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 Third Quarter 2006 Revenue of $25.2 Million
  • Increases Full Year 2006 Revenue Guidance to $94 Million to $95 Million
Third Quarter 2006 Highlights:
  • Total revenues increased to $25.2 million; up 64.6% from the third quarter of 2005
  • Gross profit increased to $20.3 million; up 69.0% from the third quarter of 2005
  • Gross margin was 80.5%
  • New lumbar instruments and MAS(TM) platform product additions launched at NASS, including MaXcess(R) III and additional implants; previewed NeuroVision(R) upgrades and new XLIF(R) lateral plate
  • Surgeons trained on MAS Platform was 177, for a total of 460 year to date
  • Percentage of vertically integrated hospitals increased to 39% from 33% at June 30, 2006
  • NeoDisc(TM) clinical trial enrollment commences with initial surgeries
  • Satisfied all contingent milestone obligations related to NeoDisc for a total deal cost of $33.1 million, eliminating royalty obligations and $12 million in potential milestone payments
  • Commenced distribution at our new facility in Memphis, Tennessee

SAN DIEGO, Oct. 25 /PRNewswire-FirstCall/ -- NuVasive, Inc. (Nasdaq: NUVA), a medical device company focused on developing products for minimally disruptive surgical treatments for the spine, announced today third quarter financial results for the period ended September 30, 2006.

The Company reported third quarter revenues of $25.2 million, a 64.6% increase over the $15.3 million for the third quarter of 2005 and a 10.9% increase over the $22.7 million for the second quarter of 2006.

Gross profit, on a GAAP basis, for the third quarter of 2006 was $20.3 million with a gross margin of 80.5%, compared with a gross profit of $12.0 million with a gross margin of 78.4% in the third quarter of 2005. For the second quarter of 2006, gross profit was $17.6 million with a gross margin of 77.6%. On a non-GAAP basis, the gross margin for the third quarter of 2006 was 81.6%. Non-GAAP gross margin in the third quarter of 2006 excludes a total charge of $0.3 million related to instruments rendered obsolete as a result of the planned 2006 product introductions and enhancements and the related significant instrument redesign.

Total operating expenses for the third quarter of 2006 were $40.8 million, compared with $30.7 million in the third quarter of 2005 and $37.9 million in the second quarter of 2006. The quarter-over-quarter and year-over-year increases are due primarily to (i) $9.6 million paid under a milestone and royalty buyout agreement with Pearsalls Limited related to NeoDisc and related technology; (ii) additional sales and marketing expenses related to the Company's transition of its sales force to exclusivity; (iii) continued investment in the Company's next generation MAS products and accelerated surgeon and sales representative training; and (iv) for the year-over-year period, the inclusion of stock based compensation expense.

On a GAAP basis for the three-month period ended September 30, 2006, the Company reported a net loss of $18.7 million or $0.56 per share. On a non-GAAP basis, the third quarter net loss was $5.3 million, or $0.16 per share. The non-GAAP net loss calculation in the third quarter of 2006 excludes (i) $9.6 million paid under the buyout agreement with Pearsalls Limited; (ii) a total of $0.4 million including the obsolete assets described above and amortization of acquired intangible assets; and (iii) stock-based compensation of $3.3 million.

Cash, cash equivalents and short-term investments were $120.9 million at September 30, 2006.

Alexis V. Lukianov, Chairman and Chief Executive Officer, said, "Our third quarter results reflect the momentum that our high-quality, exclusive sales force continues to build. Our exclusive sales force is making substantial progress in achieving deeper penetration of our broad product offering. This is demonstrated by the percentage of vertically integrated hospitals, generally defined as hospitals using our Maximum Access Surgery (MAS) platform, which stood at 39% at the end of the third quarter. We continue to increase the depth of our product offerings, with extensions to our line of CoRoent implants, the planned limited release in the fourth quarter of our Lateral Lumbar XLIF Plate, and upgrades to NeuroVision, including the incorporation of motor evoked potentials technology. We are particularly encouraged by our recently launched products debuted at the North American Spine Society annual meeting in September and the positive surgeon reaction. Products such as our MaXcess III Retractor represent additional technological leaps ahead of our competition, and the start of enrollment in the NeoDisc clinical study marks a milestone in our efforts to develop the first elastomeric disc replacement device."

