NuVasive Reports Third Quarter 2012 Financial Results

NuVasive Reports Third Quarter 2012 Financial Results 
SAN DIEGO, CA -- (Marketwire) -- 10/24/12 --  NuVasive, Inc. (NASDAQ:
NUVA) 


 
--  Third quarter 2012 total revenue of $148.4 million; up 11.7% from
    third quarter 2011
--  GAAP net income of $2.4 million, or $0.05 per share
--  Non-GAAP net income of $10.1 million, or $0.23 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
September 30, 2012. 
Alex Lukianov, Chairman and Chief Executive Officer, said, "Market
challenges led third quarter results to fall short of our
expectations. We provided early warning of the shortfall and have
implemented a plan to address the issues. We are re-engaging with our
sales force on a deeper level, accelerating the pace of sales force
hiring to more than compensate for losses in the quarter, and
increasing executive engagement with our top customers. Our market
share taking strategy continues to be intact and we have a number of
growth catalysts that will help drive growth for the balance of this
year and beyond. We are in a unique position as the spine market
continues to shift toward minimally invasive solutions and we intend
to fully capitalize upon it."  
NuVasive reported third quarter 2012 revenue of $148.4 million, an
11.7% increase over the $132.9 million for the third quarter 2011 and
3.9% decrease compared to the $154.4 million reported for the second
quarter 2012.  
Gross profit for the third quarter 2012 was $110.6 million and gross
margin was 74.6%, compared to a gross profit of $106.9 million and a
gross margin of 80.4% for the third quarter 2011. For the second
quarter 2012, gross profit was $117.9 million and gross margin was
76.3%.  
Total operating expenses for the third quarter 2012 were $98.1
million compared to $198.3 million in the third quarter 2011 and
$104.9 million in the second quarter 2012. The lower operating
expenses in the third quarter 2012 compared to the prior year were
primarily attributable to a $101.2 million charge related to a
litigation liability in the prior year. 
On a GAAP basis, the Company reported net income of $2.4 million, or
$0.05 per share, for
 the third quarter 2012.  
On a Non-GAAP basis, the Company reported net income of $10.1
million, or $0.23 per share, for the third quarter 2012. The Non-GAAP
earnings per share calculations for the third quarter exclude, (i)
non-cash stock-based compensation of $5.4 million; (ii) certain
intellectual property litigation expenses of $751 thousand; (iii)
amortization of intangible assets of $3.1 million; (iv) acquisition
related items of $387 thousand; and (v) non-cash interest expense on
convertible notes of $3.2 million. 
Cash, cash equivalents and short and long-term marketable securities
were $285.0 million at September 30, 2012. 
Updated 2012 Full Year Financial Guidance 


 
--  Revenue of approximately $601 - $606 million; compared to
    approximately $625 million previously
--  GAAP EPS of approximately $0.11 to $0.13; compared to approximately
    $0.16 previously
--  Non-GAAP EPS of approximately $0.88 to $0.90; compared to
    approximately $0.97 previously
--  Non-GAAP Operating Margin of approximately 14.0%; compared to
    approximately 14.5% previously
--  GAAP effective tax rate of approximately 60%; compared to
    approximately 55% previously
--  Non-GAAP effective tax rate of approximately 40% remains unchanged

 
                                                                            
                                                                            
                 2012 Reconciliation of Full Year EPS Guidance              
                                                                            
                                                      Revised Guidance (2)  
                                         Prior     -------------------------
                                      Guidance (1)      Low         High    
                                      ------------ ------------ ------------
GAAP earnings per share guidance      $       0.16 $       0.11 $       0.13
  Non-cash stock based compensation           0.43         0.37         0.37
  Certain intellectual property                                             
   litigation expenses                        0.03         0.04         0.04
  Amortization of intangible assets           0.16         0.16         0.16
  Acquisition related items (3)               0.02         0.03         0.03
  Non-cash interest expense on                                              
   convertible notes                          0.17         0.17         0.17
                                      ------------ ------------ ------------
Non-GAAP earnings per share guidance  $       0.97 $       0.88 $       0.90
                                      ============ ============ ============
                                                                            
