thousand; (vi) non-cash interest expense on convertible notes of $3.0 million; (vii) a positive impact from certain transactions associated with convertible notes activity of $1.7 million; and (viii) certain discrete tax items of $6.3 million.

Cash, cash equivalents and short and long-term marketable securities were $418.9 million at September 30, 2011.

Alex Lukianov, Chairman and Chief Executive Officer, said, "Our financial performance in the third quarter of 2011 attests to exceptional execution by the NuVasive team. In the face of an extremely challenging spine market, we delivered industry leading growth and executed a strategic transaction that will enhance the penetration of XLIF and NeuroVision for years to come. Our Impulse Monitoring acquisition increases our Intra-Operative Monitoring platform, allowing us to offer surgeons and hospitals complete procedural solutions in all areas of spine. With Speed of Innovation driving our market share taking strategy, we will continue to remain laser focused on pushing toward our next milestone of being a $1 billion company with increasing profitability to serve the needs of spine surgery patients."

Revised 2011 Full Year Financial Guidance

  • Revenue of $538 million to $540 million, compared to previous guidance of $530 million to $540 million
  • GAAP loss per share of $1.43 to $1.42, compared to previous guidance for GAAP earnings per share of $0.33 to $0.36
  • Non-GAAP EPS of $1.01 to $1.02, compared to previous guidance for $1.09 to $1.12
  • Non-GAAP Operating Margin of ~ 15.5%, compared to previous guidance of ~ 17.5%
  • GAAP effective tax benefit rate of ~ 27%, compared to previous guidance for a GAAP effective tax expense rate of ~ 50%
 


                  Reconciliation of Full Year EPS Guidance

                         2010            2011                  2011
                        Pre-Tax         Pre-Tax           Net of Tax (1)
                      ---------- --------------------  --------------------
                                               High                  High
                        Actual   Low Range    Range    Low Range    Range
                      ---------- ---------  ---------  ---------  ---------
GAAP earnings (loss)
 per share guidance   $     0.64 $   (1.94) $   (1.93) $   (1.43) $   (1.42)
  Impact of change
   from basic to
   diluted share
   count (2)                   -      0.09       0.09       0.07       0.07
                      ---------- ---------  ---------  ---------  ---------
GAAP earnings (loss)
 per share guidance
 adjusted to diluted
 share count          $     0.64 $   (1.85) $   (1.84) $   (1.36) $   (1.35)
  Non-cash stock
   based compensation       0.70      0.75       0.75       0.47       0.47
  Certain
   intellectual
   property
   litigation
   expenses (3)             0.13      2.53       2.53       1.56       1.56
  Amortization of
   intangible assets        0.13      0.15       0.15       0.09       0.09
  Acquisition related
   items                    0.07      0.05       0.05       0.03       0.03
  Non-cash interest
   expense on
   convertible notes           -      0.14       0.14       0.09       0.09
  Certain
   transactions
   associated with
   convertible notes
   activity                    -     (0.04)     (0.04)     (0.02)     (0.02)
  Certain discrete
   tax items                   -      0.15       0.15       0.15       0.15
                      ---------- ---------  ---------  ---------  ---------
Non-GAAP earnings per
 share guidance       $     1.68 $    1.88  $    1.89  $    1.01  $    1.02
                      ========== =========  =========  =========  =========

Weighted shares
 outstanding - basic
 (4)                                40,600     40,600     40,600     40,600
                                 =========  =========  =========  =========
Weighted shares
 outstanding -
 diluted (4)              40,373    42,600     42,600     42,600     42,600
                      ========== =========  =========  =========  =========

