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 2011 Financial Results

SAN DIEGO, CA, Jul 25, 2011 (MARKETWIRE via COMTEX) --

NuVasive, Inc. (NASDAQ: NUVA)

--  Total revenue of $133.0 million, up 11.2% over second quarter 2010


--  GAAP earnings of $5.4 million, or $0.13 per share


--  Non-GAAP earnings of $12.4 million, or $0.30 per share


--  Non-GAAP operating margin of 17.3% and GAAP operating margin of 8.6%



NuVasive, Inc. (NASDAQ: NUVA), a medical device company focused on developing minimally disruptive surgical products and procedures for the spine, announced today financial results for the quarter ended June 30, 2011.

NuVasive reported second quarter 2011 revenue of $133.0 million, an 11.2% increase over the $119.6 million for the second quarter 2010 and a 6.8% increase compared to $124.5 million for the first quarter 2011.

Gross profit for the second quarter 2011 was $107.5 million and gross margin was 80.8%, compared to a gross profit of $98.6 million and a gross margin of 82.4% for the second quarter 2010. For the first quarter 2011, gross profit was $100.9 million and gross margin was 81.1%.

Total operating expenses for the second quarter 2011 were $96.0 million compared to $90.3 million in the second quarter 2010 and $96.3 million in the first quarter 2011. The higher operating expenses in the second quarter 2011 compared to the prior year resulted primarily from additional costs associated with higher revenue and infrastructure expansion.

On a GAAP basis, the Company reported net income of $5.4 million, or $0.13 per share, for the second quarter 2011.

On a Non-GAAP basis, the Company reported net income of $12.4 million, or $0.30 per share, for the second quarter 2011. The Non-GAAP earnings per share calculations for the second quarter exclude (i) non-cash stock-based compensation of $7.7 million; (ii) certain intellectual property litigation expenses of $1.1 million; (iii) amortization of intangible assets of $1.4 million; (iv) acquisition related items of $1.3 million; and (v) non-cash interest expense on convertible notes of $0.1 million.

Cash, cash equivalents and short and long-term marketable securities were $524.2 million at June 30, 2011.

Alex Lukianov, Chairman and Chief Executive Officer, said, "Our financial performance in the second quarter of 2011 was excellent and suggests that we are executing well against our strategy to take market share. We generated industry leading revenue growth of over 11% and made progress against our profitability goals in spite of challenging spine market growth dynamics. We are exceptionally pleased with the outcome of our recent convertible notes offering, which bolsters our balance sheet and significantly enhances our financial flexibility. As our focus shifts toward the achievement of our next milestone, the evolution of NuVasive into a $1 billion revenue company, we are laser focused on maintaining the startup mentality that is the source of NuVasive's success as a prolific new product innovator. With Speed of Innovation(TM) as our competitive edge, we expect to continue to sustain industry leading growth."

2011 Full Year Financial Guidance

--  Revenue of $530 million to $540 million; unchanged from previous
    guidance


--  GAAP EPS of $0.33 to $0.36; down from previous guidance of $0.52 to
    $0.55 to reflect impact of new convertible notes placement


--  Non-GAAP EPS of $1.09 to $1.12; down from previous guidance of $1.20
    to $1.23 to reflect impact of new convertible notes placement


--  Non-GAAP Operating Margin of ~17.5%, unchanged from previous guidance


--  GAAP effective tax rate of ~50%, up from previous guidance of ~45% to
    reflect impact of new convertible notes placement



                  Reconciliation of Full Year EPS Guidance

                                     ------- --------------- ---------------
                                       2010        2011            2011
                                     Pre-Tax     Pre-Tax       Net of Tax*
                                     ------- --------------- ---------------
                                               Low     High    Low     High
                                      Actual  Range   Range   Range   Range
                                     ------- ------- ------- ------- -------
GAAP earnings per share              $  0.64 $  0.64 $  0.69 $  0.33 $  0.36
  Non-cash stock-based compensation     0.70    0.79    0.79    0.47    0.47
  Certain intellectual property
   litigation expenses                  0.13    0.13    0.13    0.08    0.08
  Amortization of intangible assets     0.13    0.18    0.18    0.11    0.11
  Acquisition related items             0.07    0.04    0.04    0.02    0.02
  Non-cash interest expense on
   convertible notes                       -    0.15    0.15    0.09    0.09
                                     ------- ------- ------- ------- -------
Non-GAAP earnings per share          $  1.68 $  1.92 $  1.97 $  1.09 $  1.12
                                     ======= ======= ======= ======= =======

