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%

3.4% - 5.4%

3.4% - 5.4%

% Growth - Constant Currency²

3.8% - 5.8%

3.8% - 5.8%

Operating margin

9.0% - 9.5%

15.0% - 15.5%

9.1% - 9.5%

15.3% - 15.7%

Earnings per share

 $0.95 - $1.05 

 $2.20 - $2.30 

 $0.93 - $1.03 

 $2.25 - $2.35 

EBITDA margin

20.9% - 21.3%

25.2% - 25.7%

21.2% - 21.5%

25.5% - 25.9%

Tax Rate

~22%

~23%

~24%

~23%

¹

Prior guidance reflects the range provided May 1, 2019. Current guidance reflects the range provided July 30, 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

 $0.95 - 1.05 

 $0.93 - 1.03 

Impact of change to diluted share count

—

—

—

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

$0.24

 $0.95 - 1.05 

 $0.93 - 1.03 

Business transition costs ⁵

0.22

0.10

0.11

Non-cash purchase accounting adjustments on acquisitions ⁶

0.02

—

—

Non-cash interest expense on convertible notes

0.32

0.30

0.34

Litigation related expenses and settlements ⁷

0.65

0.20

0.18

Non-recurring consulting fees ⁸

0.12

—

—

Net loss on strategic investments

0.07

—

—

Amortization of intangible assets

0.97

0.95

0.96

Purchase of in-process research and development ⁹

0.17

—

—

European medical device regulation¹⁰

0.01

0.10

0.11

Tax effect of adjustments¹¹

(0.56)

(0.40)

(0.38)

Non-GAAP earnings per share

$2.23

 $2.20 - 2.30 

 $2.25 - 2.35 

GAAP Weighted shares outstanding - basic

51,382

51,999

51,954

GAAP Weighted shares outstanding - diluted

52,355

52,991

52,898

Non-GAAP Weighted shares outstanding - diluted ¹²

52,178

52,718

52,586

¹

Items may not foot due to rounding.

²

Prior guidance reflects the range provided May 1, 2019. Current guidance reflects the range provided July 30, 2019.

³

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

⁴

Effective tax expense rate of ~24% 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

Costs related 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%

50.8% - 51.7%

Non-recurring consulting fees⁴

0.6%

0.0%

0.0%

Litigation related expenses⁵

0.6%

0.7%

0.8%

GAAP Sales, Marketing & Administrative Expense [D]

52.3%

51.7% - 52.7%

51.6% - 52.5%

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%

4.3%

4.4%

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%

0.5%

Business transition costs [J] ⁹

1.0%

0.4%

0.5%

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

15.1%

15.0% - 15.5%

15.3% - 15.7%

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

4.9%

9.0% - 9.5%

9.1% - 9.5%

 ¹

Items may not foot due to rounding.

²

Prior guidance reflects the range provided May 1, 2019. Current guidance reflects the range provided July 30, 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

Costs related 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%

4.3% - 4.8%

4.3% - 4.7%

Interest income / expense, net 

3.4%

3.3%

3.3%

Income tax benefit / (expense)

(0.3%)

1.3%

1.5%

Depreciation and amortization

11.8%

12.0%

11.9%

EBITDA Margin

16.0%

20.9% - 21.3%

21.2% - 21.5%

Non-cash stock based compensation

2.3%

2.6%

2.5%

Business transition costs⁶

1.0%

0.4%

0.5%

Non-cash purchase accounting adjustments on acquisitions⁷

0.1%

0.0%

0.0%

Litigation related expenses and settlements ⁸

3.1%

0.7%

0.8%

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%

0.5%

Net loss on strategic investments

0.3%

0.0%

0.0%

Adjusted EBITDA Margin

24.3%

25.2% - 25.7%

25.5% - 25.9%

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 ~22% applied to GAAP earnings and ~23% applied to Non-GAAP earnings.