Weighted shares outstanding - basic                                         
 (4)                                        43,500       43,500       43,500
                                      ============ ============ ============
Weighted shares outstanding - diluted                                       
 (4)                                        45,000       44,500       44,500
                                      ============ ============ ============
                                                                            
(1) Effective tax rate of ~55% applied to GAAP earnings and ~40% applied to 
 Non-GAAP adjustments                                                       
(2) Effective tax rate of ~60% 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                                                   
(4) Weighted shares outstanding shown as pre "if-converted" method          
                                                                            
                                                                            
         2012 Guidance Reconciliation of Non-GAAP Operating Margin %        
                                                                            
                                                          Prior     Revised 
                                                        Guidance   Guidance 
                                                       ---------- ----------
                                    Gross Margin % [A]   ~75.5%     ~75.0%  
                                                                            
                       Non-GAAP Operating Expenses [B]   ~61.0%     ~61.0%  
                     Non-cash stock-based compensation    ~5.0%      ~4.5%  
     Certain intellectual property litigation expenses    ~0.5%      ~0.5%  
                     Amortization of intangible assets    ~2.0%      ~2.0%  
                            Acquisition related items*    ~0.2%      ~0.3%  
                                                       ---------- ----------
                               GAAP Operating Expenses   ~68.7%     ~68.3%  
                                                       ---------- ----------
                                                                            
                   
  Non-GAAP Operating Margin % [A-B]   ~14.5%     ~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 operating margin and
Non-GAAP earnings per share, which exclude such items as non-cash
stock-based compensation, certain intellectual property litigation
expenses, amortization of intangible assets, acquisition related
items, and non-cash interest expense on convertible notes. 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 2012 Results                
                                                                            
                                           Pre-Tax                 Earnings 
(in thousands, except per share data)    Adjustments  Net of Tax  Per Share 
                                         ----------- ----------- -----------
GAAP net income                                      $     2,354 $      0.05
  Non-cash stock-based compensation      $     5,434       3,260        0.07
  Certain intellectual property                                             
   litigation expenses                           751         451        0.01
  Amortization of intangible assets            3,081       1,849        0.04
  Acquisition related items                      387         232        0.01
  Non-cash interest expense on                                              
   convertible notes                           3,202       1,921        0.04
                                                     ----------- -----------
Non-GAAP earnings                                    $    10,067 $      0.23
                                                     =========== ===========
                                                                            
Weighted shares outstanding - diluted                                 44,735
                                                                 ===========
                                                                            
                                                                            
                 Reconciliation of Year To Date 2012 Results                
                                                                            
                                           Pre-Tax                 Earnings 
(in thousands, except per share data)    Adjustments  Net of Tax  Per Share 
                                         ----------- ----------- -----------
GAAP net income                                      $     5,890 $      0.13
  Non-cash stock-based compensation      $    20,400      12,240        0.28
  Certain intellectual property                                             
   litigation expenses                         1,567         940        0.02
  Amortization of intangible assets            8,830       5,298        0.12
  Acquisition related items                    1,420         852        0.02
  Non-cash interest expense on                                              
   convertible notes                           9,435       5,661        0.13
                                                     ----------- -----------
Non-GAAP earnings                                    $    30,881 $      0.70
                                                     =========== ===========
                                                                            
Weighted shares outstanding - diluted                                 44,151
                                                                 ===========

 
Conference Call
 NuVasive will hold a conference call today at 8:00
a.m. ET / 5:00 a.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 23, 2012. In addition, a
telephonic replay of the call will be available until November 7,
2012. 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 399418. 
About NuVasive
 NuVasive is a medical device company focused on
developing minimally disruptive surgical products and procedurally
integrated solutions for the spine. The Company is the 4th largest
player in the $7.9 billion global spine market. 
NuVasive's principal product offering is based on its Maximum Access
Surgery, or MAS(R) platform. The MAS platform combines several
categories of solutions 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 and intra-operative monitoring support;
MaXcess(R), 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(R), NuVasive has
built an entire spine franchise. With over 75 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(R).  
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 materiall
y 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,    
                                 --------------------  -------------------- 
                                    2012       2011       2012       2011   
                                 ---------  ---------  ---------  --------- 
                                                                            