(1) Effective tax benefit rate of ~ 27% applied to GAAP earnings and ~ 38%
 applied to Non-GAAP adjustments
(2)GAAP loss for 2011 utilizes the "basic" weighted shares outstanding when
 calculating earnings per share. However, Non-GAAP earnings are positive
 requiring the use of the "diluted" weighted share count when calculating
 earnings per share. This line represents the impact of the change from
 "basic" to "diluted" weighted shares on GAAP earnings per share
 calculation to reconcile down to Non-GAAP earnings per share computed
 using the diluted weighted shares outstanding.
(3)Includes a charge for the litigation liability of $101.2 million
(4)Weighted shares outstanding shown as pre "if-converted" method


                     2011 Full Year EPS Guidance Bridge

                                                            Net of Tax
                                                          Low        High
                                                       ---------  ---------
Prior GAAP earnings per share guidance                 $    0.33  $    0.36
  Impact of change from diluted to basic share count
   (1)                                                      0.01       0.01
                                                       ---------  ---------
GAAP earnings per share adjusted to basic share count  $    0.34  $    0.37
  Repurchase of $118.7 million of 2013 convertible
   notes                                                    0.01       0.01
  Litigation liability                                     (1.56)     (1.56)
  Medtronic ongoing royalty                                (0.06)     (0.06)
  Certain transactions associated with convertible
   notes activity                                           0.04       0.04
  Certain discrete tax items                               (0.16)     (0.16)
  Acquisition of Impulse Monitoring                            -          -
  Change in underlying business revenue and expenses       (0.05)     (0.08)
  Impact of change in tax rate (2)                          0.01       0.02
                                                       ---------  ---------
Revised GAAP loss per share guidance                   $   (1.43) $   (1.42)
                                                       =========  =========

                                                           Low       High
                                                       ---------  ---------
Prior Non-GAAP earnings per share guidance             $    1.09  $    1.12
  Repurchase of $118.7 million of 2013 convertible
   notes                                                    0.02       0.02
  Medtronic ongoing royalty                                (0.06)     (0.06)
  Acquisition of Impulse Monitoring                        (0.01)     (0.01)
  Change in underlying business revenue and expenses       (0.07)     (0.10)
  Impact of change in tax rate (3)                          0.04       0.05
                                                       ---------  ---------
Revised Non-GAAP earnings per share guidance           $    1.01  $    1.02
                                                       =========  =========

(1)Prior GAAP earnings per share guidance assumed GAAP earnings which
 resulted in the use of "diluted" weighted shares outstanding for the
 earnings per share calculation. Based upon the litigation liability
 recognized in the third quarter, the full year will now be in a GAAP loss
 position, requiring the use of "basic" weighted shares outstanding in the
 loss per share calculation. This line recognizes the impact of the change
 from using "diluted" to "basic" weighted shares outstanding on the prior
 guidance.
(2)New effective GAAP tax benefit rate of ~ 27%, down from
 previous guidance of ~ 50%.
(3)New effective Non-GAAP tax rate of ~ 38% for Non-GAAP adjustments, down
 from previous guidance of ~ 40%.




        2011 Guidance Reconciliation of Non-GAAP Operating Margin %

                                                              FY 11
                                                             Estimate
                                                      ---------------------
                                              FY 10
                                             Actual      Prior      Revised
                                             -------  -----------  --------
                          Gross Margin % [A]    82.2%        ~ 81%   ~ 79.5%

       Non-GAAP Research and Development [B]     8.0%         ~ 7%      ~ 7%
           Non-cash stock-based compensation     0.7%         ~ 1%    ~ 0.5%
                                                                   ~ 0.1% &
                                                                         as
                  Acquisition related items*     0.4% as incurred  incurred
                                             -------  -----------  --------
               GAAP research and development     9.1%         ~ 8%    ~ 7.6%

Non-GAAP Sales, Marketing and Administrative
                                         [C]    58.8%      ~ 56.5%     ~ 57%
           Non-cash stock-based compensation     5.2%         ~ 5%    ~ 5.5%
    Certain intellectual property litigation
                                    expenses     1.1%         ~ 1%    ~ 1.2%
                                                                   ~ 0.3% &
                                                      ~ 0.5% & as        as
                  Acquisition related items*     0.2%    incurred  incurred
                                             -------  -----------  --------
    GAAP sales, marketing and administrative    65.3%        ~ 63%     ~ 64%