⁴

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

⁵

Prior guidance reflects the range provided May 1, 2019. Current guidance reflects the range provided July 30, 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

Charges represent the 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 June 30, 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

$      214,526

$    30,197

$      14,962

$   0.29

52,460

$                       14,962

% of revenue

73.4%

10.3%

Amortization of intangible assets

12,277

12,277

Litigation related expenses and settlements¹

2,031

2,031

2,031

Business transition costs²

1,646

1,646

1,646

European medical device regulation³

1,400

1,400

1,400

Non-cash interest expense on convertible notes

4,374

Tax effect of adjustments ⁴

(3,881)

Interest expense/(income), net

9,323

Income tax expense

5,921

Depreciation and amortization

33,560

Non-cash stock based compensation

6,901

Adjusted Non-GAAP

$      214,526

$    47,551

$      32,809

$   0.63

52,460

$                       75,744

% of revenue

73.4%

16.3%

25.9%

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 July 30, 2019, the Company estimated an annual tax rate of ~24% 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 Six Months Ended June 30, 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

$      414,808

$    50,370

$      24,348

$   0.46

52,471

$                       24,348

% of revenue

73.2%

8.9%

Amortization of intangible assets

25,902

25,902

Litigation related expenses and settlements ¹

5,077

5,077

5,077

Business transition costs²

5,479

5,479

5,479

European medical device regulation³

1,732

1,732

1,732

Non-cash interest expense on convertible notes

8,693

Tax effect of adjustments⁴

(10,814)

Interest expense/(income), net

18,427

Income tax expense

7,238

Depreciation and amortization

67,614

Non-cash stock based compensation

12,618

Adjusted Non-GAAP

$      414,808

$    88,560

$      60,417

$   1.15

52,471

$                     142,533

% of revenue

73.2%

15.6%

25.1%

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 July 30, 2019, the Company estimated an annual tax rate of ~24% 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 June 30, 2018

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

$      204,508

$    28,563

$      11,531

$   0.22

51,956

$                       11,531

% of revenue

72.6%

10.1%

Non-cash purchase accounting adjustments on acquisitions ¹

405

405

405

405

Amortization of intangible assets

12,628

12,628

Litigation related expenses and settlements ²

383

383

383

Business transition costs ³

3,998

3,998

3,998

Non-cash interest expense on convertible notes

4,153

Tax effect of adjustments ⁴

(2,775)

Interest expense/(income), net

9,840

Income tax expense

4,813

Depreciation and amortization

32,061

Non-cash stock based compensation

6,860

Adjusted Non-GAAP

$      204,913

$    45,977

$      30,323

$   0.58

51,956

$                       69,891

% of revenue

72.8%

16.3%

24.8%

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 the change in the estimated loss contingency 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.

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

Represents the impact from tax affecting the adjustments above at their statutory tax rate. As of July 31, 2018, the Company estimated an annual tax rate of ~33% on a GAAP basis and ~21% 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 Six Months Ended June 30, 2018

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited - in thousands, except per share data)

Gross Profit

Operating
Profit

Net (Loss)
Income

Diluted
EPS

Diluted
WASO ^6,7

Net Loss to Adjusted
EBITDA

Reported GAAP

$      391,216

$    10,341

$    (15,601)

$ (0.30)

51,292

$                      (15,601)

% of revenue

72.2%

1.9%

Non-cash purchase accounting adjustments on acquisitions ¹

810

810

810

810

Non-recurring consulting fees ²

6,084

6,084

6,084

Amortization of intangible assets

25,053

25,053

Litigation related expenses and settlements ³

29,969

29,969

29,969

Business transition costs ⁴

6,251

6,251

6,251

Non-cash interest expense on convertible notes

8,252

Impairment of strategic investment

9,004

9,004

Tax effect of adjustments ⁵

(18,884)

Interest expense/(income), net

19,173

Income tax benefit

(5,313)

Depreciation and amortization

64,151

Non-cash stock based compensation

10,994

Adjusted Non-GAAP

$      392,026

$    78,508

$      50,938

$   0.98

51,849

$                     125,522

% of revenue

72.3%

14.5%

23.2%

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 July 30, 2018, the Company estimated an annual tax rate of ~33% on a GAAP basis and ~21% on a non-GAAP basis.

