NuVasive Investor Relations

NuVasive is a world leader in minimally invasive, procedurally-integrated spine solutions. From complex spinal deformity to degenerative spinal conditions, NuVasive is transforming spine surgery with innovative technologies designed to deliver reproducible and clinically proven surgical outcomes.

Press Release

NuVasive Announces Second Quarter 2018 Financial Results

SAN DIEGO, July 31, 2018 /PRNewswire/ -- NuVasive, Inc. (NASDAQ: NUVA), the leader in spine technology innovation, focused on transforming spine surgery with minimally disruptive, procedurally-integrated solutions, today announced financial results for the quarter ended June 30, 2018. 

Second Quarter 2018 Highlights

  • Revenue increased 8.5% to $281.6 million, or 7.7% on a constant currency basis;
  • GAAP operating profit margin of 10.1%; Non-GAAP operating profit margin of 16.3%; and
  • GAAP diluted earnings per share increase of 5% to $0.22; Non-GAAP diluted earnings per share increase of 29% to $0.58.

"We are pleased with our second quarter total revenue growth of 8.5% year-over-year driven by momentum in our U.S. Spinal Hardware business where we saw spine case volumes up nearly 7% versus prior year," said Gregory T. Lucier, chairman and chief executive officer of NuVasive. "We continue to see strong demand for new product introductions from late last year and positive surgeon conversion efforts as our new Lateral Single-Position Surgery procedure gains traction in the market. Our International business also delivered a solid performance with 21% year-over-year growth."

A full reconciliation of GAAP to non-GAAP measures can be found in the tables of this news release.

Second Quarter 2018 Results
NuVasive reported second quarter 2018 total revenue of $281.6 million, an 8.5% increase compared to $259.4 million for the second quarter 2017. On a constant currency basis, second quarter 2018 total revenue increased 7.7% compared to the same period last year. 

For the second quarter 2018, GAAP and non-GAAP gross profit was $204.5 million and $204.9 million, respectively, and GAAP and non-GAAP gross margin was 72.6% and 72.8%, respectively. These results compared to both GAAP and non-GAAP gross profit of $193.2 million, and both GAAP and non-GAAP gross margin of 74.5% for the second quarter 2017. Gross margins for the second quarter 2018 were impacted by the Company's in-source manufacturing efforts at the West Carrollton facility, which are expected to improve over the second half of 2018.

The Company reported GAAP net income of $11.5 million, or $0.22 per share, for the second quarter 2018 compared to GAAP net income of $12.2 million, or $0.21 per share, for the second quarter 2017. On a non-GAAP basis, the Company reported net income of $30.3 million, or $0.58 per share, for the second quarter 2018 compared to net income of $23.6 million, or $0.45 per share, for the second quarter 2017.

Annual Financial Guidance for 2018
The Company updated its full-year 2018 guidance as follows:

                                   
   

2018 Guidance Range 1

 
   

Prior

 

Current

 
 

(in million's; except %'s and EPS)

 GAAP 

 

 Non-GAAP 

 

 GAAP 

 

 Non-GAAP 

 
 

Revenue

$    1,095

 

$    1,105

 

$ 1,095

 

$    1,105

 

$ 1,095

 

$ 1,105

 

$ 1,095

 

$ 1,105

 
 

  % Growth - Reported 2

6.7%

 

7.6%

 

6.7%

 

7.6%

 

6.7%

 

7.6%

 

6.7%

 

7.6%

 
 

% Growth - Constant Currency 2, 3

       

5.7%

 

6.6%

         

6.3%

 

7.3%

 
 

Operating margin

9.6%

 

9.7%

 

17.6%

 

17.6%

 

8.0%

 

8.1%

 

16.7%

 

16.7%

 
 

Earnings per share

$      0.71

 

$      0.74

 

$   2.44

 

$      2.47

 

$   0.45

 

$   0.48

 

$   2.37

 

$   2.40

 
 

EBITDA

19.5%

 

19.5%

 

26.9%

 

26.9%

 

18.7%

 

18.7%

 

25.9%

 

25.9%

 
 

Tax Rate

~31%

 

~31%

 

~23%

 

~23%

 

~33%

 

~33%

 

~21%

 

~21%

 
                                   

  1

Prior guidance reflects the range provided May 1, 2018. Current guidance reflects the range provided July 31, 2018.

 

  2

2017 has been recasted and presented based on our full retrospective method of adoption of ASC 606.

 

 3

Constant currency is a measure that adjusts US GAAP revenue for the impact of currency over the same period in the prior year.

