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 2018 Financial Results

SAN DIEGO, Oct. 30, 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 September 30, 2018. 

NuVasive Logo

Third Quarter 2018 Highlights

  • Revenue increased 9.8% to $271.3 million, or 10.2% on a constant currency basis;
  • GAAP operating profit margin of 6.6%; Non-GAAP operating profit margin of 15.6%;
  • GAAP diluted earnings per share of $0.30; Non-GAAP diluted earnings per share of $0.56; and
  • Company updates full-year 2018 guidance.

"Our third quarter results reflect accelerated year-over-year revenue growth of nearly 10%, supported by strong performances in both spinal hardware and surgical support business lines with overall U.S. case volumes up more than 7%," said Gregory T. Lucier, chairman and chief executive officer of NuVasive. "With the sense the overall U.S. spine market is trending healthier, we made strategic investments this quarter on the heels of this momentum in key R&D initiatives, additions to our commercial sales force and infrastructure upgrades to improve set fulfillment—all to support a strong start to 2019 and beyond."

The Company's financial results reflect continued improvement of its in-sourcing efforts at the West Carrollton, Ohio manufacturing facility, and the Company reiterated expectations that the facility will drive an additional 130 to 150 basis points in operating margins in 2019.

Lucier commented, "We made solid progress with our in-source manufacturing initiatives by bringing in additional SKUs during the third quarter with throughput ramping to higher volumes. This strategic investment is on track and will become a business advantage, both to drive a competitive cost position and to control the quality required to produce evermore complex implants."

NuVasive also recently made several key technology introductions and partnership announcements, including the unveiling of the NuVasive Pulse surgical automation platform, Spine Precision Partnership with Siemens Healthineers and signing of a strategic partnership with Biedermann Technologies to further enhance NuVasive's best-in-class complex spine deformity technologies. The Company also launched several new products to further reinvigorate its Biologics business line, which continues to recover at a faster-than-expected pace. The Company now anticipates its Biologic business will return to growth in the fourth quarter 2018.

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

Third Quarter 2018 Results

NuVasive reported third quarter 2018 total revenue of $271.3 million, a 9.8% increase compared to $247.1 million for the third quarter 2017. On a constant currency basis, third quarter 2018 total revenue increased 10.2% compared to the same period last year. 

For the third quarter 2018, GAAP and non-GAAP gross profit was $197.1 million and $197.4 million, respectively, while GAAP and non-GAAP gross margin was 72.7% and 72.8%, respectively. These results compared to GAAP and non-GAAP gross profit of $181.5 million and $181.7 million, respectively, and both GAAP and non-GAAP gross margin of 73.5% for the third quarter 2017. Total GAAP and non-GAAP operating expenses were $179.2 million and $155.1 million, respectively, for the third quarter of 2018. These results compared to GAAP and non-GAAP operating expenses of $151.1 million and $138.4 million, respectively, for the third quarter 2017.

NuVasive reported GAAP net income of $15.9 million, or $0.30 per diluted share, for the third quarter 2018 compared to GAAP net income of $33.5 million, or $0.64 per diluted share, for the third quarter 2017. On a non-GAAP basis, NuVasive reported net income of $29.5 million, or $0.56 per diluted share, for the third quarter 2018 compared to net income of $26.6 million, or $0.51 per diluted share, for the third quarter 2017. 

Annual Financial Guidance for 2018

The Company updated its full-year 2018 financial guidance by increasing its revenue guidance by $5 million to reflect a new range of $1,100 million to $1,110 million and reducing its non-GAAP operating margin guidance range to 15.0% - 15.5% as a result of accelerated investments in infrastructure and commercial sales force in anticipation of the overall spine market growth trending up to more historical averages.

   

2018 Guidance Range 1, 2

   

Prior

Current

 

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

GAAP

   

Non-GAAP

   

GAAP

Non-GAAP

 

Revenue

$1,095 - $1,105

   

$1,095 - $1,105

   

$1,105 - $1,110

 

$1,105 - $1,110

 

   % Growth - Reported

6.7% - 7.6%

   

6.7% - 7.6%

   

7.6% - 8.1%

 

7.6% - 8.1%

 

% Growth - Constant Currency 3

       

6.3% - 7.3%

       

7.4% - 7.9%

 

Operating margin

8.0% - 8.1%

     

16.7%

   

5.4% - 5.9%

 

15.0% - 15.5%

 

Earnings per share

$0.45 - $0.48

   

$2.37 - $2.40

   

$0.22 - $0.31

 

$2.15 - $2.23

 

EBITDA

 

18.3%

     

25.9%

   

16.1% - 16.6%

 

24.4% - 24.9%

 

Tax Rate

~33%

   

~21%

   

~18%

 

~21%

                         

1

Prior guidance reflects the range provided July 31, 2018. Current guidance reflects the range provided October 30, 2018.