                        Litigation liability       -            -    ~ 18.7%
           Amortization of intangible assets     1.1%       ~ 1.5%    ~ 1.3%

                                             -------  -----------  --------
         Non-GAAP Operating Margin % [A-B-C]    15.4%      ~ 17.5%   ~ 15.5%
                                             =======  ===========  ========

* Acquisition related items include ~ 0.4% of revenue for expenses
 associated with prior M&A activity and as incurred

Reconciliation of Non-GAAP Information
Management uses certain Non-GAAP financial measures such as Non-GAAP earnings per share, which exclude non-cash stock-based compensation, certain intellectual property litigation expenses, amortization of intangible assets, acquisition related items, non-cash interest expense on convertible notes, a positive impact from certain transactions associated with convertible notes activity, and certain discrete tax items. Management does not consider these costs in evaluating the continuing operations of the Company. Therefore, management calculates the Non-GAAP financial measures provided in this earnings release excluding these costs and uses these Non-GAAP financial measures to enable it to analyze further, and more consistently, the period-to-period financial performance of its core business operations. Management believes that providing investors with these Non-GAAP measures gives them additional important information to enable them to assess, in the same way management assesses, the Company's current and future continuing operations. These Non-GAAP measures are not in accordance with, or an alternative for, GAAP, and may be different from Non-GAAP measures used by other companies. Set forth below are reconciliations of the Non-GAAP financial measures to the comparable GAAP financial measure.

 



                Reconciliation of Third Quarter 2011 Results

                                                                   (Loss)
                                          Pre-Tax                 Earnings
(in thousands, except per share data)   Adjustments  Net of Tax   Per Share
                                        -----------  ----------  ----------
GAAP net loss                                        $  (67,552) $    (1.69)
Impact of change from basic to diluted
 share count                                                           0.04
                                                     ----------  ----------
GAAP net loss, adjusted to diluted
 share count                                         $  (67,552) $    (1.65)
  Non-cash stock-based compensation     $     8,118       5,066        0.12
  Certain intellectual property
   litigation expenses                      103,740      64,744        1.59
  Amortization of intangible assets           1,504         939        0.02
  Acquisition related items                     441         275        0.01
  Non-cash interest expense on new
   convertible notes                          2,979       1,859        0.05
  Certain transactions associated with
   convertible notes activity                (1,666)     (1,040)      (0.03)
  Certain discrete tax items                  6,316       6,316        0.15

                                                     ----------  ----------
Non-GAAP earnings                                    $   10,607  $     0.26
                                                     ==========  ==========

GAAP weighted shares outstanding -
 basic and diluted                                                   39,892
                                                                 ==========
Non-GAAP weighted shares outstanding -
 diluted                                                             40,831
                                                                 ==========



                Reconciliation of Year To Date 2011 Results

                                                                   (Loss)
                                          Pre-Tax                 Earnings
(in thousands, except per share data)   Adjustments  Net of Tax   Per Share
                                        -----------  ----------  ----------
GAAP net loss                                        $  (59,813) $    (1.50)
Impact of change from basic to diluted
 share count                                                           0.03
                                                     ----------  ----------
GAAP net loss, adjusted to diluted
 share count                                         $  (59,813) $    (1.47)
  Non-cash stock-based compensation     $    23,789      14,749        0.36
  Certain intellectual property
   litigation expenses                      106,920      66,290        1.63
  Amortization of intangible assets           4,241       2,629        0.06
  Acquisition related items                   2,337       1,449        0.04
  Non-cash interest expense on new
   convertible notes                          3,075       1,907        0.05
  Certain transactions associated with
   convertible notes activity                (1,666)     (1,033)      (0.03)
  Certain discrete tax items                  6,316       6,316        0.16