 
                                   

 

  • Full-year 2018 revenue remains in the range of $1,095 million to $1,105 million reflecting reported growth of 6.7% to 7.6%, and growth in the range of 4.7% to 5.7%, exclusive of the SafePassage acquisition;
  • Non-GAAP diluted earnings per share in a range of $2.37 to $2.40 compared with the prior expectation of $2.44 to $2.47;
  • Non-GAAP operating profit margin of approximately 16.7% compared with the prior expectation of 17.6%;
  • Adjusted EBITDA margin of approximately 25.9% compared with the prior expectation of 26.9%;
  • Non-GAAP effective tax expense rate of approximately 21%, compared with the prior expectation of approximately 23%;
  • The Company expects currency to have a positive impact on revenue in 2018 of approximately $3 million compared with the prior expectation of $10 million; and
  • The Company expects to drive an adjusted EBITDA of approximately $283 million to $293 million.

The above guidance assumes a full-year benefit of U.S. tax reform, suspension of the medical device tax and the SafePassage acquisition. 

Supplementary Financial Information
For additional financial detail, please visit the Investor Relations section of the Company's website at www.nuvasive.com to access Supplementary Financial Information.

                       

Reconciliation of Full Year EPS Guidance

   

2017
Actuals1, 2

 

2018 Guidance Range

 
     

Prior1, 3, 4

 

Current  1, 3, 5

 
 

GAAP net income per share

$       1.48

 

$  0.71

 

$  0.74

 

$  0.45

 

$  0.48

 
 

Impact of change to diluted share count

0.08

 

0.01

 

0.01

 

-

 

-

 
 

GAAP net income per share, adjusted to diluted Non-GAAP share count

$       1.56

 

$  0.72

 

$  0.75

 

$  0.45

 

$  0.48

 
                       
 

Business transition costs 6

0.08

 

0.07

 

0.07

 

0.13

 

0.13

 
 

Non-cash purchase accounting adjustments on acquisitions 7

0.01

 

0.02

 

0.02

 

0.02

 

0.02

 
 

Non-cash interest expense on convertible notes

0.33

 

0.32

 

0.32

 

0.32

 

0.32

 
 

Litigation related expenses and settlements 8

0.09

 

0.55

 

0.55

 

0.60

 

0.60

 
 

Non-recurring consulting fees 9

-

 

0.12

 

0.12

 

0.13

 

0.13

 
 

Impairment of strategic investment

-

 

0.17

 

0.17

 

0.17

 

0.17

 
 

Amortization of intangible assets 10

0.89

 

0.89

 

0.89

 

0.95

 

0.95

 
 

Tax effect of adjustments 11

(1.08)

 

(0.42)

 

(0.42)

 

(0.40)

 

(0.40)

 
 

Non-GAAP earnings per share

$       1.89

 

$  2.44

 

$  2.47

 

$  2.37

 

$  2.40

 
                       
 

GAAP Weighted shares outstanding - basic

50,874

 

51,025

 

51,025

 

51,397

 

51,397

 
 

GAAP Weighted shares outstanding - diluted

55,193

 

52,647

 

52,647

 

52,131

 

52,131

 
 

Non-GAAP Weighted shares outstanding - diluted 12

52,345

 

52,185

 

52,185

 

52,131

 

52,131

 
                       

1

Items may not foot due to rounding.

 
     

2

2017 has been recasted and presented based on our full retrospective method of adoption of ASC 606 as well as for expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Company's intellectual property.

 
     

3

Prior guidance reflects the range provided May 1, 2018. Current guidance reflects the range provided July 31, 2018.

 
     

4

Effective tax expense rate of ~31% applied to GAAP earnings and ~23% applied to Non-GAAP earnings.

 
     

5

Effective tax expense rate of ~33% applied to GAAP earnings and ~21% applied to Non-GAAP earnings.

 
     

6

Costs related to acquisition, integration and business transition activities which include severance, relocation, consulting, leasehold exit costs, third party merger and acquisitions costs, contingent consideration fair value adjustments, and other costs directly associated with such activities.

 
     

7

Represents costs associated with non-cash purchase accounting adjustments, such as acquired inventory fair market value adjustments, which are amortized over the period in which underlying products are sold.

 
     

8

Related to the Medtronic litigation matter for fiscal year 2017. Represents the settlement loss in connection with the Madsen Medical, Inc. litigation matter as well as expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Company's intellectual property for fiscal year 2018.

 
     

9

Non-recurring consulting fees associated with the implementation of our state tax-planning strategy.

 
     

10

2017 results exclude the amortization associated with non-controlling interest.

 
     

11

The impact on results from taxes include tax effecting the adjustments above at the statutory rate as well as taking into account discrete items and including those discrete items in the annual effective tax rate calculation. The Company also includes those adjustments that would have benefited the tax rate in lieu of the above adjustments as part of the Company's tax filings. The impact of the changes to the tax rate results in an annual estimated rate of ~33% on a GAAP basis and ~21% on a non-GAAP basis.

