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NuVasive Announces Second Quarter 2013 Financial Results

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

  • Second quarter 2013 revenue of $165.7 million; up 7.3% from second quarter 2012
  • Non-GAAP operating margin of 14.0%
  • GAAP net loss of $6.5 million, or $0.15 per share
  • Non-GAAP earnings of $9.4 million, or $0.20 per share
  • Reiterates 2013 guidance for revenue, non-GAAP operating margin, and non-GAAP earnings 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 June 30, 2013.

NuVasive reported second quarter 2013 revenue of $165.7 million, a 7.3% increase over the $154.4 million for the second quarter 2012.

Gross profit for the second quarter 2013 was $117.0 million and gross margin was 70.6%. Second quarter 2013 gross margin results reflect the impact of a one-time $7.9 million charge related to royalty accruals in connection with Phase I of the Company's patent litigation with Medtronic. Excluding the charge, gross profit for the second quarter 2013 was $124.9 million and gross margin was 75.4%, compared to a gross profit of $117.9 million and a gross margin of 76.4% for the second quarter 2012.

Total operating expenses for the second quarter 2013 were $116.9 million compared to $104.9 million for the second quarter 2012. The higher operating expenses in the second quarter 2013 resulted primarily from additional costs associated with higher revenue and international infrastructure expansion.

On a GAAP basis, the Company reported a net loss of $6.5 million, or $0.15 per share, for the second quarter 2013.

On a Non-GAAP basis, the Company reported net income of $9.4 million, or $0.20 per share, for the second quarter 2013. The Non-GAAP earnings per share calculations for the second quarter exclude: (i) non-cash stock-based compensation of $8.8 million; (ii) certain intellectual property litigation expenses of $1.5 million; (iii) amortization of intangible assets of $4.9 million; (iv) acquisition related items of $56 thousand; (v) non-cash interest expense on convertible notes of $3.4 million; and (vi) a one-time $7.9 million out of period royalty expense charge related to royalty accruals in connection with Phase I of the company's patent litigation with Medtronic. This ruling set the rates at which the Company is required to accrue royalties for the post-verdict period of time. The $7.9 million reflects the difference between the post-verdict royalty rates determined by the recent ruling and the rates that were being used to calculate litigation royalty expense accruals from September 2011 through March 2013.

Cash, cash equivalents and short and long-term marketable securities were $272.7 million at June 30, 2013.

Alex Lukianov, Chairman and Chief Executive Officer, said, "Results in the first half of 2013 demonstrate solid execution against a multi-year plan, and give us increased confidence in our ability to execute to the full year guidance we have outlined. Importantly, we are cultivating the pillars of NuVasive's foundation to sustain earnings growth well into the future. NuVasive is changing spine surgery with a proven, share taking strategy of Superior Outcomes, Absolute Responsiveness, and Speed of Innovation. That mission will drive our evolution 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 loss per share of approximately $(0.09), compared to income of $0.02 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 benefit rate of approximately 30%, compared to a tax expense rate of approximately 80% previously
           
           
           
Reconciliation of Full Year EPS Guidance  
           
    2013 Guidance  
    Prior 1   Revised 2  
GAAP earnings (loss) per share guidance   $ 0.02   $ (0.09 )
Impact of change from basic to diluted share count         $ -  
GAAP earnings (loss) per share, adjusted to diluted share count   $ 0.02   $ (0.09 )
  Non-cash stock based compensation     0.45     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  
  Out-of-period royalty expense charge     -     0.10  
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 expense rate of ~80% applied to GAAP earnings and ~40% applied to Non-GAAP adjustments
2 Effective tax benefit rate of ~30% 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
Non-GAAP Gross Margin % [A]   75.3%   ~74.0%   ~75.0%
Out-of-period royalty expense charge   -   -   ~(1.2%)
GAAP Gross Margin   75.3%   ~74.0%   ~73.8%
             
Non-GAAP Operating Expenses [B]   60.8%   ~60.0%   ~61.0%
Non-cash stock-based compensation   4.2%   ~5.5%   ~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%   ~69.8%   ~70.8%
             
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, intangible asset and goodwill impairment charges, acquisition related items, non-cash interest expense on convertible notes and an out of period royalty expense charge. 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 Second Quarter 2013 Results  
                 