Revenue                          $ 148,391  $ 132,880  $ 454,501  $ 390,312 
Cost of goods sold (excluding                                               
 amortization of purchased                                                  
 technology)                        37,746     26,015    111,213     75,049 
                                 ---------  ---------  ---------  --------- 
Gross profit                       110,645    106,865    343,288    315,263 
                                                                            
Operating expenses:                                                         
  Sales, marketing and                                                      
   administrative                   87,052     85,482    273,669    254,025 
  Research and development           7,933     10,092     27,932     31,119 
  Amortization of intangible                                                
   assets                            3,081      1,504      8,830      4,241 
  Litigation award                       -    101,200          -    101,200 
                                 ---------  ---------  ---------  --------- 
Total operating expenses            98,066    198,278    310,431    390,585 
                                                                            
Interest and other expense, net:                                            
  Interest income                      249        257        661        591 
  Interest expense                  (6,885)    (7,276)   (20,682)   (10,962)
  Other income, net                    260      1,726        146      2,303 
                                 ---------  ---------  ---------  --------- 
Total interest and other                                                    
 expense, net                       (6,376)    (5,293)   (19,875)    (8,068)
                                 ---------  ---------  ---------  --------- 
                                                                            
Income (loss) before income                                                 
 taxes                               6,203    (96,706)    12,982    (83,390)
Income tax expense (benefit)         4,064    (29,031)     7,764    (22,715)
                                 ---------  ---------  ---------  --------- 
Consolidated net income (loss)   $   2,139  $ (67,675) $   5,218  $ (60,675)
                                 =========  =========  =========  ========= 
Net loss attributable to                                                    
 noncontrolling interests        $    (215) $    (123) $    (672) $    (862)
                                 =========  =========  =========  ========= 
Net income (loss) attributable                                              
 to NuVasive, Inc.               $   2,354  $ (67,552) $   5,890  $ (59,813)
                                 =========  =========  =========  ========= 
                                                                            
Net income (loss) per share                                                 
 attributable to NuVasive, Inc.:                                            
  Basic                          $    0.05  $   (1.69) $    0.14  $   (1.50)
                                 =========  =========  =========  ========= 
  Diluted                        $    0.05  $   (1.69) $    0.13  $   (1.50)
                                 =========  =========  =========  ========= 
Weighted average shares                                                     
 outstanding:                                                               
  Basic                             43,488     39,892     43,227     39,766 
                                 =========  =========  =========  ========= 
  Diluted                           44,735     39,892     44,151     39,766 
                                 =========  =========  =========  ========= 
                                                                            
Stock-based compensation is included in                                     
 expenses in the following categories:                                      
  Sales, marketing and                                                      
   administrative                $   4,844  $   7,497  $  18,723  $  21,956 
  Research and development             567        621      1,624      1,833 
  Cost of goods sold                    23          -         53          - 
                                 ---------  ---------  ---------  --------- 
                                 $   5,434  $   8,118  $  20,400  $  23,789 
                                 =========  =========  =========  ========= 
                                                                            
                                                                            
                               NuVasive, Inc.                               
                   Condensed Consolidated Balance Sheets                    
                               (in thousands)                               
                                                                            