 
     

12

Adjusted non-GAAP diluted WASO excludes the impact of dilutive convertible notes and warrants for which the Company is economically hedged through its anti-dilutive bond hedge arrangements.

 
                       

 

 

 

Reconciliation of Non-GAAP Operating Margin %

                   
         

2018 Guidance2, 3

   
 

(in thousands, except %)

 

2017
Actuals 1, 2

 

Prior

 

Current

   
 

Non-GAAP Gross Margin %[A]

 

73.9%

 

73.5%

 

72.6%

   
 

Non-cash purchase accounting adjustments on acquisitions 4

 

(0.1%)

 

(0.1%)

 

(0.1%)

   
 

GAAP Gross Margin [B]

 

73.9%

 

73.4%

 

72.5%

   
                   
 

Non-GAAP Sales, Marketing & Administrative Expense [C]

 

52.5%

 

50.6%

 

50.6%

   
 

Non-recurring consulting fees5

 

0.0%

 

0.6%

 

0.6%

   
 

GAAP Sales, Marketing & Administrative Expense [D]

 

52.5%

 

51.2%

 

51.2%

   
                   
 

Non-GAAP Research & Development Expense [E]

 

4.9%

 

5.3%

 

5.3%

   
 

In-process research & development

 

0.0%

 

0.0%

 

0.0%

   
 

GAAP Research & Development Expense [F]

 

4.9%

 

5.3%

 

5.3%

   
                   
 

Litigation related expenses and settlements [G] 6

 

0.5%

 

2.6%

 

2.9%

   
 

Amortization of intangible assets [H] 7

 

4.7%

 

4.3%

 

4.5%

   
 

Business transition costs [I] 8

 

0.5%

 

0.4%

 

0.6%

   
                   
 

Non-GAAP Operating Margin % [A - C - E]

 

16.5%

 

17.6%

 

16.7%

   
                   
 

GAAP Operating Margin % [B - D - F - G - H - I]

 

10.9%

 

9.6%

 

8.0%

   
                   

1

2017 has been recasted and presented based on our full retrospective method of adoption of ASC 606 as well as for expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Company's intellectual property.

   
       

2

Items may not foot due to rounding.

   
       

  3

Prior guidance reflects the range provided May 1, 2018. Current guidance reflects the range provided July 31, 2018.

   
       

  4

Represents costs associated with non-cash purchase accounting adjustments, such as acquired inventory fair market value adjustments, which are amortized over the period in which underlying products are sold.

   
       

  5

Non-recurring consulting fees associated with the implementation of our state tax-planning strategy.

   
       

  6

Related to the Medtronic litigation matter, settlement loss in connection with the Madsen Medical, Inc. litigation matter as well as expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Company's intellectual property.

   
       

  7

For fiscal year 2017 amortization includes the amortization attributable to non-controlling interest. In January 2018, the Company completed the acquisition of the non-controlling interest.

   
       

  8

Costs related to acquisition, integration and business transition activities which include severance, relocation, consulting, leasehold exit costs, third party merger and acquisitions costs, contingent consideration fair value adjustments, and other costs directly associated with such activities.

   
       
                   

 

 

                 

Reconciliation of EBITDA %

                 
                 
       

2018 Guidance2, 3

   
 

(in thousands, except %)

2017
Actuals 1, 2

 

Prior

 

Current

   
 

Net Income / (Loss)

7.9%

 

3.4%

 

2.2%

   
 

Interest (income) / expense, net 

3.7%

 

3.6%

 

3.5%

   
 

Provision for income taxes

(0.7%)

 

1.6%

 

1.1%

   
 

Depreciation and amortization 4

11.7%

 

10.9%

 

11.5%

   
 

EBITDA

22.6%

 

19.5%

 

18.3%

   
 

Non-cash stock based compensation

2.2%

 

3.0%

 

2.6%

   
 

Business transition costs 5

0.4%

 

0.3%

 

0.6%

   
 

Non-cash purchase accounting adjustments on acquisitions 6

0.1%

 

0.1%

 

0.1%

   
 

Litigation related expenses and settlements 7

0.5%

 

2.6%

 

2.9%

   
 

Non-recurring consulting fees 8

0.0%

 

0.6%

 

0.6%

   
 

Impairment of strategic investment

0.0%

 

0.8%

 

0.8%

   
 

Adjusted EBITDA

25.7%

 

26.9%

 

25.9%

   
                 

1

2017 has been recasted and presented based on our full retrospective method of adoption of ASC 606 as well as for expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Company's intellectual property.

   

2

Items may not foot due to rounding.

