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 Reports Second Quarter 2006 Revenue of $22.7 Million

- Increases Revenue Guidance to $90 Million to $92 Million -

Second Quarter 2006 Highlights:

- Total revenues increased to $22.7 million; up 49.5% from the second quarter of 2005

- Gross profit increased to $17.6 million; up 46.7% from the second quarter of 2005

- Gross margin was 77.6% on a GAAP basis and 81.8% on a non-GAAP basis

- Achieved sales force exclusivity, completing sales force transition ahead of stated guidance

- Surgeons trained on MAS(TM) Platform was 151, up from 132 in the first quarter of 2006

- Received conditional approval for an IDE to begin clinical trial enrollment for NeoDisc(TM)

- Percentage of vertically integrated hospitals increased to 33% from 31% at March 31, 2006

- Acquired a 100,000 square foot distribution facility in Memphis, Tennessee

SAN DIEGO, July 27 /PRNewswire-FirstCall/ -- NuVasive, Inc. (Nasdaq: NUVA), a medical device company focused on developing products for minimally disruptive surgical treatments for the spine, announced today second quarter financial results for the period ended June 30, 2006.

The Company reported second quarter revenues of $22.7 million, a 49.5% increase over the $15.2 million for the second quarter of 2005 and a 15.4% increase over the $19.7 million for the first quarter of 2006.

Gross profit, on a GAAP basis, for the second quarter of 2006 was $17.6 million with a gross margin of 77.6%, compared with a gross profit of $12.0 million with a gross margin of 79.1% in the second quarter of 2005. For the first quarter of 2006, gross profit was $15.8 million with a gross margin of 80.3%. On a non-GAAP basis, the gross margin for the second quarter of 2006 was 81.8%. Non-GAAP gross margin in the second quarter of 2006 excludes (i) a total charge of $0.9 million related to inventory and instruments rendered obsolete as a result of the planned 2006 product introductions and enhancements and the related significant instrument redesign; and (ii) amortization of acquired intangible assets of $0.1 million.

Total operating expenses for the second quarter of 2006 were $37.9 million, compared with $16.5 million in the second quarter of 2005 and $25.0 million in the first quarter of 2006. The quarter-over-quarter and year-over- year increases are due primarily to (i) the NeoDisc milestone payment of $10.5 million resulting from the conditional approval of our Investigational Device Exemption (IDE) application; (ii) the inclusion of compensation expense related to employee stock options; (iii) additional sales and marketing expenses to support revenue growth and expenses related to the Company's program to transition its sales force toward exclusivity; and (iv) continued investment in the Company's next generation MAS products and accelerated surgeon and sales representative training.

On a GAAP basis for the three-month period ended June 30, 2006, the Company reported a net loss of $18.5 million or $0.56 per share. On a non-GAAP basis, the second quarter net loss was $3.7 million, or $0.11 per share. The non-GAAP net loss calculation in the second quarter of 2006 excludes (i) the charges described above for the obsolete assets and amortization of acquired intangible assets; (ii) the NeoDisc milestone charge of $10.5 million; and (iii) stock-based compensation of $3.2 million.

Cash, cash equivalents and short-term investments were $143.5 million at June 30, 2006.

In early June 2006, NuVasive announced the completion of its transition to sales force exclusivity. NuVasive achieved this milestone ahead of its stated guidance for completing the transition by the end of the second quarter of 2006. This exclusive sales force is comprised of Area Business Managers (ABMs) and exclusive distributors. ABMs are NuVasive shareowners (employees) responsible for a defined geography and the management of additional sales personnel. Exclusive distributors are independent contractors who also cover a defined geography and exclusively represent NuVasive's spine surgery products. As of June 30, 2006, the exclusive sales force totaled approximately 175 sales professionals.

Also in June 2006, NuVasive announced that it received conditional approval for an IDE from the U.S. Food and Drug Administration (FDA) to begin clinical trial enrollment of its NeoDisc cervical disc replacement device. NeoDisc is designed to treat patients early in the degenerative cascade, prior to a fusion procedure, and to be imaging friendly (radiolucent) and fully revisable. It is designed to replace a degenerative cervical disc nucleus, partial annulus and anterior longitudinal ligament, while maintaining range of motion and leaving the natural vertebral endplates intact. NuVasive anticipates enrolling the initial patients in the clinical study by the fourth quarter of 2006.

