NuVasive Investor Relations

2019 Guidance Range ¹

Prior

Current

 GAAP 

 Non-GAAP 

 GAAP 

 Non-GAAP 

Revenue

 $1.14B - $1.16B 

 $1.14B - $1.16B 

 $1.14B - $1.16B 

 $1.14B - $1.16B 

  % Growth - Reported

3.5% - 5.5%

3.5% - 5.5%

3.5% - 5.5%

3.5% - 5.5%

% Growth - Constant Currency²

3.8% - 5.8%

3.8% - 5.8%

Operating margin

9.5% - 10.0%

15.0% - 15.5%

9.0% - 9.5%

15.0% - 15.5%

Earnings per share

 $1.00 - $1.10 

 $2.20 - $2.30 

 $0.95 - $1.05 

 $2.20 - $2.30 

EBITDA margin

21.2% - 21.7%

25.2% - 25.7%

20.9% - 21.3%

25.2% - 25.7%

Tax Rate

~24%

~23%

~22%

~23%

     ¹

Prior guidance reflects the range provided February 20, 2019. Current guidance reflects the range provided May 1, 2019.

     ²

Constant currency is a measure that adjusts US GAAP revenue for the impact of currency over the same period in the prior year.

Reconciliation of Full Year EPS Guidance

2019 Guidance Range  ^{1, 2}

2018

Actuals ¹

Prior ³

Current ⁴

GAAP net income per share

$0.24

 $1.00 - 1.10 

 $0.95 - 1.05 

Impact of change to diluted share count

—

—

—

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

$0.24

 $1.00 - 1.10 

 $0.95 - 1.05 

Business transition costs ⁵

0.22

—

0.10

Non-cash purchase accounting adjustments on acquisitions ⁶

0.02

—

—

Non-cash interest expense on convertible notes

0.32

0.30

0.30

Litigation related expenses and settlements ⁷

0.65

0.20

0.20

Non-recurring consulting fees ⁸

0.12

—

—

Net loss on strategic investments

0.07

—

—

Amortization of intangible assets

0.97

0.90

0.95

Purchase of in-process research and development ⁹

0.17

—

—

European medical device regulation¹⁰

0.01

0.10

0.10

Tax effect of adjustments¹¹

(0.56)

(0.30)

(0.40)

Non-GAAP earnings per share

$2.23

 $2.20 - 2.30 

 $2.20 - 2.30 

GAAP Weighted shares outstanding - basic

51,382

52,017

51,999

GAAP Weighted shares outstanding - diluted

52,355

52,938

52,991

Non-GAAP Weighted shares outstanding - diluted ¹²

52,178

52,714

52,718

¹

Items may not foot due to rounding.

²

Prior guidance reflects the range provided February 20, 2019. Current guidance reflects the range provided May 1, 2019.

³

Effective tax expense rate of ~24% applied to GAAP earnings and ~23% applied to Non-GAAP earnings.

⁴

Effective tax expense rate of ~22% applied to GAAP earnings and ~23% applied to Non-GAAP earnings.

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

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.

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.

¹⁰

Represents costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with European medical device regulation.

¹¹

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 rate of ~43% benefit on a GAAP basis and ~18% on a non-GAAP basis in 2018.

¹²

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 %

2019 Guidance Range ^{1, 2}

(in thousands, except %)

2018
Actuals ¹

Prior

Current

Non-GAAP Gross Margin % [A]

71.9%

72.5% - 73.0%

72.5% - 73.0%

Non-cash purchase accounting adjustments on acquisitions ³

(0.1%)

0.0%

0.0%

GAAP Gross Margin [B]

71.8%

72.5% - 73.0%

72.5% - 73.0%

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

51.1%

51.0% - 52.0%

51.0% - 52.0%

Non-recurring consulting fees⁴

0.6%

0.0%

0.0%

Litigation related expenses⁵

0.6%

0.7%

0.7%

GAAP Sales, Marketing & Administrative Expense [D]

52.3%

51.7% - 52.7%

51.7% - 52.7%

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

5.6%

6.0%

6.0%

Litigation related settlements [F]⁶

2.5%

0.0%

0.0%

Amortization of intangible assets [G]

4.6%

4.2%

4.3%

Purchase of in-process research and development [H]⁷

0.8%

0.0%

0.0%

European medical device regulation [I]⁸

0.0%

0.6%

0.6%

Business transition costs [J] ⁹

1.0%

0.0%

0.4%

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

15.1%

15.0% - 15.5%

15.0% - 15.5%

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

4.9%

9.5% - 10.0%

9.0% - 9.5%

¹

Items may not foot due to rounding.

²

Prior guidance reflects the range provided February 20, 2019. Current guidance reflects the range provided May 1, 2019.

³

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.

⁴

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

⁵

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.

⁶

Represents the loss recorded in connection with the settlement of the Madsen Medical, Inc. litigation matter.