             
                 

3

Prior guidance reflects the range provided May 1, 2018. Current guidance reflects the range provided July 31, 2018.

   

4

2017 results exclude the amortization associated with non-controlling interest.

   
       

5

Costs related to acquisition, integration and business transition activities which include severance, relocation, consulting, leasehold exit costs, third party merger and acquisitions costs, contingent consideration fair value adjustments, and other costs directly associated with such activities.

   
       

6

Represents costs associated with non-cash purchase accounting adjustments, such as acquired inventory fair market value adjustments, which are amortized over the period in which underlying products are sold.

   
       

7

Related to the Medtronic litigation matter, settlement loss in connection with the Madsen Medical, Inc. litigation matter as well as expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Company's intellectual property.

 
     

8

Non-recurring consulting fees associated with the implementation of our state tax-planning strategy.

   
       
                 

Reconciliation of Non-GAAP Information
Management uses certain non-GAAP financial measures such as non-GAAP earnings per share, non-GAAP net income, non-GAAP operating expenses and non-GAAP operating profit margin, which exclude amortization of intangible assets, business transition costs, one-time restructuring and related items in connection with acquisitions, investments and divestitures, non-recurring consulting fees, certain litigation expenses and settlements, and non-cash interest expense (excluding debt issuance cost) and or losses on convertible notes. Management also uses certain non-GAAP measures which are intended to exclude the impact of foreign exchange currency fluctuations. The measure constant currency is the use of an exchange rate that eliminates fluctuations when calculating financial performance numbers. The Company also uses measures such as free cash flow, which represents cash flow from operations less cash used in the acquisition and disposition of capital. Additionally, the Company uses an adjusted EBITDA measure which represents earnings before interest, taxes, depreciation and amortization and excludes the impact of stock-based compensation, business transition costs, one-time restructuring and related items in connection with acquisitions, investments and divestitures, non-recurring consulting fees, certain litigation expenses and settlements, and other significant one-time items.

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 further and more consistently analyze the period-to-period financial performance of its core business operations. Management believes that providing investors with these non-GAAP measures gives them additional 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.

During the quarter ended June 30, 2018, the Company began excluding from its non-GAAP financial results certain litigation related expenses, in addition to litigation charges associated with significant legal settlements. As previously disclosed, the Company is pursuing various legal claims against a former member of the Company's Board of Directors for violations of his contractual obligations to the Company and breach of his fiduciary duties. The Company has also filed lawsuits against his current employer for tort claims and intellectual property infringement. The Company began excluding litigation expenses associated with these and related legal matters in the quarter ended June 30, 2018. Expenses for these legal matters significantly increased during the quarter ended June 30, 2018, and based on developments in these legal matters, expenses are expected to be significant throughout 2018. The Company believes that these litigation expenses are unusual in nature and not reflective of the Company's normal course of business or the financial performance of the Company's core business operations. These expenses are included in the line item "Litigation related expenses and settlements" in the non-GAAP reconciliations below. For consistency and comparability, the Company has re-casted its non-GAAP financial results for each of the quarters ended December 31, 2017 and March 31, 2018 to exclude these litigation expenses in such periods, which were $0.4 million and $0.6 million, respectively.

 

For the Three Months Ended June 30, 2018

 
 

Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures

 
 

(Unaudited - in thousands, except per share data)

 
                 
   

Gross Profit

Operating
Profit

Net Income 

Diluted EPS

Diluted WASO

Net Income to
Adjusted EBITDA

 
 

Reported GAAP

$      204,508

$    28,563

$      11,531

$           0.22

51,956

$                  11,531

 
                 
 

% of revenue

72.6%

10.1%

         
                 
 

Non-cash purchase accounting adjustments on acquisitions 1

405

405

405

   

405

 
                 
 

Amortization of intangible assets

 

12,628

12,628

       
                 
 

Litigation related expenses and settlements 2

 

383

383

   

383

 
                 
 

Business transition costs3

 

3,998

3,998

   

3,998

 
                 
 

Non-cash interest expense on convertible notes

   

4,153

       
                 
 

Tax effect of adjustments 4

   

(2,775)

       
                 
 

Interest expense/(income), net

         

9,840

 
                 
 

Income tax expense

         

4,813

 
                 
 

Depreciation and amortization

         

32,061

 
                 
 

Non-cash stock based compensation

         

6,860

 
                 
 

Adjusted Non-GAAP

$      204,913

$    45,977

$      30,323

$           0.58

51,956

$                  69,891

 
                 
 

% of revenue

72.8%

16.3%

     

24.8%

 
                 

1

Represents costs associated with non-cash purchase accounting adjustments, such as acquired inventory fair market value adjustments, which are amortized over the period in which underlying products are sold.