Alexis V. Lukianov, Chairman and Chief Executive Officer, said, "Our second quarter results clearly demonstrate the success of our key strategic initiatives, which include a strengthened and exclusive sales force, spine surgeon training and vertical integration. We continue to see robust spine surgeon demand for our unique XLIF procedure, with 151 surgeons trained during the quarter. As surgeon adoption of the lateral approach grows, we are particularly excited about the additional indications for XLIF in adult degenerative scoliosis cases as well as lateral motion preservation opportunities. Our exclusive sales force has shown early signs of deepening the penetration of our innovative products in the market. Their efforts have expanded vertically integrated hospitals to 33% for the second quarter, well on track to meet our stated guidance of 35% to 38% by the end of 2006. We define a vertically integrated hospital as one using at least one product from each of our MAS platform product lines of NeuroVision, MaXcess and specialized implants."

Mr. Lukianov added, "It is clear that the future of minimally invasive cervical spine surgery lies with both fusion and the ability to relieve pain while preserving motion and minimizing stress to adjacent discs. We achieved a significant milestone in our cervical motion preservation strategy during the quarter with the receipt of a conditional IDE approval to begin clinical trials for the NeoDisc. We are optimistic about the prospects for NeoDisc and will focus significant efforts on this project. For our planned international expansion in 2007, we intend to seek commercialization of our cervical suite of NeoDisc, our Gradient Plus(TM) cervical plating system, and our Cerpass cervical TDR investigational device, along with our lateral lumbar TDR investigational device. We anticipate filing for an IDE for our lateral approach lumbar TDR in 2007."

Guidance

For the full year 2006, the Company is increasing its revenue guidance to be in the range of $90 million to $92 million with break-even, on a non-GAAP basis, taking place in the fourth quarter. For the second half of the year, the gross margin level of 81% is sustainable and we anticipate total surgeons trained for the full year will be approximately 450 - 475.

Non-GAAP Information

Management uses certain non-GAAP financial measures, such as non-GAAP gross profit, non-GAAP operating expenses, non-GAAP net loss and non-GAAP net loss per share, which exclude the following charges: (i) stock based compensation; (ii) charges directly related to acquisition transactions such as in-process research and development, milestone payments, amortization of the acquired technology assets and certain other non-recurring internal costs incurred as a result of the transaction; and (iii) certain other amounts related to non-recurring events (such as our obsolescence charges in the second quarter of 2006). Management does not consider these costs in evaluating the continuing operations of the Company because management believes they are not indicative of the ongoing business operations. 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 a 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.

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 (877) 407-4018 for domestic callers and (201) 689-8471 for international. A live Web cast of the conference call will be available online from the investor relations page of the Company's corporate Web site at http://www.nuvasive.com.

After the live Web cast, the call will remain available on NuVasive's Web site, http://www.nuvasive.com, through August 27, 2006. In addition, a telephonic replay of the call will be available until August 17, 2006. The replay dial-in numbers are (877) 660-6853 for domestic callers and (201) 612-7415 for international callers. Please use account number 3055 and conference ID number 207790.

About NuVasive

NuVasive is a medical device company focused on the design, development and marketing of products for the surgical treatment of spine disorders. The Company's product portfolio is focused on applications in the over $2.9 billion U.S. spine fusion market. The Company's current principal product offering includes a minimally disruptive surgical platform called Maximum Access Surgery, or MAS, as well as classic fusion implants.

The MAS platform offers advantages for both patients and surgeons such as reduced surgery and hospitalization time and faster recovery. MAS combines three categories of current product offerings-NeuroVision(R), a proprietary software-driven nerve avoidance system; MaXcess(R), a unique split-blade design retraction system; and specialized implants, like SpheRx(R) and CoRoent(R)-that collectively minimize soft tissue disruption during spine surgery while allowing maximum visualization and surgical reproducibility. NuVasive's classic fusion portfolio is comprised predominantly of cervical fixation products and proprietary saline packaged bone allografts. NuVasive also has a robust R&D pipeline emphasizing both MAS and motion preservation products such as Total Disc Replacement (TDR).