Mr. Lukianov continued, "Spine surgeon training and broadening the use of our XLIF procedure remain top priorities. During the third quarter, we trained 177 surgeons for a total of 460 year-to-date. In addition, the use of XLIF continues to broaden beyond single level fusion indications, increasingly being used to address adult scoliosis indications."

Guidance

For the full year 2006, the Company is increasing its revenue guidance to be in the range of $94 million to $95 million. The Company is also reiterating its expectation to achieve break-even, on a non-GAAP basis, in the fourth quarter. For the remainder of the year, the gross margin level of 81% is sustainable and the Company anticipates total surgeons trained for the full year will be 500 - 525.

Reconciliation of Non-GAAP Information

Management uses certain non-GAAP financial measures, such as non-GAAP gross margin, 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 and third 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. Set forth below are reconciliations of the non-GAAP financial measures to the comparable GAAP financial measure.



    (dollars in thousands, except per
     share amounts)                             Three Months Ended
                                                September 30, 2006
    GAAP gross margin                                $20,289         80.5%
      Charge related to 2006 product
       introductions and enhancements (A)                278          1.1%
    Non-GAAP gross margin                            $20,567         81.6%


    GAAP operating expenses                          $40,809
      NeoDisc technology costs (B)                    (9,616)
      Stock based compensation (C)                    (3,343)
      Amortization of acquired intangible
       assets (D)                                       (135)
    Non-GAAP operating expenses                      $27,715


    GAAP net loss                                   $(18,651)
      Charge related to 2006 product
       introductions and enhancements (A)                278
      NeoDisc technology costs (B)                     9,616
      Stock based compensation (C)                     3,343
      Amortization of acquired intangible
       assets (D)                                        135
    Non-GAAP net loss                                $(5,279)


    GAAP net loss per share                           $(0.56)
      Charge related to 2006 product
       introductions and enhancements (A)               0.01
      NeoDisc technology costs (B)                      0.29
      Stock based compensation (C)                      0.10
      Amortization of acquired intangible
       assets (D)                                          -
    Non-GAAP net loss per share                       $(0.16)

    A - Charge related to instruments impaired as a result of the planned 2006
        product introductions and enhancements and the related significant
        instrument redesign
    B - Third quarter charge for the satisfaction of the contingent milestone
        obligations relating to NeoDisc technology
    C - Non-cash stock-based compensation.
    D - Amortization of technology assets purchased in 2005.

    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 www.nuvasive.com.

After the live Web cast, the call will remain available on NuVasive's Web site, www.nuvasive.com, through November 25, 2006. In addition, a telephonic replay of the call will be available until November 15, 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 216294.

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 (including products under development and those undergoing clinical study); 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 devices under development such as NeoDisc) 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.


    Contact:                            Investors:
    Kevin C. O'Boyle                    Carol Ruth/Nick Laudico
    EVP & Chief Financial Officer       The Ruth Group
    NuVasive, Inc.                      646-536-7004/7030
    858-909-1800                        cruth@theruthgroup.com
    investorrelations@nuvasive.com      nlaudico@theruthgroup.com

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



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

                              Three Months Ended       Nine Months Ended
                                September 30,            September 30,
                             2006         2005         2006         2005

    Revenue                $25,194     $ 15,310     $ 67,603      $43,786
    Cost of goods sold       4,905        3,302       13,872        9,107

    Gross profit            20,289       12,008       53,731       34,679

    Operating expenses:
      Sales, marketing
       and administrative   25,739       14,692       70,141       40,251
      Research and
       development           5,454        3,159       13,505        8,621
      In-process
       research and
       development               -       12,897            -       12,897
      NeoDisc technology
       costs                 9,616            -       20,116            -
        Total operating
         expenses           40,809       30,748      103,762       61,769
    Interest and other
     income (expense), net   1,869          264        4,804          949
    Net loss              $(18,651)    $(18,476)    $(45,227)    $(26,141)

    Historical net
     loss per share:

      Basic and diluted    $ (0.56)      $(0.74)     $ (1.41)      $(1.08)
      Weighted average
       shares- basic and
       diluted              33,281       24,940       32,033       24,263