 
     

2

Represents the change in the estimated loss contingency recorded in connection with the settlement of the Madsen Medical, Inc. litigation matter, as well as expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Company's intellectual property.

 
     

3

Costs related to acquisition, integration and business transition activities which include severance, relocation, consulting, leasehold exit costs, third party merger and acquisitions costs, contingent consideration fair value adjustments, and other costs directly associated with such activities.

 
     

4

The impact on results from taxes include tax effecting the adjustments above at the statutory rate as well as taking into account discrete items and including those discrete items in the annual effective tax rate calculation. The Company also includes those adjustments that would have benefited the tax rate in lieu of the above adjustments as part of the Company's tax filings. The impact of the changes to the tax rate results in an annual estimated rate of ~32.6% on a GAAP basis and ~21.0% on a non-GAAP basis.

 

 

 

For the Six Months Ended June 30, 2018

 
 

Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures

 
 

(Unaudited - in thousands, except per share data)

 
                 
   

Gross Profit

Operating
Profit

Net (Loss)
Income

Diluted EPS

Diluted WASO 6

Net Loss to
Adjusted EBITDA

 
 

Reported GAAP

$      391,216

$    10,341

$    (15,601)

$          (0.30)

51,292

$                (15,601)

 
                 
 

% of revenue

72.2%

1.9%

         
                 
 

Non-cash purchase accounting adjustments on acquisitions 1

810

810

810

   

810

 
                 
 

Non-recurring consulting fees 2

 

6,084

6,084

   

6,084

 
                 
 

Amortization of intangible assets

 

25,053

25,053

       
                 
 

Litigation related expenses and settlements 3

 

29,969

29,969

   

29,969

 
                 
 

Business transition costs4

 

6,251

6,251

   

6,251

 
                 
 

Non-cash interest expense on convertible notes

   

8,252

       
                 
 

Impairment of strategic investment

   

9,004

   

9,004

 
                 
 

Tax effect of adjustments 5

   

(18,884)

       
                 
 

Interest expense/(income), net

         

19,173

 
                 
 

Income tax benefit

         

(5,313)

 
                 
 

Depreciation and amortization

         

64,151

 
                 
 

Non-cash stock based compensation

         

10,994

 
                 
 

Adjusted Non-GAAP

$      392,026

$    78,508

$      50,938

$           0.98

51,849

$                125,522

 
                 
 

% of revenue

72.3%

14.5%

     

23.2%

 
                 
                 

1

Represents costs associated with non-cash purchase accounting adjustments, such as acquired inventory fair market value adjustments, which are amortized over the period in which underlying products are sold.

 
     

2

Non-recurring consulting fees associated with the implementation of our state tax-planning strategy.

 
     

3

Represents the loss recorded in connection with the settlement of the Madsen Medical, Inc. litigation matter, as well as expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Company's intellectual property.

 
     

4

Costs related to acquisition, integration and business transition activities which include severance, relocation, consulting, leasehold exit costs, third party merger and acquisitions costs, contingent consideration fair value adjustments, and other costs directly associated with such activities.

 
     

5

The impact on results from taxes include tax effecting the adjustments above at the statutory rate as well as taking into account discrete items and including those discrete items in the annual effective tax rate calculation. The Company also includes those adjustments that would have benefited the tax rate in lieu of the above adjustments as part of the Company's tax filings. The impact of the changes to the tax rate results in an annual estimated rate of ~32.6% on a GAAP basis and ~21.0% on a non-GAAP basis.

 
     

6

The Company had a GAAP net loss for the six months ended June 30, 2018, and therefore the loss per share was calculated using the basic weighted average shares outstanding. The non-GAAP earnings per share for the six months ending June 30, 2018 was calculated using the diluted weighted average shares outstanding.

 

 

 

For the Three Months Ended June 30, 2017

 
 

Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures

 
 

(Unaudited - in thousands, except per share data)

 
                 
   

Gross Profit

Operating
Profit

Net Income

Diluted EPS

Diluted WASO 5

Net Income to
Adjusted EBITDA

 
 

Reported GAAP1

$      193,213

$    28,956

$      12,167

$           0.21

58,330

$                  12,167

 
                 
 

% of revenue

74.5%

11.2%

         
                 
 

Amortization of intangible assets 2

 

11,349

11,028

       
                 
 

Business transition costs 3

 

1,369

1,369

   

1,369

 
                 
 

Non-cash interest expense on convertible notes

   

4,665

       
                 
 

Tax effect of adjustments 4

   

(5,664)

       
                 
 

Interest expense/(income), net

         

9,944

 
                 
 

Income tax expense

         

6,776

 
                 
 

Depreciation and amortization 2

         

28,856

 
                 
 

Non-cash stock based compensation

         

8,394

 
                 
 

Adjusted Non-GAAP

$      193,213

$    41,674

$      23,565

$           0.45

52,743

$                  67,506

 
                 
 

% of revenue

74.5%

16.1%

     

26.0%

 
                 

1

Reported GAAP figures for 2017 have been recasted and presented based on the full retrospective method of adoption of ASC 606.