⁷

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

⁸

Represents costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with European medical device regulation.

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 Margin %

2019 Guidance Range^{1, 5}

(in thousands, except %)

2018 Actuals ^{1, 2}

Prior ³

Current⁴

Net Income

1.1%

4.6% - 5.0%

4.3% - 4.8%

Interest income / expense, net 

3.4%

3.3%

3.3%

Income tax benefit / (expense)

(0.3%)

1.5%

1.3%

Depreciation and amortization

11.8%

11.7%

12.0%

EBITDA Margin

16.0%

21.2% - 21.7%

20.9% - 21.3%

Non-cash stock based compensation

2.3%

2.7%

2.6%

Business transition costs⁶

1.0%

0.0%

0.4%

Non-cash purchase accounting adjustments on acquisitions⁷

0.1%

0.0%

0.0%

Litigation related expenses and settlements ⁸

3.1%

0.7%

0.7%

Non-recurring consulting fees ⁹

0.6%

0.0%

0.0%

In-process research and development¹⁰

0.8%

0.0%

0.0%

European medical device regulation¹¹

0.0%

0.6%

0.6%

Net loss on strategic investments

0.3%

0.0%

0.0%

Adjusted EBITDA Margin

24.3%

25.2% - 25.7%

25.2% - 25.7%

¹

Items may not foot due to rounding.

  ²

Effective tax expense rate of ~43% benefit applied to GAAP earnings and ~18% applied to Non-GAAP earnings.

 ³

Effective tax expense rate of ~24% applied to GAAP earnings and ~23% applied to Non-GAAP earnings.

⁴

Effective tax expense rate of ~22% applied to GAAP earnings and ~23% applied to Non-GAAP earnings.

⁵

Prior guidance reflects the range provided February 20, 2019. Current guidance reflects the range provided May 1, 2019.

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

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.

⁹

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

¹⁰

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

¹¹

Represents costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with European medical device regulation.

For the Three Months Ended March 31, 2019

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited - in thousands, except per share data)

Gross
Profit

Operating
Profit

Net
Income 

Diluted
EPS

Diluted
WASO ⁵

Net Income
to Adjusted
EBITDA

Reported GAAP

$      200,282

$         20,173

$         9,386

$   0.18

52,480

$                       9,386

% of revenue

72.9%

7.3%

Amortization of intangible assets

13,625

13,625

Litigation related expenses and settlements¹

3,046

3,046

3,046

Business transition costs²

3,833

3,833

3,833

European medical device regulation³

332

332

332

Non-cash interest expense on convertible notes

4,319

Tax effect of adjustments ⁴

(6,933)

Interest expense/(income), net

9,104

Income tax expense

1,317

Depreciation and amortization

34,054

Non-cash stock based compensation

5,717

Adjusted Non-GAAP

$      200,282

$         41,009

$       27,608

$   0.53

52,480

$                     66,789

% of revenue

72.9%

14.9%

24.3%

¹

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.

²

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.

³

Represents costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with European medical device regulation.

⁴

Represents the impact from tax affecting the adjustments above at their statutory tax rate. As of May 1, 2019, the Company estimated an annual tax rate of ~22% on a GAAP basis and ~23% on a non-GAAP basis.

⁵

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 March 31, 2018

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited - in thousands, except per share data)

Gross
Profit

Operating
Profit
(Loss)

Net Income
(Loss)

Diluted
EPS

Diluted
WASO ⁶

Net Income
(Loss) to
Adjusted
EBITDA

Reported GAAP

$      186,708

$       (18,222)

$      (27,132)

$ (0.53)

51,226

$                   (27,132)

% of revenue

71.7%

(7.0%)

Non-cash purchase accounting adjustments on acquisitions ¹

405

405

405

405

Non-recurring consulting fees ²

6,084

6,084

6,084

Amortization of intangible assets

12,425

12,425

Litigation related expenses and settlements ³

29,586

29,586

29,586

Business transition costs ⁴

2,253

2,253

2,253

Non-cash interest expense on convertible notes

4,099

Net loss on strategic investments

9,004

9,004

Tax effect of adjustments ⁵

(16,109)

Interest expense/(income), net

9,333

Income tax benefit

(10,126)

Depreciation and amortization

32,090

Non-cash stock based compensation

4,134

Adjusted Non-GAAP

$      187,113

$         32,531

$       20,615

$   0.40

51,742

$                     55,631

% of revenue

71.8%

12.5%

21.4%

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

Represents the impact from tax affecting the adjustments above at their statutory tax rate. As of May 1, 2018, the Company estimated an annual tax rate of ~31% on a GAAP basis and ~23% 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.

NuVasive, Inc. 