2

Amounts for 2017 have been recasted and presented based on our full retrospective method of adoption of ASC 606. Commencing with the fourth quarter of 2017, amounts also reflect 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

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 in the range of $1,105 million to $1,110 million reflecting reported growth of 7.6% to 8.1%, and growth in the range of 5.7% to 6.2%, exclusive of the SafePassage acquisition;
  • Non-GAAP diluted earnings per share in a range of $2.15 to $2.23 compared with the prior expectation of $2.37 to $2.40;
  • Non-GAAP operating profit margin in the range of 15.0% to 15.5%, compared with the prior expectation of 16.7%;
  • Adjusted EBITDA margin in the range of 24.4% to 24.9%, compared with the prior expectation of 25.9%;
  • Non-GAAP effective tax expense rate of approximately 21%;
  • The Company expects currency to have a positive impact on revenue in 2018 of approximately $2 million compared with the prior expectation of $3 million; and
  • The Company expects to drive an adjusted EBITDA of approximately $269 million to $276 million, compared with the prior expectation 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
Actuals
1, 2

   

2018 Guidance Range 1, 3

 
         

Prior 4

Current  5

 
 

GAAP net income per share

$

1.48

   

$0.45 - $0.48

   

$0.22 - $0.31

     
 

Impact of change to diluted share count

 

0.08

     

     

     
 

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

$

1.56

   

$0.45 - $0.48

   

$0.22 - $0.31

     
                             
 

Business transition costs 6

 

0.08

     

0.13

     

0.15

     
 

Non-cash purchase accounting adjustments on acquisitions 7

 

0.01

     

0.02

     

0.02

     
 

Non-cash interest expense on convertible notes

 

0.33

     

0.32

     

0.32

     
 

Litigation related expenses and settlements 8

 

0.09

     

0.60

     

0.63

     
 

Non-recurring consulting fees 9

 

     

0.13

     

0.12

     
 

Net loss on strategic investments

 

     

0.17

     

0.07

     
 

Amortization of intangible assets 10

 

0.89

     

0.95

     

0.95

     
 

Purchase of in-process research and development 11

 

     

     

0.17

     
 

Tax effect of adjustments 12

 

(1.08)

     

(0.40)

     

(0.50)

     
 

Non-GAAP earnings per share

$

1.89

   

$2.37 - $2.40

   

$2.15 - $2.23

     
                             
 

GAAP Weighted shares outstanding - basic

 

50,874

     

51,397

     

51,396

     
 

GAAP Weighted shares outstanding - diluted

 

55,193

     

52,131

     

52,853

     
 

Non-GAAP Weighted shares outstanding - diluted 13

 

52,345

     

52,131

     

52,295

     
                             

1

Items may not foot due to rounding.

 

2

Amounts for 2017 have been recasted and presented based on our full retrospective method of adoption of ASC 606.   Commencing with the fourth quarter of 2017, amounts also reflect 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 July 31, 2018. Current guidance reflects the range provided October 30, 2018.

 

4

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

 

5

Effective tax expense rate of ~18% 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

For 2017, amounts relate primarily to the Medtronic litigation matter.  For 2018, amounts relate primarily to the loss recorded in connection with the settlement of the Madsen Medical, Inc. litigation matter.  Commencing with the fourth quarter of 2017, amounts also reflect 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.

 

9

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

 

10

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

 

11

Purchase of an in-process research and development asset which had no future alternative use.

     

12

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 ~18% on a GAAP basis and ~21% on a non-GAAP basis.