 
     

2

When reconciling from reported GAAP net income, the adjustment for amortization of intangible assets excludes the amortization associated with non-controlling interest. In January 2018, the Company completed the acquisition of the non-controlling interest.

 
     

3

Costs related to acquisition, integration and business transition activities which include severance, relocation, consulting, leasehold exit costs, third party merger and acquisitions costs, contingent consideration fair value adjustments, and other costs directly associated with such activities.

 
     

4

The impact on results from taxes include tax effecting the adjustments above at the statutory rate as well as taking into account discrete items and including those discrete items in the annual effective tax rate calculation. The Company also includes those adjustments that would have benefited the tax rate in lieu of the above adjustments as part of the Company's tax filings. The impact of the changes to the tax rate results in an annual estimated rate of ~32.7% benefit on a GAAP basis and ~35.0% on a non-GAAP basis.

 
     

5

Adjusted non-GAAP diluted WASO excludes the impact of dilutive convertible notes and warrants for which the Company is economically hedged through its anti-dilutive bond hedge arrangements.

 

 

 

For the Six Months Ended June 30, 2017

 
 

Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures

 
 

(Unaudited - in thousands, except per share data)

 
                 
   

Gross Profit

Operating
Profit

Net Income

Diluted EPS

Diluted WASO 5

Net Income to
Adjusted EBITDA

 
 

Reported GAAP1

$      380,783

$    51,628

$      24,593

$           0.42

58,059

$                  24,593

 
                 
 

% of revenue

74.9%

10.2%

         
                 
 

Amortization of intangible assets 2

 

23,410

22,766

       
                 
 

Business transition costs 3

 

1,424

1,424

   

1,424

 
                 
 

Non-cash interest expense on convertible notes

   

9,264

       
                 
 

Tax effect of adjustments 4

   

(14,790)

       
                 
 

Interest expense/(income), net

         

19,606

 
                 
 

Income tax expense

         

8,061

 
                 
 

Depreciation and amortization 2

         

58,014

 
                 
 

Non-cash stock based compensation

         

15,411

 
                 
 

Adjusted Non-GAAP

$      380,783

$    76,462

$      43,257

$           0.82

52,713

$                127,109

 
                 
 

% of revenue

74.9%

15.0%

     

25.0%

 
                 

1

Reported GAAP figures for 2017 have been recasted and presented based on the full retrospective method of adoption of ASC 606.

 
     

2

When reconciling from reported GAAP net income, the adjustment for amortization of intangible assets excludes the amortization associated with non-controlling interest. In January 2018, the Company completed the acquisition of the non-controlling interest.

 
     

3

Costs related to acquisition, integration and business transition activities which include severance, relocation, consulting, leasehold exit costs, third party merger and acquisitions costs, contingent consideration fair value adjustments, and other costs directly associated with such activities.

 
     

4

The impact on results from taxes include tax effecting the adjustments above at the statutory rate as well as taking into account discrete items and including those discrete items in the annual effective tax rate calculation. The Company also includes those adjustments that would have benefited the tax rate in lieu of the above adjustments as part of the Company's tax filings. The impact of the changes to the tax rate results in an annual estimated rate of ~32.7% benefit on a GAAP basis and ~35.0% on a non-GAAP basis.

 
     

5

Adjusted non-GAAP diluted WASO excludes the impact of dilutive convertible notes and warrants for which the Company is economically hedged through its anti-dilutive bond hedge arrangements.

 

Investor Conference Call
NuVasive will hold a conference call today at 4:30 p.m. ET / 1:30 p.m. PT to discuss the results of its financial performance for the second quarter 2018. 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 website at www.nuvasive.com. After the live webcast, the call will remain available on NuVasive's website through August 28, 2018. In addition, a telephone replay of the call will be available until August 7, 2018. The replay dial-in numbers are 1-844-512-2921 for domestic callers and 1-412-317-6671 for international callers. Please use pin number: 13681479.

About NuVasive
NuVasive, Inc. (NASDAQ: NUVA) is the leader in spine technology innovation, focused on transforming spine surgery and beyond with minimally disruptive, procedurally-integrated solutions designed to deliver reproducible and clinically-proven surgical outcomes. The Company's portfolio includes access instruments, implantable hardware, biologics, software systems for surgical planning, navigation and imaging solutions, magnetically adjustable implant systems for spine and orthopedics, and intraoperative monitoring service offerings. With over $1 billion in revenues, NuVasive has an approximate 2,400 person workforce in more than 40 countries serving surgeons, hospitals and patients. For more information, please visit www.nuvasive.com.

