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NuVasive Announces First Quarter 2013 Financial Results

SAN DIEGO, CA--(Marketwired - Apr 30, 2013) - NuVasive, Inc. ( NASDAQ : NUVA )

  • First quarter 2013 revenue of $159.5 million; up 5.2% from first quarter 2012
  • GAAP operating margin of 4.0%
  • Non-GAAP operating margin of 13.5%
  • GAAP net income of $851 thousand, or $0.02 per share
  • Non-GAAP earnings of $11.9 million, or $0.26 per share

NuVasive, Inc. ( NASDAQ : NUVA ) a medical device company focused on developing minimally disruptive surgical products and procedures for the spine, announced today financial results for the quarter ended March 31, 2013.

NuVasive reported first quarter 2013 revenue of $159.5 million, a 5.2% increase over the $151.7 million for the first quarter 2012.

Gross profit for the first quarter 2013 was $120.4 million and gross margin was 75.5%, compared to a gross profit of $114.8 million and a gross margin of 75.7% for the first quarter 2012. 

Total operating expenses for the first quarter 2013 were $114.0 million compared to $107.5 million in the first quarter 2012. The higher operating expenses in the first quarter 2013 resulted primarily from additional costs associated with higher revenue and international infrastructure expansion.

On a GAAP basis, the Company reported net income of $851 thousand, or $0.02 per share, for the first quarter 2013. 

On a Non-GAAP basis, the Company reported net income of $11.9 million, or $0.26 per share, for the first quarter 2013. The Non-GAAP earnings per share calculations for the first quarter exclude: (i) non-cash stock-based compensation of $6.8 million; (ii) certain intellectual property litigation expenses of $1.4 million; (iii) amortization of intangible assets of $4.4 million; (iv) acquisition related items of $2.5 million; and (v) non-cash interest expense on convertible notes of $3.3 million.

Cash, cash equivalents and short and long-term marketable securities were $281.2 million at March 31, 2013.

The Company also announced a partial settlement in the ongoing patent litigation with Medtronic. The settlement resolves all disputes related to cervical plate patents and affords NuVasive broad access to Medtronic's portfolio of cervical plate patents. In exchange, NuVasive agreed to a $7.5 million up-front payment to Medtronic to settle Phase II of the litigation, all of which will be offset against any damage award ultimately paid in connection with Phase I. As well, NuVasive will assume an effective go-forward royalty rate of 3% on certain cervical plates that rely on the patents licensed. 

Alex Lukianov, Chairman and Chief Executive Officer, said, "Results in the first quarter demonstrate solid execution against our multiyear plan and are in line with our expectations for annual performance in 2013. Several positive developments in the form of strong clinical data to support fusions for Degenerative Disc Disease, in conjunction with the ongoing formulation of new clinical guidelines have the potential to improve long term US spine market growth. And regardless of what U.S. market growth ultimately looks like, NuVasive has massive opportunities to drive sustainable top and bottom line growth globally. Our proven, share taking strategy of Superior Outcomes, Absolute Responsiveness, and Speed of Innovation will enable us to execute our plan for growth toward $1 billion in revenue with an improved profitability profile."

2013 Full Year Financial Guidance:

  • Revenue of approximately $655 million, unchanged from prior guidance
  • GAAP EPS of approximately $0.02, compared to $0.07 previously
  • Non-GAAP EPS of approximately $1.00, unchanged from prior guidance
  • Non-GAAP Operating Margin of approximately 14%, unchanged from prior guidance
  • GAAP effective tax expense rate of approximately 80%, compared to 60% previously
         
Reconciliation of Full Year EPS Guidance
         
    2013 Guidance
    Prior 1   Revised 2
GAAP earnings per share guidance   $ 0.07   $ 0.02
  Non-cash stock based compensation     0.39     0.45
  Certain intellectual property litigation expenses     0.06     0.06
  Amortization of intangible assets     0.27     0.27
  Acquisition related items 3     0.03     0.03
  Non-cash interest expense on convertible notes     0.18     0.18
Non-GAAP earnings per share guidance   $ 1.00   $ 1.00
             
Weighted shares outstanding - basic     45,500     45,500
Weighted shares outstanding - diluted     46,500     46,500
             
     
1   Effective tax rate of ~60% applied to GAAP earnings and ~40% applied to Non-GAAP adjustments
2   Effective tax rate of ~80% applied to GAAP earnings and ~40% applied to Non-GAAP adjustments
3   Acquisition related items include expenses associated with prior M&A activity and as incurred
     