                                                     ----------  ----------
Non-GAAP earnings                                    $   32,494  $     0.80
                                                     ==========  ==========

GAAP weighted shares outstanding -
 basic and diluted                                                   39,766
                                                                 ==========
Non-GAAP weighted shares outstanding -
 diluted                                                             40,738
                                                                 ==========

Conference Call
NuVasive will hold a conference call today at 5:30 p.m. ET / 2:30 p.m. PT to discuss the results. The dial-in numbers are 1-877-407-9039 for domestic callers and 1-201-689-8470 for international callers. A live webcast of the conference call will be available online from the investor relations page of the Company's corporate website at www.nuvasive.com.

After the live webcast, the call will remain available on NuVasive's website, www.nuvasive.com, through November 26, 2011. In addition, a telephonic replay of the call will be available until November 10, 2011. The replay dial-in numbers are 1-877-870-5176 for domestic callers and 1-858-384-5517 for international callers. Please use pin number 378602.

About NuVasive
NuVasive is a medical device company focused on developing minimally disruptive surgical products and procedures for the spine. The Company is the 5th largest player in the $7.7 billion global spine market.

NuVasive's principal product offering is based on its Maximum Access Surgery, or MAS® platform. The MAS platform combines four categories of products that collectively minimize soft tissue disruption during spine surgery with maximum visualization and safe, easy reproducibility for the surgeon: a proprietary software-driven nerve avoidance system; MaXcess®, a unique split-blade retractor system; a wide variety of specialized implants; and several biologic fusion enhancers. MAS significantly reduces surgery time and returns patients to activities of daily living much faster than conventional approaches. Having redefined spine surgery with the MAS platform's lateral approach, known as eXtreme Lateral Interbody Fusion, or XLIF®, NuVasive has built an entire spine franchise. With over 65 products today spanning lumbar, thoracic and cervical applications, the Company will continue to expand and evolve its offering predicated on its R&D focus and dedication to outstanding service levels supported by a culture of Absolute Responsiveness®.

NuVasive cautions you that statements included in this press release that are not a description of historical facts are forward-looking statements that involve risks, uncertainties, assumptions and other factors which, if they do not materialize or prove correct, could cause NuVasive's results to differ materially from historical results or those expressed or implied by such forward-looking statements. The potential risks and uncertainties that could cause actual growth and results to differ materially include, but are not limited to: the risk that NuVasive's revenue or earnings projections may turn out to be inaccurate because of the preliminary nature of the forecasts and the risk of further adjustment, or unanticipated difficulty in selling products or generating expected profitability; the uncertain process of seeking regulatory approval or clearance for NuVasive's products or devices, including risks that such process could be significantly delayed; the possibility that the FDA may require significant changes to NuVasive's products or clinical studies; the risk that products may not perform as intended and may therefore not achieve commercial success; the risk that competitors may develop superior products or may have a greater market position enabling more successful commercialization; the risk that additional clinical data may call into question the benefits of NuVasive's products to patients, hospitals and surgeons; and other risks and uncertainties more fully described in NuVasive's press releases and periodic filings with the Securities and Exchange Commission. NuVasive's public filings with the Securities and Exchange Commission are available at www.sec.gov. NuVasive assumes no obligation to update any forward-looking statement to reflect events or circumstances arising after the date on which it was made.