 

13

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 Guidance Range 2, 3

     
 

(in thousands, except %)

 

2017
Actuals
1, 2

   

Prior

   

Current

     
 

Non-GAAP Gross Margin % [A]

 

73.9%

   

72.6%

   

72.3%

     
 

Non-cash purchase accounting adjustments on acquisitions 4

 

(0.1%)

   

(0.1%)

   

(0.1%)

     
 

GAAP Gross Margin [B]

 

73.9%

   

72.5%

   

72.2%

     
                               
 

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

 

52.5%

   

50.6%

   

51.5% - 52.0%

     
 

Non-recurring consulting fees 5

 

0.0%

   

0.6%

   

0.6%

     
 

GAAP Sales, Marketing & Administrative Expense [D]

 

52.5%

   

51.2%

   

52.1% - 52.6%

     
                               
 

GAAP & Non-GAAP Research & Development Expense [E]

 

4.9%

   

5.3%

   

5.3%

     
                               
 

Purchase of in-process research and development [F] 6

 

0.0%

   

0.0%

   

0.8%

     
 

Litigation related expenses and settlements [G] 7

 

0.5%

   

2.9%

   

3.0%

     
 

Amortization of intangible assets [H] 8

 

4.7%

   

4.5%

   

4.5%

     
 

Business transition costs [I] 9

 

0.5%

   

0.6%

   

0.6%

     
                               
 

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

 

16.5%

   

16.7%

   

15.0% - 15.5%

     
                               
 

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

 

10.9%

   

8.0%

   

5.4% - 5.9%

     
                               

1

Amounts for 2017 have been recasted and presented based on our full retrospective method of adoption of ASC 606.   Commencing with the fourth quarter of 2017, amounts also reflect 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 July 31, 2018. Current guidance reflects the range provided October 30, 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

Purchase of an in-process research and development asset which had no future alternative use.

     

7

For 2017, amounts relate primarily to the Medtronic litigation matter.  For 2018, amounts relate primarily to the loss recorded in connection with the settlement of the Madsen Medical, Inc. litigation matter.  Commencing with the fourth quarter of 2017, amounts also reflect 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

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

     

9

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 Guidance Range 2, 3

   
 

(in thousands, except %)

2017
Actuals 1, 2

   

Prior

   

Current

   
 

Net Income / (Loss)

7.9%

   

2.2%

   

1.0% - 1.4%

   
 

Interest (income) / expense, net

3.7%

   

3.5%

   

3.4%

   
 

Provision for income taxes

(0.7%)

   

1.1%

   

0.2%

   
 

Depreciation and amortization 4

11.7%

   

11.5%

   

11.5%

   
 

EBITDA

22.6%

   

18.3%

   

16.1% - 16.6%

   
 

Non-cash stock based compensation

2.2%

   

2.6%

   

2.8%

   
 

Business transition costs 5

0.4%

   

0.6%

   

0.7%

   
 

Non-cash purchase accounting adjustments on acquisitions 6

0.1%

   

0.1%

   

0.1%

   
 

Litigation related expenses and settlements 7

0.5%

   

2.9%

   

3.0%

   
 

Non-recurring consulting fees 8

0.0%

   

0.6%

   

0.6%

   
 

Purchase of in-process research and development 9

0.0%

   

0.0%

   

0.8%

   
 

Net loss on strategic investments

0.0%

   

0.8%

   

0.3%

   
 

Adjusted EBITDA

25.7%

   

25.9%

   

24.4% - 24.9%

   
                           

1

Amounts for 2017 have been recasted and presented based on our full retrospective method of adoption of ASC 606.   Commencing with the fourth quarter of 2017, amounts also reflect 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 July 31, 2018. Current guidance reflects the range provided October 30, 2018.

4

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

For 2017, amounts relate primarily to the Medtronic litigation matter.  For 2018, amounts relate primarily to the loss recorded in connection with the settlement of the Madsen Medical, Inc. litigation matter.  Commencing with the fourth quarter of 2017, amounts also reflect 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.

   

9

Purchase of an in-process research and development asset which had no future alternative use.