     
             
Reconciliation of Non-GAAP Operating Margin %
             
    2012   2013 Guidance
    Actuals  Prior   Revised
Gross Margin % [A]   75.3%   ~74.0%   ~74.0%
             
Non-GAAP Operating Expenses [B]   60.8%   ~60.0%   ~60.0%
Non-cash stock-based compensation   4.2%   ~5.0%   ~5.5%
Certain intellectual property litigation expenses   0.4%   ~1.0%   ~1.0%
Amortization of intangible assets   2.0%   ~3.0%   ~3.0%
Intangible asset and goodwill impairment charge   1.5%   -   -
Acquisition related items*   0.3%   ~0.3%   ~0.3%
GAAP Operating Expenses   69.3%   ~69.3%   ~69.8%
             
Non-GAAP Operating Margin % [A-B]   14.5%   ~14.0%   ~14.0%
             
 
* Acquisition related items include 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, and intangible asset and goodwill impairment charges. 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 First Quarter 2013 Results
             
(in thousands, except per share data)   Pre-Tax Adjustments   Net of Tax   Earnings Per Share
GAAP net income       $ 851   $ 0.02
  Non-cash stock-based compensation   $ 6,787   4,072   0.09
  Certain intellectual property litigation expenses   1,409   845   0.02
  Amortization of intangible assets   4,376   2,626   0.06
  Acquisition related items   2,461   1,477   0.03
  Non-cash interest expense on convertible notes   3,322   1,993   0.04
             
Non-GAAP earnings       $ 11,864   $ 0.26
             
Weighted shares outstanding - diluted           45,316
             
             

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 May 31, 2013. In addition, a telephone replay of the call will be available until May 14, 2013. 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: 410865.

About NuVasive

NuVasive is an innovative global medical device company that is changing spine surgery with minimally disruptive surgical products and procedurally integrated solutions for the spine. The Company is the 4th largest player in the $8.2 billion global spine market.

NuVasive offers a comprehensive spine portfolio of over 80 unique products developed to improve spine surgery and patient outcomes. The Company's principal procedural solution is its Maximum Access Surgery, or MAS® platform for lateral spine fusion. MAS provides safe, reproducible, and clinically proven outcomes, and is a highly differentiated solution with fully integrated neuromonitoring, customizable exposure, and a broad offering of application-specific implants and fixation devices designed to address a variety of pathologies.

Having pioneered the lateral approach to spine fusion, NuVasive continues to be at the forefront of the spine industry's shift toward less invasive solutions. The Company places a large focus on clinical research and support of the Society of Lateral Access Surgery, or SOLAS®, to expand the body of clinical evidence in support of NuVasive's minimally disruptive solutions and to drive adoption of its techniques. The Company's dedication to innovation continues to spawn game changing technology such as the PCM® motion preserving disc for the cervical spine, XLIF® Corpectomy for tumor and trauma, and Armada®, which treats adult degenerative scoliosis in a less invasive fashion. The Company has also developed procedural solutions that completely redefine and improve upon traditional procedures like TLIF, PLIF, Posterior Fixation, and ALIF. NuVasive's solutions are increasingly being adopted internationally, as the Company lays the groundwork to continue growing as a global business and to offer industry-leading, Absolutely Responsive customer service to surgeons world-wide. NuVasive is focused on becoming a $1 Billion Start-Up™; taking market share by maintaining a commitment to Superior Clinical Outcomes, Speed of Innovation, and 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; the risk of further adjustment, or unanticipated difficulty in selling products or generating expected profitability; 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 amounts)   
 
    Three Months Ended March 31,  
    2013     2012  
             
Revenue   $ 159,504     $ 151,691  
Cost of goods sold (excluding amortization of purchased technology)     39,096       36,933  
Gross profit     120,408       114,758  
                 
Operating expenses:                
  Sales, marketing and administrative     99,886       94,678  
  Research and development     9,694       9,988  
  Amortization of intangible assets     4,376       2,846  
Total operating expenses     113,956       107,512  
                 
Interest and other expense, net:                
  Interest income     172       208  
  Interest expense     (7,032 )     (6,825 )
  Other income, net     240       437  
Total interest and other expense, net     (6,620 )     (6,180 )
                 
(Loss) income before income taxes     (168 )     1,066  
Income tax (benefit) expense     (764 )     597  
Consolidated net income   $ 596     $ 469  
Net loss attributable to noncontrolling interests   $ (255 )   $ (204 )
Net income attributable to NuVasive, Inc.   $ 851     $ 673  
                 