 

                               NuVasive, Inc.
         Unaudited Condensed Consolidated Statements of Operations
                   (in thousands, except per share data)

                                  Three Months Ended     Nine Months Ended
                                     September 30,         September 30,
                                 --------------------  --------------------
                                    2011       2010       2011       2010
                                 ---------  ---------  ---------  ---------

Revenue                          $ 132,880  $ 120,262  $ 390,312  $ 348,933
Cost of goods sold (excluding
 amortization of purchased
 technology)                        26,015     21,580     75,049     62,037
                                 ---------  ---------  ---------  ---------
Gross profit                       106,865     98,682    315,263    286,896

Operating expenses:
  Sales, marketing and
   administrative                   85,482     77,717    254,025    230,104
  Research and development          10,092     10,085     31,119     31,989
  Amortization of intangible
   assets                            1,504      1,342      4,241      4,047
  Litigation award                 101,200          -    101,200          -
                                 ---------  ---------  ---------  ---------
Total operating expenses           198,278     89,144    390,585    266,140

Interest and other expense, net:
  Interest income                      257        200        591        567
  Interest expense                  (7,276)    (1,668)   (10,962)    (5,005)
  Other income (expense), net        1,726         (6)     2,303         81
                                 ---------  ---------  ---------  ---------
Total interest and other
 expense, net                       (5,293)    (1,474)    (8,068)    (4,357)
                                 ---------  ---------  ---------  ---------

(Loss) income before income tax
 expense                           (96,706)     8,064    (83,390)    16,399
Income tax (benefit) expense       (29,031)       (40)   (22,715)     1,399
                                 ---------  ---------  ---------  ---------
Consolidated net (loss) income   $ (67,675) $   8,104  $ (60,675) $  15,000
                                 =========  =========  =========  =========
Net loss attributable to
 noncontrolling interests        $    (123) $    (438) $    (862) $  (1,353)
                                 =========  =========  =========  =========
Net (loss) income attributable
 to NuVasive, Inc.               $ (67,552) $   8,542  $ (59,813) $  16,353
                                 =========  =========  =========  =========

Net (loss) income per share
 attributable to NuVasive, Inc.:
  Basic                          $   (1.69) $    0.22  $   (1.50) $    0.42
                                 =========  =========  =========  =========
  Diluted                        $   (1.69) $    0.21  $   (1.50) $    0.40
                                 =========  =========  =========  =========
Weighted average shares
 outstanding:
  Basic                             39,892     39,394     39,766     39,180
                                 =========  =========  =========  =========
  Diluted                           39,892     40,396     39,766     40,389
                                 =========  =========  =========  =========

Stock-based compensation is included in operating expenses in the following
 categories:
  Sales, marketing and
   administrative                $   7,497  $   6,494  $  21,956  $  18,846
  Research and development             621        827      1,833      2,458
                                 ---------  ---------  ---------  ---------
                                 $   8,118  $   7,321  $  23,789  $  21,304
                                 =========  =========  =========  =========



                               NuVasive, Inc.
                   Condensed Consolidated Balance Sheets
                               (in thousands)

                                               September 30,   December 31,
                                                    2011           2010
                                               -------------  -------------
                                                (Unaudited)
ASSETS
Current assets:
  Cash and cash equivalents                    $     220,943  $      92,597
  Short-term marketable securities                   151,363         86,458
  Accounts receivable, net                            78,637         76,632
  Inventory                                          122,588        107,577
  Deferred tax assets                                  4,425          4,425
  Prepaid expenses and other current assets            5,100          4,082
                                               -------------  -------------
Total current assets                                 583,056        371,771
Property and equipment, net                          118,125        102,165
Long-term marketable securities                       46,593         50,635
Intangible assets, net                               100,044        107,121
Goodwill                                             103,070        103,070
Deferred tax assets, non-current                      76,260         52,033
Restricted cash and investments                       68,463          5,529
Other assets                                          19,187          9,705
                                               -------------  -------------
Total assets                                   $   1,114,798  $     802,029
                                               =============  =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued liabilities     $      52,191  $      58,995
  Accrued payroll and related expenses                17,872         17,266
  Litigation liability                               101,200              -
  Acquisition-related liabilities                     33,628         32,715
                                               -------------  -------------
Total current liabilities                            204,891        108,976
Senior Convertible Notes                             427,974        230,000
Long-term acquisition-related liabilities                  -            326
Deferred tax liabilities                               3,685          3,685
Other long-term liabilities                           13,088         12,810
Commitments and contingencies
Noncontrolling interests                              11,015         11,877
Stockholders' equity:
    Common stock                                          40             40
    Additional paid-in capital                       625,387        545,114
    Accumulated other comprehensive income               (54)           616
    Accumulated deficit                             (171,228)      (111,415)
                                               -------------  -------------
Total stockholders' equity                           454,145        434,355
                                               -------------  -------------
Total liabilities and stockholders' equity     $   1,114,798  $     802,029
                                               =============  =============