Weighted shares outstanding -
 Diluted**                            40,373  42,000  42,000  42,000  42,000
                                     ======= ======= ======= ======= =======

* Effective Tax Rate of ~50% applied to GAAP earnings and ~40% applied to
Non-GAAP adjustments
** Weighted average shares outstanding shown as pre "if-converted" method
Note: The new convertible notes will require mark-to-market accounting for
the bond hedge and conversion feature derivatives. The income (expense)
resulting from this accounting are expected to materially offset one another
and any impact would be excluded from non-GAAP earnings per share
calculations




    2011 Full Year EPS Guidance Bridge for New Convertible Notes Impact

                                                      ---------------------
                                                           Net of Tax*
                                                      ---------------------
                                                                     High
                                                      Low Range     Range
                                                      ---------   ---------

             Prior GAAP earnings per share guidance   $    0.52   $    0.55
        Coupon interest expense of 2.75% on $402.5M       (0.07)      (0.07)
     Amortization of issuance fees over 6 year life       (0.01)      (0.01)
     Non-cash interest expense on convertible notes       (0.08)      (0.08)
                          Effective tax rate change       (0.03)      (0.03)
                                                      ---------   ---------
           Revised GAAP earnings per share guidance   $    0.33   $    0.36
                                                      ---------   ---------


         Prior non-GAAP earnings per share guidance   $    1.20   $    1.23
        Coupon interest expense of 2.75% on $402.5M       (0.07)      (0.07)
     Amortization of issuance fees over 6 year life       (0.01)      (0.01)
                          Effective tax rate change       (0.03)      (0.03)
                                                      ---------   ---------
       Revised non-GAAP earnings per share guidance   $    1.09   $    1.12
                                                      ---------   ---------

* New Effective Tax Rate of ~50% up from ~45%



         2011 Guidance Reconciliation of Non-GAAP Operating Margin %

                                                    ------------------------
                                                              FY 11
                                                            Estimate
                                                    ------------------------
                                             FY 10
                                            Actual     Prior       Revised
                                            ------  -----------  -----------
                       Gross Margin % [A]    82.2%     ~ 81%        ~ 81%

    Non-GAAP Research and Development [B]    8.0%       ~ 8%         ~ 7%
        Non-cash stock-based compensation    0.7%       ~ 1%         ~ 1%
               Acquisition related items*    0.4%   as incurred  as incurred
                                            ------  -----------  -----------
            GAAP research and development    9.1%       ~ 9%         ~ 8%

            Non-GAAP Sales, Marketing and
                       Administrative [C]    58.8%    ~ 55.5%      ~ 56.5%
        Non-cash stock-based compensation    5.2%       ~ 5%         ~ 5%
 Certain intellectual property litigation
                                 expenses    1.1%       ~ 1%         ~ 1%
               Acquisition related items*    0.2%   ~ 0.5% & as  ~ 0.5% & as
                                                      incurred     incurred
                                            ------  -----------  -----------
 GAAP sales, marketing and administrative    65.3%     ~ 62%        ~ 63%

        Amortization of intangible assets    1.1%      ~ 1.5%       ~ 1.5%

                                            ------  -----------  -----------
      Non-GAAP Operating Margin % [A-B-C]    15.4%    ~ 17.5%      ~ 17.5%
                                            ------  -----------  -----------

* Acquisition related items include ~0.5% of revenue for expenses associated
with prior M&A activity and as incurred



Reconciliation of Non-GAAP Information Management uses certain Non-GAAP financial measures such as Non-GAAP earnings per share, which exclude non-cash stock-based compensation, certain intellectual property litigation expenses, amortization of intangible assets, acquisition related items, 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 Second Quarter 2011 Results

                                          Pre-Tax                  Earnings
 (in thousands, except per share data)  Adjustments   Net of Tax   Per Share
                                       ------------  -----------  ----------
GAAP net income                                      $     5,380  $     0.13
  Non-cash stock-based compensation    $      7,725        4,635        0.11
  Certain intellectual property
   litigation expenses                        1,099          659        0.02
  Amortization of intangible assets           1,395          837        0.02
  Acquisition related items                   1,325          795        0.02
  Non-cash interest expense on
   convertible notes                             96           58        0.00
                                                     -----------  ----------
Non-GAAP earnings                                    $    12,364  $     0.30
                                                     ===========  ==========

Weighted shares outstanding - Diluted                                 40,868
                                                                  ==========