Consolidated Statements of Operations 

(in thousands, except per share data)

Three Months Ended March 31,

(unaudited)

2019

2018

Revenue

Product revenue

$ 243,823

$ 233,515

Service revenue

30,953

27,007

Total revenue

274,776

260,522

Cost of revenue (excluding below amortization of intangible assets)

Cost of products sold 

54,486

55,191

Cost of services

20,008

18,623

Total cost of revenue

74,494

73,814

Gross profit

200,282

186,708

Operating expenses:

Sales, marketing and administrative

145,076

146,766

Research and development

17,575

14,491

Amortization of intangible assets

13,625

12,425

Litigation liability loss

—

28,995

Business transition costs

3,833

2,253

Total operating expenses

180,109

204,930

Interest and other expense, net:

Interest income

409

134

Interest expense

(9,513)

(9,467)

Other (expense) income, net

(366)

(9,703)

Total interest and other expense, net

(9,470)

(19,036)

Income (loss) before income taxes

10,703

(37,258)

Income tax (expense) benefit

(1,317)

10,126

Consolidated net income (loss)

$     9,386

$ (27,132)

Net income (loss) per share:

Basic

$       0.18

$     (0.53)

Diluted

$       0.18

$     (0.53)

Weighted average shares outstanding:

Basic

51,675

51,226

Diluted

52,480

51,226

NuVasive, Inc. 

Consolidated Balance Sheets 

(in thousands, except par values and share amounts) 

March 31, 2019

December 31, 2018

ASSETS

(unaudited)

Current assets:

Cash and cash equivalents

$            93,391

$                117,840

Accounts receivable, net of allowances of $16,125 and $16,171, respectively

194,358

196,487

Inventory, net

288,539

273,244

Prepaid income taxes

16,484

16,905

Prepaid expenses and other current assets

13,555

13,733

Total current assets

606,327

618,209

Property and equipment, net

247,533

238,841

Intangible assets, net

240,663

252,048

Goodwill

561,235

561,366

Operating lease right-of-use assets

61,400

—

Deferred tax assets

4,369

5,263

Restricted cash and investments

2,395

2,395

Other assets

27,180

29,737

Total assets

$       1,751,102

$             1,707,859

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$            99,991

$                105,877

Contingent consideration liabilities

6,637

7,560

Accrued payroll and related expenses

44,824

59,960

Operating lease liabilities

6,320

—

Litigation liabilities

2,045

1,415

Income tax liabilities

1,964

4,648

Total current liabilities

161,781

179,460

Senior convertible notes

607,607

602,526

Deferred and income tax liabilities

5,641

4,964

Operating lease liabilities

67,112

—

Other long-term liabilities

68,955

86,384

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 March 31, 2019 and December 31, 2018, 57,119,047 and 56,648,077 issued and outstanding at March 31, 2019 and December 31, 2018, respectively

61

61

Additional paid-in capital

1,402,797

1,397,829

Accumulated other comprehensive loss

(9,122)

(8,628)

Retained earnings

26,627

17,241

Treasury stock at cost; 5,262,478 shares and 5,116,496 shares at March 31, 2019 and December 31, 2018, respectively

(580,357)

(571,978)

Total equity

840,006

834,525

Total liabilities and equity

$       1,751,102

$             1,707,859

NuVasive, Inc. 

Consolidated Statements of Cash Flows 

(in thousands) 

Three Months Ended March 31,

(unaudited)

2019

2018

Operating activities:

Consolidated net income (loss)

$   9,386

$ (27,132)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

34,054

32,090

Impairment of strategic investment

—

9,003

Amortization of non-cash interest

5,210

4,925

Stock-based compensation

5,717

4,134

Reserves on current assets

3,785

4,080

Other non-cash adjustments

2,816

4,456

Deferred income taxes

1,547

(12,671)

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

Accounts receivable

1,620

16,933

Inventory

(19,292)

(12,126)

Prepaid expenses and other current assets

(1,399)

(1,737)

Accounts payable and accrued liabilities

(2,523)

1,579

Accrued payroll and related expenses

(14,815)

(18,493)

Litigation liability

630

30,040

Income taxes

(2,261)

1,294

Net cash provided by operating activities

24,475

36,375

Investing activities:

Acquisitions and investments

—

(51,794)

Purchases of intangible assets

(6,827)

(2,657)

Purchases of property and equipment

(33,929)

(29,109)

Net cash used in investing activities

(40,756)

(83,560)

Financing activities:

Proceeds from the issuance of common stock

—

336

Purchases of treasury stock

(8,177)

(2,155)

Payment of contingent consideration

(1,435)

(8,900)

Proceeds from revolving line of credit

—

65,000

Repayments on revolving line of credit

—

(10,000)

Other financing activities

1,556

(141)

Net cash (used in) provided by financing activities

(8,056)

44,140

Effect of exchange rate changes on cash

(112)

982

Decrease in cash, cash equivalents and restricted cash

(24,449)

(2,063)

Cash, cash equivalents and restricted cash at beginning of period

120,235

78,198

Cash, cash equivalents and restricted cash at end of period

$ 95,786

$  76,135