                               NuVasive, Inc.
         Unaudited Condensed Consolidated Statements of Cash Flows
                               (in thousands)

                                                       Nine Months Ended
                                                         September 30,
                                                   ------------------------
                                                       2011         2010
                                                   -----------  -----------

Operating activities:
  Consolidated net (loss) income                   $   (60,675) $    15,000
  Adjustments to reconcile net (loss) income to
   net cash provided by operating activities:
    Depreciation and amortization                       24,847       27,404
    Stock-based compensation                            23,789       21,304
    Allowance for excess and obsolete inventory          4,642        1,682
    Allowance for doubtful accounts and sales
     return reserve, net of write-offs                   1,261       (1,039)
    Accretion of contingent consideration                  587          570
    Amortization of debt issuance costs                  2,588        1,120
    Amortization of debt discount                        3,076            -
    Gain recognized on change in fair value of
     derivatives                                        (2,387)           -
    Deferred income tax expense                          6,238            -
    Other non-cash adjustments                           3,545        2,924
  Changes in operating assets and liabilities, net
   of effects from acquisitions:
    Accounts receivable                                 (3,152)     (11,465)
    Inventory                                          (19,933)     (10,043)
    Prepaid expenses and other assets                   (1,061)      (3,878)
    Accounts payable and accrued liabilities               504        6,502
    Litigation liability                               101,200            -
    Accrued payroll and related expenses                   584       (5,973)
    Income taxes payable                               (32,237)        (186)
                                                   -----------  -----------
  Net cash provided by operating activities             53,416       43,922
Investing activities:
    Purchases of property and equipment                (39,435)     (36,622)
    Purchases of marketable securities                (244,209)    (150,045)
    Sales of marketable securities                     124,205      142,313
    Purchases of restricted investments                 (4,535)           -
    Payment for specific rights in connection with
     supply agreement, net of refund received           (5,000)           -
    Other assets                                        (1,100)        (659)
                                                   -----------  -----------
    Net cash used in investing activities             (170,074)     (45,013)
Financing activities:
    Proceeds from the sale of warrants                  47,898            -
    Proceeds from the issuance of convertible
     debt, net of issuance costs                       391,334            -
    Purchase of convertible note hedges                (80,097)           -
    Repurchase of 2013 Senior Convertible Notes       (118,702)           -
    Proceeds from the issuance of common stock           4,461       12,768
    Other assets                                          (349)      (7,722)
    Tax benefits related to stock-based
     compensation awards                                   638        1,118
                                                   -----------  -----------
  Net cash provided by financing activities            245,183        6,164
                                                   -----------  -----------
  Effect of exchange rate changes on cash                 (179)         104
                                                   -----------  -----------
  Increase in cash and cash equivalents                128,346        5,177
Cash and cash equivalents at beginning of period        92,597       65,413
                                                   -----------  -----------
Cash and cash equivalents at end of period         $   220,943  $    70,590
                                                   ===========  ===========

Contact:

Michael J. Lambert
EVP & Chief Financial Officer
NuVasive, Inc.
858-909-3394
Email Contact
Investors:
Patrick F. Williams
Vice President, Industry & Investor Relations
NuVasive, Inc.
858-638-5511
Email Contact
Media:
Nicholas S. Laudico
The Ruth Group
646-536-7030
Email Contact

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