                 Reconciliation of Year To Date 2011 Results

                                          Pre-Tax                  Earnings
 (in thousands, except per share data)  Adjustments   Net of Tax   Per Share
                                       ------------  -----------  ----------
GAAP net income                                      $     7,739  $     0.19
  Non-cash stock-based compensation    $     15,671        9,403        0.23
  Certain intellectual property
   litigation expenses                        3,180        1,908        0.05
  Amortization of intangible assets           2,737        1,642        0.04
  Acquisition related items                   1,896        1,138        0.03
  Non-cash interest expense on
   convertible notes                             96           58        0.00
                                                     -----------  ----------
Non-GAAP earnings                                    $    21,888  $     0.54
                                                     ===========  ==========

Weighted shares outstanding - Diluted                                 40,691
                                                                  ==========



Conference Call NuVasive will hold a conference call today at 5:30 p.m. ET / 2:30 p.m. PT to discuss the results. The dial-in numbers are 1-877-407-9039 for domestic callers and 1-201-689-8470 for international callers. A live webcast of the conference call will be available online from the investor relations page of the Company's corporate website at www.nuvasive.com.

After the live webcast, the call will remain available on NuVasive's website, www.nuvasive.com, through August 24, 2011. In addition, a telephonic replay of the call will be available until August 8, 2011. 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 375131.

About NuVasive NuVasive is a medical device company focused on developing minimally disruptive surgical products and procedures for the spine. The Company is the 5th largest player in the $7.7 billion global spine market.

NuVasive's principal product offering is based on its Maximum Access Surgery, or MAS(R) platform. The MAS platform combines four categories of products 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; 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 65 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 materially include, but are not limited to: the risk that NuVasive's revenue or earnings projections may turn out to be inaccurate because of the preliminary nature of the forecasts 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 Statement of Income
                   (in thousands, except per share data)

                                     Three Months Ended   Six Months Ended
                                          June 30,            June 30,
                                     ------------------  ------------------
                                       2011      2010      2011      2010
                                     --------  --------  --------  --------

Revenue                              $132,966  $119,584  $257,432  $228,671
Cost of goods sold (excluding
 amortization of purchased
 technology)                           25,508    21,014    49,034    40,457
                                     --------  --------  --------  --------
Gross profit                          107,458    98,570   208,398   188,214

Operating expenses:
  Sales, marketing and
   administrative                      84,323    77,726   168,543   152,387
  Research and development             10,258    11,205    21,027    21,904
  Amortization of intangible assets     1,395     1,355     2,737     2,705
                                     --------  --------  --------  --------
Total operating expenses               95,976    90,286   192,307   176,996

Interest and other expense, net:
  Interest income                         151       178       334       367
  Interest expense                     (1,915)   (1,668)   (3,686)   (3,337)
  Other income (expense), net              80       (30)      577        87
                                     --------  --------  --------  --------
Total interest and other expense,
 net                                   (1,684)   (1,520)   (2,775)   (2,883)
                                     --------  --------  --------  --------

Income before income tax expense        9,798     6,764    13,316     8,335
Income tax expense                      4,776       574     6,316     1,439
                                     --------  --------  --------  --------
Consolidated net income              $  5,022  $  6,190  $  7,000  $  6,896
                                     ========  ========  ========  ========
Net loss attributable to
 noncontrolling interests            $   (358) $   (533) $   (739) $   (915)
                                     ========  ========  ========  ========
Net income attributable to NuVasive,
 Inc.                                $  5,380  $  6,723  $  7,739  $  7,811
                                     ========  ========  ========  ========

Net income per share attributable to
 NuVasive, Inc.:
  Basic                              $   0.14  $   0.17  $   0.19  $   0.20
                                     ========  ========  ========  ========
  Diluted                            $   0.13  $   0.17  $   0.19  $   0.19
                                     ========  ========  ========  ========
Weighted average shares outstanding:
  Basic                                39,786    39,242    39,701    39,071
                                     ========  ========  ========  ========
  Diluted                              40,868    40,694    40,691    40,383
                                     ========  ========  ========  ========

Stock-based compensation is included in operating expenses in the following
 categories:
  Sales, marketing and
   administrative                    $  7,124  $  6,672  $ 14,459  $ 12,352
  Research and development                601       877     1,212     1,631
                                     --------  --------  --------  --------
                                     $  7,725  $  7,549  $ 15,671  $ 13,983
                                     ========  ========  ========  ========