Forward-Looking Statements
NuVasive cautions you that statements included in this news release or made on the investor conference call referenced herein 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. In addition, this news release contains selected financial results from the second quarter 2018, as well as projections for 2018 financial guidance and longer-term financial performance goals. The Company's results for the second quarter 2018 are prior to the completion of review and audit procedures by the Company's external auditors and are subject to adjustment. In addition, the Company's projections for 2018 financial guidance and longer-term financial performance goals represent initial estimates, and are subject to the risk of being inaccurate because of the preliminary nature of the forecasts, the risk of further adjustment, or unanticipated difficulty in selling products or generating expected profitability. The potential risks and uncertainties which contribute to the uncertain nature of these statements include, among others, risks associated with acceptance of the Company's surgical products and procedures by spine surgeons, spine surgeons, development and acceptance of new products or product enhancements, clinical and statistical verification of the benefits achieved via the use of NuVasive's products (including the iGA™ platform), the Company's ability to effectually manage inventory as it continues to release new products, its ability to recruit and retain management and key personnel, and the other risks and uncertainties more fully described in the Company's news 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. 

Consolidated Statements of Operations 

(in thousands, except per share data)

                 
   

Three Months Ended June 30,

 

Six Months Ended June 30,

(unaudited)

 

2018

 

2017

 

2018

 

2017

Revenue

               

Product revenue

 

$ 252,687

 

$ 237,824

 

$ 486,202

 

$ 462,779

Service revenue

 

28,877

 

21,575

 

55,884

 

45,633

Total revenue

 

281,564

 

259,399

 

542,086

 

508,412

Cost of revenue (excluding below amortization of intangible assets)

               

Cost of products sold 

 

58,202

 

50,535

 

113,393

 

96,436

Cost of services

 

18,854

 

15,651

 

37,477

 

31,193

Total cost of revenue

 

77,056

 

66,186

 

150,870

 

127,629

Gross profit

 

204,508

 

193,213

 

391,216

 

380,783

Operating expenses:

               

Sales, marketing and administrative

 

145,658

 

138,967

 

292,424

 

279,335

Research and development

 

14,856

 

12,572

 

29,347

 

24,986

Amortization of intangible assets

 

12,628

 

11,349

 

25,053

 

23,410

Litigation liability (gain) loss

 

(1,195)

 

 

27,800

 

Business transition costs

 

3,998

 

1,369

 

6,251

 

1,424

Total operating expenses

 

175,945

 

164,257

 

380,875

 

329,155

Interest and other expense, net:

               

Interest income

 

116

 

139

 

250

 

276

Interest expense

 

(9,956)

 

(10,083)

 

(19,423)

 

(19,882)

Other expense, net

 

(2,379)

 

(501)

 

(12,082)

 

(243)

Total interest and other expense, net

 

(12,219)

 

(10,445)

 

(31,255)

 

(19,849)

Income (loss) before income taxes

 

16,344

 

18,511

 

(20,914)

 

31,779

Income tax (expense) benefit

 

(4,813)

 

(6,776)

 

5,313

 

(8,061)

Consolidated net income (loss)

 

$   11,531

 

$   11,735

 

$ (15,601)

 

$   23,718

Add back net loss attributable to non-controlling interest

 

$          —

 

$      (432)

 

$          —

 

$      (875)

Net income (loss) attributable to NuVasive, Inc.

 

$   11,531

 

$   12,167

 

$ (15,601)

 

$   24,593

                 

Net income (loss) per share attributable to NuVasive, Inc.:

               

Basic

 

$       0.22

 

$       0.24

 

$     (0.30)

 

$       0.48

Diluted

 

$       0.22

 

$       0.21

 

$     (0.30)

 

$       0.42

Weighted average shares outstanding:

               

Basic

 

51,356

 

51,082

 

51,292

 

50,825

Diluted

 

51,956

 

58,330

 

51,292

 

58,059

 

 

NuVasive, Inc. 