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 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 or investigational devices (including NeoDisc and Cerpass) 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 June 30, 2006
                                                                      Non-GAAP
                                         GAAP Basis   Adjustments      Basis

    Revenue                                $22,724     $  -           $22,724
    Cost of goods sold                       5,087     (952) B/E        4,135

    Gross profit                            17,637      952            18,589

    Operating expenses:
        Sales, marketing and
         administrative                     23,270   (2,616) A/C       20,654
        Research and development             4,174     (741) A          3,433
        Development milestone expense       10,500  (10,500) D              -
           Total operating expenses         37,944  (13,857)           24,087
    Interest and other income (expense),
     net                                     1,837        -             1,837
    Net loss                              $(18,470) $14,809           $(3,661)

    Historical net loss per share:
        Basic and diluted                   $(0.56)                    $(0.11)
        Weighted average shares- basic
         and diluted                        33,113                     33,113


                                           Three Months Ended June 30, 2005
                                                                      Non-GAAP
                                         GAAP Basis   Adjustments      Basis

    Revenue                               $15,204     $ -            $15,204
    Cost of goods sold                      3,178    (497) F           2,681

    Gross profit                           12,026     497             12,523

    Operating expenses:
        Sales, marketing and
         administrative                    13,578    (861) A/C/G      12,717
        Research and development            2,903    (451) A           2,452
        Development milestone expense           -       -                  -
           Total operating expenses        16,481  (1,312)            15,169
    Interest and other income (expense),
     net                                      345       -                345
    Net loss                              $(4,110) $1,809            $(2,301)

    Historical net loss per share:
        Basic and diluted                  $(0.17)                    $(0.10)
        Weighted average shares- basic
         and diluted                       24,090                     24,090


    A - Elimination of non-cash stock-based compensation.
    B - Amortization of the increase in the fair value on the date of
        acquisition of inventory acquired from RSB Spine.
    C - Amortization of technology assets purchased from RSB Spine and
        Riverbend.
    D - Development milestone payment in connection with conditional approval
        of NeoDisc IDE.
    E - Reserve for assets to be retired in connection with planned 2006
         product introductions and enhancements.
    F - Write-off of investments in fixed assets and inventory related to the
        initial alpha/beta testing of the Company's own cervical plate under
        development. These were written-off as a result of the RSV Spine
        acquisition.
    G - Due diligence costs associated with an abandoned technology
        acquisition and legal costs related to specific and unusual matters
        that are not expected to be ongoing.



                                  NUVASIVE, INC.
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)

                                            Six Months Ended June 30, 2006
                                                                      Non-GAAP
                                         GAAP Basis   Adjustments      Basis

    Revenue                                $42,409     $  -           $42,409
    Cost of goods sold                       8,967   (1,051) B/E        7,916

    Gross profit                            33,442    1,051            34,493

    Operating expenses:
        Sales, marketing and
         administrative                     44,402   (5,540) A/C       38,862
        Research and development             8,051   (1,553) A          6,498
        Development milestone expense       10,500  (10,500) D              -
           Total operating expenses         62,953  (17,593)           45,360
    Interest and other income (expense),
     net                                     2,935        -             2,935
    Net loss                              $(26,576) $18,644           $(7,932)

    Historical net loss per share:
        Basic and diluted                   $(0.85)                    $(0.25)
        Weighted average shares- basic
         and diluted                        31,394                     31,394


                                            Six Months Ended June 30, 2005
                                                                      Non-GAAP
                                         GAAP Basis   Adjustments      Basis

    Revenue                               $28,476     $ -            $28,476
    Cost of goods sold                      5,805    (497) F           5,308

    Gross profit                           22,671     497             23,168

    Operating expenses:
        Sales, marketing and
         administrative                    25,559  (1,400) A/C/G      24,159
        Research and development            5,462    (851) A           4,611
        Development milestone expense           -       -                  -
           Total operating expenses        31,021  (2,251)            28,770
    Interest and other income (expense),
     net                                      685       -                685
    Net loss                              $(7,665) $2,748            $(4,917)

    Historical net loss per share:
        Basic and diluted                  $(0.32)                    $(0.20)
        Weighted average shares- basic
         and diluted                       24,006                     24,006

    A - Elimination of non-cash stock-based compensation.
    B - Amortization of the increase in the fair value on the date of
        acquisition of inventory acquired from RSB Spine.
    C - Amortization of technology assets purchased from RSB Spine and
        Riverbend.
    D - Development milestone payment in connection with conditional approval
        of NeoDisc IDE.
    E - Reserve for assets to be retired in connection with planned 2006
        product introductions and enhancements.
    F - Write-off of investments in fixed assets and inventory related to the
        initial alpha/beta testing of the Company's own cervical plate under
        development. These were written-off as a result of the RSV Spine
        acquisition.
    G - Due diligence costs associated with an abandoned technology
        acquisition and legal costs related to specific and unusual matters
        that are not expected to be ongoing.