                               NuVasive, Inc.
                   Condensed Consolidated Balance Sheets
                               (in thousands)
                                                  June 30,     December 31,
                                                    2011           2010
                                               -------------  -------------
                                                (Unaudited)
ASSETS
Current assets:
  Cash and cash equivalents                    $     505,084  $      92,597
  Short-term marketable securities                    14,545         86,458
  Accounts receivable, net                            80,532         76,632
  Inventory                                          117,952        107,577
  Deferred tax assets                                  4,425          4,425
  Prepaid expenses and other current assets            4,724          4,082
                                               -------------  -------------
Total current assets                                 727,262        371,771
Property and equipment, net                          115,566        102,165
Long-term marketable securities                        4,603         50,635
Intangible assets, net                               101,435        107,121
Goodwill                                             103,070        103,070
Deferred tax assets, non-current                      52,033         52,033
Restricted cash and investments                       68,613          5,529
Bond hedge derivative                                 80,098              -
Other assets                                          20,245          9,705
                                               -------------  -------------
Total assets                                   $   1,272,925  $     802,029
                                               =============  =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued liabilities     $      52,447  $      58,995
  Accrued payroll and related expenses                15,356         17,266
  Acquisition-related liabilities                     33,955         32,715
                                               -------------  -------------
Total current liabilities                            101,758        108,976
Senior Convertible Notes                             543,696        230,000
Embedded conversion derivative                        88,900              -
Long-term acquisition-related liabilities                  -            326
Deferred tax liabilities                               3,685          3,685
Other long-term liabilities                           12,670         12,810
Commitments and contingencies
Noncontrolling interests                              11,138         11,877
Stockholders' equity:
    Common stock                                          40             40
    Additional paid-in capital                       613,016        545,114
    Accumulated other comprehensive income             1,698            616
    Accumulated deficit                             (103,676)      (111,415)
                                               -------------  -------------
Total stockholders' equity                           511,078        434,355
                                               -------------  -------------
Total liabilities and stockholders' equity     $   1,272,925  $     802,029
                                               =============  =============



                               NuVasive, Inc.
         Unaudited Condensed Consolidated Statements of Cash Flows
                               (in thousands)
                                                 Six Months Ended June 30,
                                               ----------------------------
                                                    2011           2010
                                               -------------  -------------

Operating activities:
  Consolidated net income                      $       7,000  $       6,896
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Depreciation and amortization                     15,888         17,065
    Stock-based compensation                          15,671         13,983
    Allowance for excess and obsolete
     inventory                                         2,341            906
    Allowance for doubtful accounts and sales
     return reserve, net of write-offs                   529         (1,007)
    Accretion of contingent consideration                914            182
    Other non-cash adjustments                         2,893          2,591
  Changes in operating assets and liabilities,
   net of effects from acquisitions:
    Accounts receivable                               (5,351)        (8,514)
    Inventory                                        (12,146)        (4,258)
    Prepaid expenses and other current assets           (791)        (1,397)
    Accounts payable and accrued liabilities          (2,300)         4,128
    Accrued payroll and related expenses              (1,997)        (5,574)
    Income taxes payable                               5,043            460
                                               -------------  -------------
  Net cash provided by operating activities           27,694         25,461
Investing activities:
    Purchases of property and equipment              (27,944)       (22,059)
    Purchases of marketable securities               (54,317)       (95,015)
    Sales of marketable securities                   113,559         88,028
    Purchases of restricted investments               (4,701)             -
    Payment for specific rights in connection
     with supply agreement, net of refund
     received                                         (5,000)             -
                                               -------------  -------------
  Net cash provided by (used in) investing
   activities                                         21,597        (29,046)
Financing activities:
    Proceeds from the sale of warrants                47,898              -
    Proceeds from the issuance of convertible
     debt, net of issuance costs                     391,548              -
    Purchase of convertible note hedges              (80,097)             -
    Proceeds from the issuance of common stock         4,334         11,963
    Other assets                                        (557)         1,369
    Tax benefits related to stock-based
     compensation awards                                   -         (7,481)
                                               -------------  -------------
  Net cash provided by financing activities          363,126          5,851
  Effect of exchange rate changes on cash                 70           (166)
                                               -------------  -------------
  Increase in cash and cash equivalents              412,487          2,100
Cash and cash equivalents at beginning of
 period                                               92,597         65,413
                                               -------------  -------------
Cash and cash equivalents at end of period     $     505,084  $      67,513
                                               =============  =============



Contact:
Michael J. Lambert
EVP & Chief Financial Officer
NuVasive, Inc.
858-909-3394
Email Contact

Investors:
Patrick F. Williams
Vice President, Industry & Investor Relations
NuVasive, Inc.
858-638-5511
Email Contact

Media:
Nicholas S. Laudico
The Ruth Group
646-536-7030
Email Contact


SOURCE: NuVasive, Inc.

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