Consolidated Balance Sheets 

(in thousands, except par values and share amounts) 

         
   

June 30, 2018

 

December 31, 2017

ASSETS

 

(Unaudited)

   

Current assets:

       

Cash and cash equivalents

 

$                    70,078

 

$                  72,803

Restricted cash and investments

 

 

3,901

Accounts receivable, net of allowances of $16,782 and $13,026, respectively

 

199,907

 

200,220

Inventory, net

 

259,819

 

247,138

Prepaid income taxes

 

18,187

 

17,209

Prepaid expenses and other current assets

 

23,588

 

18,792

Total current assets

 

571,579

 

560,063

Property and equipment, net

 

231,733

 

215,326

Intangible assets, net

 

276,318

 

280,774

Goodwill

 

560,751

 

536,926

Deferred tax assets

 

4,955

 

6,440

Restricted cash and investments

 

2,394

 

1,494

Other assets

 

24,607

 

39,117

Total assets

 

$               1,672,337

 

$             1,640,140

LIABILITIES AND EQUITY

       

Current liabilities:

       

Accounts payable and accrued liabilities

 

89,534

 

$                  75,767

Contingent consideration liabilities

 

12,214

 

18,952

Accrued payroll and related expenses

 

51,128

 

55,618

Litigation liabilities

 

10,300

 

8,150

Short-term borrowings

 

37,000

 

Income tax liabilities

 

3,825

 

2,908

Total current liabilities

 

204,001

 

161,395

Long-term senior convertible notes

 

592,581

 

582,920

Deferred and income tax liabilities, non-current

 

9,525

 

18,870

Other long-term liabilities

 

85,067

 

77,539

Commitments and contingencies

       

Stockholders' equity:

       

Preferred stock, $0.001 par value; 5,000,000 shares authorized, none outstanding

 

 

Common stock, $0.001 par value; 120,000,000 shares authorized at June 30, 2018 and December 31, 2017, 56,511,851and 56,164,060 issued and outstanding at June 30, 2018 and December 31, 2017, respectively

 

61

 

60

Additional paid-in capital

 

1,371,436

 

1,363,549

Accumulated other comprehensive loss

 

(8,875)

 

(6,933)

(Accumulated deficit) retained earnings

 

(10,839)

 

4,762

Treasury stock at cost; 5,095,290shares and 5,001,886 shares at June 30, 2018 and December 31, 2017, respectively

 

(570,620)

 

(565,867)

Total NuVasive, Inc. stockholders' equity

 

781,163

 

795,571

Non-controlling interest

 

 

3,845

Total equity

 

781,163

 

799,416

Total liabilities and equity

 

$               1,672,337

 

$             1,640,140

 

 

NuVasive, Inc. 

Consolidated Statements of Cash Flows 

(in thousands) 

         
   

Six Months Ended June 30,

(unaudited)

 

2018

 

2017

Operating activities:

       

Consolidated net (loss) income

 

$ (15,601)

 

$   23,718

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

       

Depreciation and amortization

 

64,151

 

58,688

Impairment of strategic investment

 

9,004

 

Amortization of non-cash interest

 

9,920

 

10,882

Stock-based compensation

 

10,994

 

15,411

Reserves on current assets

 

9,444

 

64

Other non-cash adjustments

 

12,133

 

7,380

Deferred income taxes

 

(6,593)

 

(3,077)

Changes in operating assets and liabilities, net of effects from acquisitions:

       

Accounts receivable

 

852

 

(15,823)

Inventory

 

(19,615)

 

(29,417)

Contingent consideration liabilities

 

(100)

 

(11,200)

Prepaid expenses and other current assets

 

(2,141)

 

(2,543)

Accounts payable and accrued liabilities

 

9,031

 

4,868

Accrued payroll and related expenses

 

(6,358)

 

(2,059)

Litigation liability

 

2,150

 

Income taxes

 

(53)

 

10,172

Net cash provided by operating activities

 

77,218

 

67,064

Investing activities:

       

Acquisitions and investments

 

(52,081)

 

(14,417)

Purchases of intangible assets

 

(7,682)

 

(1,695)

Purchases of property and equipment

 

(53,388)

 

(68,690)

Net cash used in investing activities

 

(113,151)

 

(84,802)

Financing activities:

       

Proceeds from the issuance of common stock

 

5,312

 

5,369

Purchase of treasury stock

 

(2,222)

 

(10,844)

Payment of contingent consideration

 

(8,900)

 

(18,800)

Proceeds from revolving line of credit

 

82,000

 

20,000

Repayments on revolving line of credit

 

(45,000)

 

Other financing activities

 

(146)

 

(2,205)

Net cash provided by (used in) financing activities

 

31,044

 

(6,480)

Effect of exchange rate changes on cash

 

(837)

 

1,449

Decrease in cash, cash equivalents, restricted cash and investments

 

(5,726)

 

(22,769)

Cash, cash equivalents, restricted cash and investments at beginning of period

 

78,198

 

161,048

Cash, cash equivalents, restricted cash and investments at end of period

 

$  72,472

 

$ 138,279

    

 

 

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SOURCE NuVasive, Inc.

Investor Contact: Suzanne Hatcher, NuVasive, Inc., 858-458-2240, investorrelations@nuvasive.com; Media Contact: Scott Nyberg, NuVasive, Inc., 858-275-6031, media@nuvasive.com