   
 

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, purchased in-process research and development, one-time restructuring and related items in connection with acquisitions, investments and divestitures, non-recurring consulting fees, certain litigation expenses and settlements, gains and losses from strategic investments, and non-cash interest expense (excluding debt issuance cost). Management also uses certain non-GAAP measures which are intended to exclude the impact of foreign exchange currency fluctuations. The measure constant currency utilizes 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, purchased in-process research and development, one-time restructuring and related items in connection with acquisitions, investments and divestitures, non-recurring consulting fees, certain litigation expenses and settlements, gains and losses on strategic investments, 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 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 consistency and comparability, the Company has re-casted 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 September 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 6

 

Net
Income to Adjusted
EBITDA

 
 

Reported GAAP

$

197,141

 

$

17,971

 

$

15,923

 

$

0.30

   

53,189

 

$

15,923

 
 

% of revenue

 

72.7

%

 

6.6

%

                       
 

Non-cash purchase accounting adjustments on acquisitions 1

 

270

   

270

   

270

               

270

 
 

Amortization of intangible assets

       

12,349

   

12,349

                   
 

Litigation related expenses and settlements 2

       

1,333

   

1,333

               

1,333

 
 

Business transition costs 3

       

1,443

   

1,443

               

1,443

 
 

Purchase of in-process research and development 4

       

8,913

   

8,913

               

8,913

 
 

Non-cash interest expense on convertible notes

             

4,208

                   
 

Net gain on strategic investments

             

(5,137)

               

(5,137)

 
 

Tax effect of adjustments 5

             

(9,798)

                   
 

Interest expense/(income), net

                               

8,905

 
 

Income tax benefit

                               

(2,618)

 
 

Depreciation and amortization

                               

32,258

 
 

Non-cash stock based compensation

                               

11,068

 
 

Adjusted Non-GAAP

$

197,411

 

$

42,279

 

$

29,504

 

$

0.56

   

52,539

 

$

72,358

 
 

% of revenue

 

72.8

%

 

15.6

%

                   

26.7

%

                                       

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 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

Purchase of an in-process research and development asset which had no future alternative use.

 

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 ~18% on a GAAP basis and ~21% on a non-GAAP basis.

 

6

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 Nine Months Ended September 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 7

 

Net Loss to Adjusted
EBITDA

 
 

Reported GAAP

$

588,357

 

$

28,312

 

$

322

 

$

0.01

   

52,296

 

$

322

 
 

% of revenue

 

72.3

%

 

3.5

%

                       
 

Non-cash purchase accounting adjustments on acquisitions 1

 

1,080

   

1,080

   

1,080

               

1,080

 
 

Non-recurring consulting fees 2

       

6,084

   

6,084

               

6,084

 
 

Amortization of intangible assets

       

37,402

   

37,402

                   
 

Litigation related expenses and settlements 3

       

31,302

   

31,302

               

31,302

 
 

Business transition costs 4

       

7,694

   

7,694

               

7,694

 
 

Purchase of in-process research and development 5

       

8,913

   

8,913

               

8,913

 
 

Non-cash interest expense on convertible notes

             

12,460

                   
 

Net loss on strategic investments

             

3,867

               

3,867

 
 

Tax effect of adjustments 6

             

(28,682)

                   
 

Interest expense/(income), net

                               

28,078

 
 

Income tax benefit

                               

(7,931)

 
 

Depreciation and amortization

                               

96,409

 
 

Non-cash stock based compensation

                               

22,062

 
 

Adjusted Non-GAAP

$

589,437

 

$

120,787

 

$

80,442

 

$

1.54

   

52,079

 

$

197,880

 
 

% of revenue

 

72.5

%

 

14.8

%

                   

24.3

%

                                       

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

Purchase of an in-process research and development asset which had no future alternative use.

 

6

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 ~18% on a GAAP basis and ~21% on a non-GAAP basis.

 

7

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 Three Months Ended September 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 6

 

Net Income to Adjusted EBITDA

 
 

Reported GAAP 1

$

181,544

 

$

30,450

 

$

33,528

 

$

0.64

   

52,794

 

$

33,528

 
 

% of revenue

 

73.5

%

 

12.3

%

                       
 

Non-cash purchase accounting adjustments on acquisitions 2

 

136

   

136

   

136

               

136

 
 

Amortization of intangible assets 3

       

11,630

   

11,307

                   
 

Litigation related expenses and settlements

       

750

   

750

               

750

 
 

Business transition costs 4

       

345

   

345

               

345

 
 

Non-cash interest expense on convertible notes

             

3,980

                   
 

Tax effect of adjustments 5

             

(23,413)

                   
 

Interest expense/(income), net

                               

8,819

 
 

Income tax benefit

                               

(11,604)

 
 

Depreciation and amortization 3

                               

29,858

 
 

Non-cash stock based compensation

                               

(427)

 
 

Adjusted Non-GAAP

$

181,680

 

$

43,311

 

$

26,633

 

$

0.51

   

51,751

 

$

61,405

 
 

% of revenue

 

73.5

%

 

17.5

%

                   

24.9

%

                                       

1

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

 

2

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.