(in thousands, except per share data)   Pre-Tax Adjustments   Net of Tax     (Loss) Earnings Per Share  
GAAP net loss         $ (6,469 )   $ (0.15 )
Impact of change from basic to diluted share count                   0.01  
GAAP net loss, adjusted to diluted share count         $ (6,469 )   $ (0.14 )
  Non-cash stock-based compensation   $ 8,761     5,257       0.11  
  Certain intellectual property litigation expenses     1,480     888       0.02  
  Amortization of intangible assets     4,913     2,948       0.06  
  Acquisition related items     56     34       0.00  
  Non-cash interest expense on convertible notes     3,382     2,029       0.04  
  Out-of-period royalty expense charge     7,901     4,741       0.10  
Non-GAAP earnings         $ 9,428     $ 0.20  
                       
                       
GAAP weighted shares outstanding - basic and diluted                   44,412  
Non-GAAP weighted shares outstanding - diluted                   46,627  
                       
                 
                 
Reconciliation of Year To Date 2013 Results  
                 
(in thousands, except per share data)   Pre-Tax Adjustments   Net of Tax     (Loss) Earnings Per Share  
GAAP net loss         $ (5,618 )   $ (0.13 )
Impact of change from basic to diluted share count                   0.01  
GAAP net loss, adjusted to diluted share count         $ (5,618 )   $ (0.12 )
  Non-cash stock-based compensation   $ 15,548     9,329       0.20  
  Certain intellectual property litigation expenses     2,889     1,733       0.04  
  Amortization of intangible assets     9,288     5,573       0.12  
  Acquisition related items     2,517     1,510       0.03  
  Non-cash interest expense on convertible notes     6,704     4,022       0.09  
  Out-of-period royalty expense charge     7,901     4,741       0.10  
                       
Non-GAAP earnings         $ 21,290     $ 0.46  
                       
GAAP weighted shares outstanding - basic and diluted                   44,220  
Non-GAAP weighted shares outstanding - diluted                   45,973  
                       
                       

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 August 29, 2013. In addition, a telephone replay of the call will be available until August 13, 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: 417030.

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 to financial results or future financial expectations; unanticipated difficulty in selling products, generating revenue or producing 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 June 30,     Six Months Ended June 30,  
    2013     2012     2013     2012  
                                 
Revenue   $ 165,698     $ 154,419     $ 325,202     $ 306,110  
Cost of goods sold (excluding amortization of purchased technology)     48,744       36,534       87,840       73,467  
Gross profit     116,954       117,885       237,362       232,643  
                                 
Operating expenses:                                
  Sales, marketing and administrative     104,272       92,615       204,158       187,293  
  Research and development     7,712       9,335       17,407       19,323  
  Amortization of intangible assets     4,913       2,903       9,288       5,749  
Total operating expenses     116,897       104,853       230,853       212,365  
                                 
Interest and other expense, net:                                
  Interest income     231       204       403       412  
  Interest expense     (6,652 )     (6,972 )     (13,685 )     (13,797 )
  Other expense, net     (440 )     (551 )     (199 )     (114 )
Total interest and other expense, net     (6,861 )     (7,319 )     (13,481 )     (13,499 )
                                 
(Loss) income before income taxes     (6,804 )     5,713       (6,972 )     6,779  
Income tax (benefit) expense     (76 )     3,103       (840 )     3,700  
Consolidated net (loss) income   $ (6,728 )   $ 2,610     $ (6,132 )   $ 3,079  
Net loss attributable to noncontrolling interests   $ (259 )   $ (253 )   $ (514 )   $ (457 )
Net (loss) income attributable to NuVasive, Inc.   $ (6,469 )   $ 2,863     $ (5,618 )   $ 3,536  
                                 
Net (loss) income per share attributable to NuVasive, Inc.:                                
  Basic   $ (0.15 )   $ 0.07     $ (0.13 )   $ 0.08  
  Diluted   $ (0.15 )   $ 0.06     $ (0.13 )   $ 0.08  
Weighted average shares outstanding:                                
  Basic     44,412       43,347       44,220       43,095  
  Diluted     44,412       44,318       44,220       43,857  
                                 