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

                                              Sept. 30, 2006  Dec. 31, 2005
    Assets
    Current assets:
      Cash and cash equivalents                      $52,361        $12,545
      Short-term investments                          68,581          6,945
      Accounts receivable, net                        15,028         11,662
      Inventory, net                                  17,081         11,870
      Prepaid expenses and other current assets        1,354          1,496
    Total current assets                             154,405         44,518
    Property and equipment, net                       29,079         17,974
    Intangible assets, net                             8,581          8,894
    Long-term investments                              2,000              -
    Other assets                                         366            104
    Total Assets                                    $194,431        $71,490

    Liabilities and Stockholders' Equity
    Current liabilities:
      Accounts payable and accrued liabilities       $11,774         $6,102
      Accrued payroll and related expenses             6,433          5,587
    Total current liabilities                         18,207         11,689
    Long-term liabilities                              1,392          1,665
    Stockholders equity:
      Common stock                                        34             25
      Additional paid-in capital                     328,858        168,143
      Deferred compensation                                -        (1,195)
      Accumulated other comprehensive loss               (28)           (32)
      Accumulated deficit                           (154,032)      (108,805)
    Total stockholders' equity                       174,832         58,136
    Total liabilities and stockholders' equity      $194,431        $71,490



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

                            Three Months Ended        Nine Months Ended
                              September 30,             September 30,
                            2006         2005         2006         2005
    Operating activities:
    Net loss             $(18,651)    $(18,476)    $(45,227)   $ (26,141)
    Add back non-cash
     expenses
      Depreciation and
      amortization          2,468        1,086        6,013        2,641
      Stock-based
       compensation         3,343          611       10,166        2,455
    Non-cash NeoDisc
     technology costs       8,060            -        8,060            -
    Write off of assets
     to be retired in
     connection with
     planned 2006 product
     introductions and
     enhancements               -            -          343            -
    Write-off of NuVasive
     assets in connection
     with acquisition of
     RSB Spine LLC              -            -            -          497
    In-process research
     and development            -       12,897            -       12,897
    Other non-cash
     adjustments              373          773        1,303          907
    Changes in operating
     assets and liabilities:

      Accounts receivable  (1,303)        (730)      (3,460)      (3,031)
      Inventory            (1,390)      (4,464)      (6,723)      (8,250)
      Prepaid expenses
       and other current
       assets                 961          286          142         (232)
      Accounts payable
       and accrued
       liabilities         (7,995)      (1,408)       5,663           31
      Accrued payroll
       and related
       expenses             1,153          691          846        1,161
    Net cash used in
     operating activities (12,981)      (8,734)     (22,874)     (17,065)

    Investing activities:
    Cash paid for
     RSB Spine LLC              -            -            -       (3,800)
    Acquisition of
     Pearsall's Limited
     technology assets          -       (5,000)           -       (5,000)
    Purchases of property
     and equipment         (8,144)      (2,391)     (16,705)      (9,322)
    Sales of short-term
     investments, net      20,975       20,600       31,925       77,530
    Purchases of
     short-term
     investments, net     (48,106)      (1,003)     (93,561)     (42,947)
    Purchase of
     long-term investment  (2,000)           -       (2,000)           -
    Other assets              (71)          11         (362)          11
    Net cash provided
     by investing
     activities           (37,346)      12,217      (80,703)      16,472

    Financing activities:
    Payment of
     long-term liabilities      -            -         (300)         (18)
    Issuance of common
     stock                    628          360      143,693        1,067
    Net cash provided
     by financing
     activities               628          360      143,393        1,049

    Increase in cash
     and cash equivalents (49,699)       3,843       39,816          456

    Cash and cash
     equivalents at
     beginning of period  102,060        5,173       12,545        8,560
    Cash and cash
     equivalents at end
     of period           $ 52,361       $9,016     $ 52,361       $9,016

SOURCE NuVasive, Inc.

/CONTACT: Kevin C. O'Boyle, EVP & Chief Financial Officer of NuVasive, Inc., +1-858-909-1800, investorrelations@nuvasive.com; or Investors: Carol Ruth, +1-646-536-7004, cruth@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 / /Web site: http://www.nuvasive.com / (NUVA)