 

3

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.

 

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 ~7% benefit on a GAAP basis and ~34% on a non-GAAP basis.

 

6

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 Nine Months Ended September 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 WASO6

 

Net
Income to
Adjusted
EBITDA

 
 

Reported GAAP 1

$

562,327

 

$

82,078

 

$

58,121

 

$

1.03

   

56,304

 

$

58,121

 
 

% of revenue

 

74.4

%

 

10.9

%

                       
 

Non-cash purchase accounting adjustments on acquisitions 2

 

136

   

136

   

136

               

136

 
 

Amortization of intangible assets 3

       

35,040

   

34,073

                   
 

Litigation related expenses and settlements

       

750

   

750

               

750

 
 

Business transition costs 4

       

1,769

   

1,769

               

1,769

 
 

Non-cash interest expense on convertible notes

             

13,244

                   
 

Tax effect of adjustments 5

             

(38,203)

                   
 

Interest expense/(income), net

                               

28,425

 
 

Income tax benefit

                               

(3,543)

 
 

Depreciation and amortization 3

                               

87,872

 
 

Non-cash stock based compensation

                               

14,984

 
 

Adjusted Non-GAAP

$

562,463

 

$

119,773

 

$

69,890

 

$

1.33

   

52,507

 

$

188,514

 
 

% of revenue

 

74.5

%

 

15.9

%

                   

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

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.

 

3

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.

 

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 ~7% benefit on a GAAP basis and ~34% on a non-GAAP basis.

 

6

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 third 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 November 27, 2018. In addition, a telephone replay of the call will be available until November 6, 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: 13683334.

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 third quarter 2018, as well as projections for 2018 financial guidance and longer-term financial performance goals. The Company's results for the third 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, 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 September 30,

   

Nine Months Ended September 30,

 

(unaudited)

 

2018

   

2017

   

2018

   

2017

 

Revenue

                               

Product revenue

 

$

242,030

   

$

227,321

   

$

728,232

   

$

690,100

 

Service revenue

   

29,271

     

19,730

     

85,155

     

65,363

 

Total revenue

   

271,301

     

247,051

     

813,387

     

755,463

 

Cost of revenue (excluding below amortization of intangible assets)

                               

Cost of products sold

   

54,741

     

50,856

     

168,134

     

147,292

 

Cost of services

   

19,419

     

14,651

     

56,896

     

45,844

 

Total cost of revenue

   

74,160

     

65,507

     

225,030

     

193,136

 

Gross profit

   

197,141

     

181,544

     

588,357

     

562,327

 

Operating expenses:

                               

Sales, marketing and administrative

   

141,211

     

125,649

     

433,635

     

404,984

 

Research and development

   

15,254

     

12,720

     

44,601

     

37,706

 

Amortization of intangible assets

   

12,349

     

11,630

     

37,402

     

35,040

 

Purchase of in-process research and development

   

8,913

     

     

8,913

     

 

Litigation liability loss

   

     

750

     

27,800

     

750

 

Business transition costs

   

1,443

     

345

     

7,694

     

1,769

 

Total operating expenses

   

179,170

     

151,094

     

560,045

     

480,249

 

Interest and other expense, net:

                               

Interest income

   

130

     

79

     

380

     

355

 

Interest expense

   

(9,035)

     

(8,898)

     

(28,458)

     

(28,780)

 

Other income (expense), net

   

4,239

     

(139)

     

(7,843)

     

(382)

 

Total interest and other expense, net

   

(4,666)

     

(8,958)

     

(35,921)

     

(28,807)

 

Income (loss) before income taxes

   

13,305

     

21,492

     

(7,609)

     

53,271

 

Income tax benefit

   

2,618

     

11,604

     

7,931

     

3,543

 

Consolidated net income

 

$

15,923

   

$

33,096

   

$

322

   

$

56,814

 

Add back net loss attributable to non-controlling interest

 

$

   

$

(432)

   

$

   

$

(1,307)

 

Net income attributable to NuVasive, Inc.