                                 NUVASIVE, INC.
                 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

                                             June 30, 2006   December 31, 2005

    Assets
    Current assets:
        Cash and cash equivalents                 $102,060           $12,545
        Short-term investments                      41,450             6,945
        Accounts receivable, net                    13,745            11,662
        Inventory, net                              16,052            11,870
        Prepaid expenses and other
         current assets                              2,315             1,496
    Total current assets                           175,622            44,518
    Property and equipment, net                     23,259            17,974
    Intangible assets, net                           8,725             8,894
    Other assets                                       295               104
    Total Assets                                  $207,901           $71,490

    Liabilities and Stockholders' Equity
    Current liabilities:
        Accounts payable and accrued
         liabilities                                $9,266            $6,102
        Accrued payroll and related
         expenses                                    5,280             5,587
        Development milestone payable               10,500              $-
    Total current liabilities                       25,046            11,689
    Long-term liabilities                            1,385             1,665
    Stockholders equity:
        Common stock                                    33                25
        Additional paid-in capital                 316,828           168,143
        Deferred compensation                            -            (1,195)
        Accumulated other comprehensive
         loss                                          (10)              (32)
        Accumulated deficit                       (135,381)         (108,805)
    Total stockholders' equity                     181,470            58,136
    Total liabilities and stockholders'
     equity                                       $207,901           $71,490



                             NUVASIVE, INC.
        UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (in thousands)

                               Three Months Ended     Six Months Ended
                                    June 30,               June 30,
                                  2006     2005         2006     2005
    Operating activities:
    Net loss                    $(18,470) $(4,110) $(26,576) $(7,665)
    Add back non-cash expenses
      Depreciation and
       amortization                1,934      874     3,545    1,555
      Stock-based compensation     3,222      905     6,823    1,844
      Write-off of NuVasive
       assets in connection with
       acquisition of RSB Spine
       LLC                                    497         -      497
      Write-off of assets to be
       retired in connection with
       planned product
       introductions and
       enhancements                  343        -       343        -
      Other non-cash adjustments   1,040      (64)      930      134
      Changes in operating assets
       and liabilities:
        Accounts receivable       (1,686)  (1,050)   (2,157)  (2,301)
        Inventory                 (3,283)  (2,815)   (5,333)  (3,786)
        Prepaid expenses and
         other current assets     (1,197)    (627)     (819)    (518)
        Accounts payable and
         accrued liabilities      11,627     (776)   13,658    1,439
        Accrued payroll and
         related expenses          1,293    1,140      (307)     470
    Net cash used in operating
     activities                   (5,177)  (6,026)   (9,893)  (8,331)


    Investing activities:
    Cash paid for RSB Spine LLC        -   (3,800)        -   (3,800)
    Purchases of property and
     equipment                    (6,627)  (2,679)   (8,561)  (6,931)
    Sales of short-term
     investments, net              7,900   23,318    10,950   56,930
    Purchases of short-term
     investments, net             (1,823) (22,721)  (45,455) (41,944)
    Other assets                    (203)     118      (291)       -
    Net cash provided by
     investing activities           (753)  (5,764)  (43,357)   4,255


    Financing activities:
    Payment of long-term
     liabilities                    (300)     (17)     (300)     (18)
    Issaunce of common stock in
     secondary offering              (53)       -   142,046        -
    Issuance of common stock         584      609     1,019      707
    Net cash provided by
     financing activities            231      592   142,765      689

    Increase in cash and cash
     equivalents                  (5,699) (11,198)   89,515   (3,387)

    Cash and cash equivalents
     at beginning of period      107,759   16,371    12,545    8,560
    Cash and cash equivalents
     at end of period           $102,060   $5,173  $102,060   $5,173



    Contact:
    Kevin C. O'Boyle
    EVP & Chief Financial Officer
    NuVasive, Inc.
    858-909-1800
    investorrelations@nuvasive.com

    Investors:
    Stephanie Carrington/Nick Laudico
    The Ruth Group
    646-536-7017/7030
    scarrington@theruthgroup.com
    nlaudico@theruthgroup.com

    Media:
    Jason Rando
    The Ruth Group
    646-536-7025
    jrando@theruthgroup.com

SOURCE
NuVasive, Inc.
07/27/2006

CONTACT:
Kevin C. O'Boyle,
EVP & Chief Financial Officer of NuVasive, Inc.,
1-858-909-1800, investorrelations@nuvasive.com;
or
Investors:
Stephanie Carrington,
1-646-536-7017, scarrington@theruthgroup.com,
or
Nick Laudico,
1-646-536-7030, nlaudico@theruthgroup.com,
or
Media:
Jason Rando,
1-646-536-7025, jrando@theruthgroup.com,
all of The Ruth Group, all for NuVasive, Inc.