                                               September 30,   December 31, 
                                                    2012           2011     
                                               -------------  ------------- 
                                                (Unaudited)                 
ASSETS                                                                      
Current assets:                                                             
  Cash and cash equivalents                    $     107,731  $     163,492 
  Short-term marketable securities                   134,899        146,228 
  Accounts receivable, net                            78,140         87,736 
  Inventory                       
                   132,958        119,313 
  Deferred tax assets, current                        54,550         54,550 
  Prepaid expenses and other current assets            7,264         20,518 
                                               -------------  ------------- 
Total current assets                                 515,542        591,837 
Property and equipment, net                          131,158        124,754 
Long-term marketable securities                       42,416         32,503 
Intangible assets, net                               105,086        108,140 
Goodwill                                             162,333        159,349 
Deferred tax assets                                   19,857         19,857 
Restricted cash and investments                      182,067         68,600 
Other assets                                          26,169         18,522 
                                               -------------  ------------- 
Total assets                                   $   1,184,628  $   1,123,562 
                                               =============  ============= 
LIABILITIES AND STOCKHOLDERS' EQUITY                                        
Current liabilities:                                                        
  Accounts payable and accrued liabilities     $      63,498  $      51,744 
  Accrued payroll and related expenses                22,527         22,215 
  Litigation liability                                     -        101,200 
  Acquisition-related liabilities                     32,389         32,221 
  Senior Convertible Notes, current                   74,311              - 
                                               -------------  ------------- 
Total current liabilities                            192,725        207,380 
Senior Convertible Notes                             329,143        394,019 
Deferred tax liabilities                               4,180          3,952 
Litigation liability                                 1
01,200              - 
Other long-term liabilities                           15,581         13,461 
Commitments and contingencies                                               
Noncontrolling interests                              10,033         10,705 
Stockholders' equity:                                                       
  Preferred stock                                          -              - 
  Common stock                                            44             42 
  Additional paid-in capital                         705,931        674,790 
  Accumulated other comprehensive income               1,166            477 
  Accumulated deficit                               (175,375)      (181,264)
                                               -------------  ------------- 
Total stockholders' equity                           531,766        494,045 
                                               -------------  ------------- 
Total liabilities and stockholders' equity     $   1,184,628  $   1,123,562 
                                               =============  ============= 
                                                                            
                                                                            
                               NuVasive, Inc.                               
         Unaudited Condensed Consolidated Statements of Cash Flows          
                    
           (in thousands)                               
                                                                            
                                                       Nine Months Ended    
                                                         September 30,      
                                                   ------------------------ 
                                                       2012         2011    
                                                   -----------  ----------- 
                                                                            
Operating activities:                                                       
  Consolidated net income (loss)                   $     5,218  $   (60,675)
  Adjustments to reconcile net income (loss) to                             
   net cash provided by operating activities:                               
    Depreciation and amortization                       38,237       24,847 
    Amortization of debt discount                        9,435        3,076 
    Amortization of debt issuance costs                  1,386        2,588 
    Stock-based compensation                            20,400       23,789 
    Allowance for excess and obsolete inventory,                            
     net of write-offs                                   2,000        4,642 
    Allowance for doubtful accounts and sales                               
     return reserve                                        816        1,261 
    Accretion of contingent consideration                  708          587 
    Gain recognized on change in fair value of                              
     derivatives                                             -       (2,387)
    Deferred income tax expense                              -        6,238 
    Other non-cash adjustments                           4,294        3,545 
  Changes in operating assets and liabilities, net                          
   of effects of acquisitions:                                              
    Accounts receivable                                  8,421       (3,152)
    Inventory                                          (14,222)     (19,933)
    Prepaid expenses and other current assets           13,582       (1,061)
    Accounts payable and accrued liabilities             4,474          504 
    Litigation liability                                     -      101,200 
    Accrued payroll and related expenses                  (269)         584 
    Income taxes payable                                 5,006      (32,237)
                                                   -----------  ----------- 
  Net cash provided by operating activities             99,486       53,416 
Investing activities:                                                       
    Cash paid for business and asset acquisitions       (9,838)      (1,100)
    Purchases of property and equipment                (35,706)     (39,435)
    Purchases of marketable securities                (192,759)    (244,209)
    Sales of marketable securities                     193,035      124,205 
    Purchases of restricted investments               (113,331)      (4,535)
    Payment for specific rights in connection with                          
     supply agreement, net of refund received                -       (5,000)
                                                   -----------  ----------- 
  Net cash used in investing activities               (158,599)    (170,074)
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           3,183        4,461 
    Other assets                                           132         (349)
    Tax benefits related to stock-based                                     
     compensation awards                                     -          638 
                                                   -----------  ----------- 
  Net cash provided by financing activities              3,315      245,183 
Effect of exchange rate changes on cash                     37         (179)
                                                   -----------  ----------- 
(Decrease) increase in cash and cash equivalents       (55,761)     128,346 
Cash and cash equivalents at beginning of period       163,492       92,597 
                                                   -----------  ----------- 
Cash and cash equivalents at end of period         $   107,731  $   220,943 
                                                   ===========  =========== 

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