 

$

15,923

   

$

33,528

   

$

322

   

$

58,121

 
                                 

Net income per share attributable to NuVasive, Inc.:

                               

Basic

 

$

0.31

   

$

0.66

   

$

0.01

   

$

1.14

 

Diluted

 

$

0.30

   

$

0.64

   

$

0.01

   

$

1.03

 

Weighted average shares outstanding:

                               

Basic

   

51,439

     

50,747

     

51,341

     

50,799

 

Diluted

   

53,189

     

52,794

     

52,296

     

56,304

 

 

NuVasive, Inc.

 

Consolidated Balance Sheets

 

(in thousands, except par values and share amounts)

 
                 
   

September 30, 2018

   

December 31, 2017

 

ASSETS

 

(Unaudited)

         

Current assets:

               

Cash and cash equivalents

 

$

75,112

   

$

72,803

 

Restricted cash and investments

   

     

3,901

 

Accounts receivable, net of allowances of $16,883 and $13,026, respectively

   

191,571

     

200,220

 

Inventory, net

   

271,347

     

247,138

 

Prepaid income taxes

   

18,215

     

17,209

 

Prepaid expenses and other current assets

   

23,408

     

18,792

 

Total current assets

   

579,653

     

560,063

 

Property and equipment, net

   

237,491

     

215,326

 

Intangible assets, net

   

262,945

     

280,774

 

Goodwill

   

560,401

     

536,926

 

Deferred tax assets

   

4,939

     

6,440

 

Restricted cash and investments

   

2,394

     

1,494

 

Other assets

   

27,577

     

39,117

 

Total assets

 

$

1,675,400

   

$

1,640,140

 

LIABILITIES AND EQUITY

               

Current liabilities:

               

Accounts payable and accrued liabilities

 

$

100,912

   

$

75,767

 

Contingent consideration liabilities

   

2,207

     

18,952

 

Accrued payroll and related expenses

   

47,798

     

55,618

 

Litigation liabilities

   

8,316

     

8,150

 

Short-term borrowings

   

5,000

     

 

Income tax liabilities

   

4,002

     

2,908

 

Total current liabilities

   

168,235

     

161,395

 

Long-term senior convertible notes

   

597,518

     

582,920

 

Deferred and income tax liabilities, non-current

   

6,200

     

18,870

 

Other long-term liabilities

   

99,826

     

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 September 30, 2018 and December 31, 2017, 56,566,654 and 56,164,060 issued and outstanding at September 30, 2018 and December 31, 2017, respectively

   

61

     

60

 

Additional paid-in capital

   

1,380,519

     

1,363,549

 

Accumulated other comprehensive loss

   

(10,194)

     

(6,933)

 

Retained earnings

   

5,084

     

4,762

 

Treasury stock at cost; 5,114,438 shares and 5,001,886 shares at September 30, 2018 and December 31, 2017, respectively

   

(571,849)

     

(565,867)

 

Total NuVasive, Inc. stockholders' equity

   

803,621

     

795,571

 

Non-controlling interest

   

     

3,845

 

Total equity

   

803,621

     

799,416

 

Total liabilities and equity

 

$

1,675,400

   

$

1,640,140

 

 

NuVasive, Inc.

 

Consolidated Statements of Cash Flows

 

(in thousands)

 
                 
   

Nine Months Ended September 30,

 

(unaudited)

 

2018

   

2017

 

Operating activities:

               

Consolidated net income

 

$

322

   

$

56,814

 

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

   

96,409

     

88,922

 

Purchase of in-process research and development

   

8,913

     

 

Amortization of non-cash interest

   

14,986

     

15,676

 

Stock-based compensation

   

22,062

     

14,984

 

Reserves on current assets

   

11,116

     

1,745

 

Net loss on strategic investments

   

3,867

     

 

Other non-cash adjustments

   

16,560

     

11,029

 

Deferred income taxes

   

(9,938)

     

(4,277)

 

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

               

Accounts receivable

   

8,622

     

(12,448)

 

Inventory

   

(33,491)

     

(36,661)

 

Contingent consideration liabilities

   

(300)

     

(11,200)

 

Prepaid expenses and other current assets

   

(1,047)

     

169

 

Accounts payable and accrued liabilities

   

21,700

     

(5,974)

 

Accrued payroll and related expenses

   

(9,566)

     

245

 

Litigation liability

   

166

     

1,000

 

Income taxes

   

108

     

(1,195)

 

Net cash provided by operating activities