Stock-based compensation is included in expenses in the following categories:                                
  Sales, marketing and administrative   $ 8,278     $ 7,737     $ 14,703     $ 13,879  
  Research and development     449       592       791       1,057  
  Cost of goods sold     34       16       54       30  
    $ 8,761     $ 8,345     $ 15,548     $ 14,966  
                                 
                                 
 
 
NuVasive, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
             
    June 30, 2013     December 31, 2012  
    (Unaudited)        
ASSETS        
Current assets:                
  Cash and cash equivalents   $ 58,880     $ 123,299  
  Short-term marketable securities     113,779       138,405  
  Accounts receivable, net     96,314       88,958  
  Inventory     137,394       126,335  
  Deferred tax assets, current     31,136       28,236  
  Prepaid expenses and other current assets     9,016       8,516  
Total current assets     446,519       513,749  
Property and equipment, net     130,591       125,123  
Long-term marketable securities     100,072       84,412  
Intangible assets, net     97,183       101,362  
Goodwill     154,846       154,106  
Deferred tax assets     37,677       40,575  
Restricted cash and investments     119,048       118,995  
Other assets     22,248       25,463  
Total assets   $ 1,108,184     $ 1,163,785  
LIABILITIES AND EQUITY                
Current liabilities:                
  Accounts payable and accrued liabilities   $ 78,298     $ 62,048  
  Accrued payroll and related expenses     21,936       27,916  
  Senior Convertible Notes, current     -       74,311  
Total current liabilities     100,234       164,275  
Senior Convertible Notes     339,108       332,404  
Deferred tax liabilities     3,125       3,129  
Litigation liability     93,700       101,200  
Other long-term liabilities     14,838       15,199  
Commitments and contingencies                
Noncontrolling interests     -       10,003  
Stockholders' equity:                
  Preferred stock     -       -  
  Common stock     45       44  
  Additional paid-in capital     734,796       714,865  
  Accumulated other comprehensive (loss) income     (3,413 )     786  
  Accumulated deficit     (183,738 )     (178,120 )
Total NuVasive, Inc. stockholders' equity     547,690       537,575  
Noncontrolling interests     9,489       -  
Total equity     557,179       537,575  
Total liabilities and equity   $ 1,108,184     $ 1,163,785  
                 
                 
 
 
NuVasive, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
       
    Six Months Ended June 30,  
    2013     2012  
                 
Operating activities:                
Consolidated net (loss) income   $ (6,132 )   $ 3,079  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:                
  Depreciation and amortization     30,341       25,313  
  Amortization of debt discount     6,704       6,233  
  Amortization of debt issuance costs     865       912  
  Stock-based compensation     15,548       14,966  
  Allowance for doubtful accounts and sales return reserve     379       1,622  
  Allowance for excess and obsolete inventory, net of write-offs     1,404       1,275  
  Other non-cash adjustments     4,175       3,541  
Changes in operating assets and liabilities, net of effects from acquisitions:                
  Accounts receivable     (8,443 )     671  
  Inventory     (13,680 )     (10,967 )
  Prepaid expenses and other current assets     (1,722 )     12,185  
  Accounts payable and accrued liabilities     8,830       8,902  
  Accrued payroll and related expenses     (5,885 )     (1,973 )
Net cash provided by operating activities     32,384       65,759  
Investing activities:                
Cash paid for business and asset acquisitions     (7,719 )     (7,917 )
Purchases of property and equipment     (26,209 )     (23,930 )
Purchases of marketable securities     (136,988 )     (110,915 )
Sales of marketable securities     145,014       144,427  
Purchases of restricted investments     -       (113,126 )
Net cash used in investing activities     (25,902 )     (111,461 )
Financing activities:                
Principal payment of 2013 Senior Convertible Notes     (74,311 )     -  
Tax benefits related to stock-based compensation awards     1,261       -  
Proceeds from the issuance of common stock     3,123       3,094  
Other assets     26       242  
Net cash (used in) provided by financing activities     (69,901 )     3,336  
Effect of exchange rate changes on cash     (1,000 )     30  
(Decrease) increase in cash and cash equivalents     (64,419 )     (42,336 )
Cash and cash equivalents at beginning of period     123,299       163,492  
Cash and cash equivalents at end of period   $ 58,880     $ 121,156