Net income per share attributable to NuVasive, Inc.:                
  Basic and diluted   $ 0.02     $ 0.02  
Weighted average shares outstanding:                
  Basic     44,025       42,844  
  Diluted     45,316       43,397  
                 
Stock-based compensation is included in expenses in the following categories:                
  Sales, marketing and administrative   $ 6,424     $ 6,142  
  Research and development     342       465  
  Cost of goods sold     21       14  
    $ 6,787     $ 6,621  
                 
                 
   
NuVasive, Inc.  
Condensed Consolidated Balance Sheets  
(in thousands)  
   
    March 31, 2013     December 31, 2012  
    (Unaudited)        
ASSETS      
Current assets:            
  Cash and cash equivalents   $ 78,472     $ 123,299  
  Short-term marketable securities     121,897       138,405  
  Accounts receivable, net     90,410       88,958  
  Inventory     129,583       126,335  
  Deferred tax assets, current     31,136       28,236  
  Prepaid expenses and other current assets     9,078       8,516  
Total current assets     460,576       513,749  
Property and equipment, net     122,897       125,123  
Long-term marketable securities     80,829       84,412  
Intangible assets, net     101,992       101,362  
Goodwill     154,056       154,106  
Deferred tax assets     37,676       40,575  
Restricted cash and investments     119,046       118,995  
Other assets     24,380       25,463  
Total assets   $ 1,101,452     $ 1,163,785  
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
  Accounts payable and accrued liabilities   $ 72,227     $ 62,048  
  Accrued payroll and related expenses     20,952       27,916  
  Litigation liability     7,500       -  
  Senior Convertible Notes, current     -       74,311  
Total current liabilities     100,679       164,275  
Senior Convertible Notes     335,726       332,404  
Deferred tax liabilities     3,123       3,129  
Litigation liability     93,700       101,200  
Other long-term liabilities     15,056       15,199  
Commitments and contingencies                
Noncontrolling interests     9,748       10,003  
Stockholders' equity:                
  Preferred stock     -       -  
  Common stock     44       44  
  Additional paid-in capital     721,688       714,865  
  Accumulated other comprehensive (loss) income     (1,043 )     786  
  Accumulated deficit     (177,269 )     (178,120 )
Total stockholders' equity     543,420       537,575  
Total liabilities and stockholders' equity   $ 1,101,452     $ 1,163,785  
                 
 
 
NuVasive, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
 
    Three Months Ended March 31,  
    2013     2012  
             
Operating activities:            
Consolidated net income   $ 596     $ 469  
  Adjustments to reconcile net income to net cash provided by operating activities:                
  Depreciation and amortization     14,581       12,087  
  Amortization of debt discount     3,322       3,088  
  Amortization of debt issuance costs     478       451  
  Stock-based compensation     6,787       6,621  
  Allowance for doubtful accounts and sales return reserve     (129 )     663  
  Allowance for excess and obsolete inventory, net of write-offs     157       1,200  
  Accretion of contingent consideration     17       397  
  Other non-cash adjustments     1,393       1,446  
  Changes in operating assets and liabilities, net of effects from acquisitions:                
  Accounts receivable     (1,619 )     2,193  
  Inventory     (4,098 )     (3,502 )
  Prepaid expenses and other current assets     (929 )     10,959  
  Accounts payable and accrued liabilities     10,373       7,834  
  Accrued payroll and related expenses     (6,823 )     (4,166 )
Net cash provided by operating activities     24,106       39,740  
Investing activities:                
  Cash paid for business and asset acquisitions     (5,031 )     (3,667 )
  Purchases of property and equipment     (9,200 )     (14,567 )
  Purchases of marketable securities     (48,916 )     -  
  Sales of marketable securities     68,621       84,831  
Net cash provided by investing activities     5,474       66,597  
Financing activities:                
  Principal payment of 2013 Senior Convertible Notes     (74,311 )     -  
  Proceeds from the issuance of common stock     36       314  
  Other assets     100       76  
Net cash (used in) provided by financing activities     (74,175 )     390  
Effect of exchange rate changes on cash     (232 )     (39 )
(Decrease) increase in cash and cash equivalents     (44,827 )     106,688  
Cash and cash equivalents at beginning of period     123,299       163,492  
Cash and cash equivalents at end of period   $ 78,472     $ 270,180