nuva-8k_20181030.htm

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 30, 2018

 

NuVasive, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

000-50744

33-0768598

(State or Other Jurisdiction

of Incorporation)

(Commission

File Number)

(I.R.S. Employer

Identification Number)

 

 

 

7475 Lusk Boulevard, San Diego, California 92121

(Address of principal executive offices) (Zip Code)

 

 

 

(858) 909-1800

(Registrant’s telephone number, including area code)

 

 

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 



Item 2.02

Results of Operations and Financial Condition.

On October 30, 2018, NuVasive, Inc. (the “Company”) issued a press release announcing its financial results for the quarter ended September 30, 2018. A copy of this press release is furnished as Exhibit 99.1 to this Current Report.

Item 7.01

Regulation FD Disclosure.

During a conference call scheduled to be held at 1:30 p.m. Pacific Time on October 30, 2018, the Company’s Chairman and Chief Executive Officer and Chief Financial Officer will discuss the Company’s results for the quarter ended September 30, 2018 and the Company’s outlook for the year ending December 31, 2018. The Company’s slide presentation for the conference call is furnished as Exhibit 99.2 to this Current Report.

The information contained in this Current Report and the Exhibits hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

Item 9.01

Financial Statements and Exhibits.

 

 

(d)

Exhibits.

 

 

Exhibit No.

Description

99.1

Press release issued by NuVasive, Inc. on October 30, 2018

99.2

Slide presentation



SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

NUVASIVE, INC.

 

 

 

Date: October 30, 2018

 

/s/ Rajesh Asarpota

 

 

Rajesh Asarpota

 

 

Executive Vice President and Chief Financial Officer

 

 

 

nuva-ex991_8.htm

Exhibit 99.1


 

NEWS RELEASE

 

 

NUVASIVE REPORTS THIRD QUARTER 2018 FINANCIAL RESULTS

 

SAN DIEGO – October 30, 2018 - 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.  

 

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 PulseTM 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.  

 

 

1

 


 

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.

2

 


 

 

 

 

 

 

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.

 

 

3

 


 

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.

 

 

4

 


 

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.

 

 

 

5

 


 

 

 

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.

 

 

 

6

 


 

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.

 

 

7

 


 

 

 

 

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.

 

 

 

8

 


 

 

 

 

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.

 

 

 

9

 


 

 

 

 

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