⁶

The Company had a GAAP net loss for the six months ended June 30, 2018, and therefore the loss per share was calculated using the basic weighted average shares outstanding. The non-GAAP earnings per share for the six months ending June 31, 2018 was calculated using the diluted weighted average shares outstanding.

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.

NuVasive, Inc. 

Consolidated Statements of Operations 

(in thousands, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

(unaudited)

2019

2018

2019

2018

Revenue

Product revenue

$ 261,381

$ 252,687

$ 505,204

$ 486,202

Service revenue

30,724

28,877

61,677

55,884

Total revenue

292,105

281,564

566,881

542,086

Cost of revenue (excluding below amortization of intangible assets)

Cost of products sold 

57,613

58,202

112,099

113,393

Cost of services

19,966

18,854

39,974

37,477

Total cost of revenue

77,579

77,056

152,073

150,870

Gross profit

214,526

204,508

414,808

391,216

Operating expenses:

Sales, marketing and administrative

152,853

145,658

297,929

292,424

Research and development

17,553

14,856

35,128

29,347

Amortization of intangible assets

12,277

12,628

25,902

25,053

Litigation liability (gain) loss

—

(1,195)

—

27,800

Business transition costs

1,646

3,998

5,479

6,251

Total operating expenses

184,329

175,945

364,438

380,875

Interest and other expense, net:

Interest income

327

116

736

250

Interest expense

(9,650)

(9,956)

(19,163)

(19,423)

Other income (expense), net

9

(2,379)

(357)

(12,082)

Total interest and other expense, net

(9,314)

(12,219)

(18,784)

(31,255)

Income (loss) before income taxes

20,883

16,344

31,586

(20,914)

Income tax (expense) benefit

(5,921)

(4,813)

(7,238)

5,313

Consolidated net income (loss)

$   14,962

$   11,531

$   24,348

$ (15,601)

Net income (loss) per share:

Basic

$       0.29

$       0.22

$       0.47

$     (0.30)

Diluted

$       0.29

$       0.22

$       0.46

$     (0.30)

Weighted average shares outstanding:

Basic

51,967

51,356

51,822

51,292

Diluted

52,460

51,956

52,471

51,292

NuVasive, Inc. 

Consolidated Balance Sheets 

(in thousands, except par values and share amounts) 

June 30, 2019

December 31, 2018

ASSETS

(Unaudited)

Current assets:

Cash and cash equivalents

$       128,377

$                117,840

Accounts receivable, net of allowances of $16,400 and $16,171, respectively

207,992

196,487

Inventory, net

297,136

273,244

Prepaid income taxes

16,188

16,905

Prepaid expenses and other current assets

14,617

13,733

Total current assets

664,310

618,209

Property and equipment, net

257,438

238,841

Intangible assets, net

227,545

252,048

Goodwill

561,420

561,366

Operating lease right-of-use assets

62,424

—

Deferred tax assets

4,885

5,263

Restricted cash and investments

2,394

2,395

Other assets

24,894

29,737

Total assets

$    1,805,310

$             1,707,859

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$       105,710

$                105,877

Contingent consideration liabilities

7,892

7,560

Accrued payroll and related expenses

58,492

59,960

Operating lease liabilities

6,471

—

Litigation liabilities

3,250

1,415

Income tax liabilities

2,823

4,648

Total current liabilities

184,638

179,460

Senior convertible notes

612,762

602,526

Deferred and income tax liabilities

10,269

4,964

Operating lease liabilities

67,753

—

Other long-term liabilities

67,164

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 June 30, 2019 and December 31, 2018, 57,357,083and 56,648,077 issued and outstanding at June 30, 2019 and December 31, 2018, respectively

62

61

Additional paid-in capital

1,413,934

1,397,829

Accumulated other comprehensive loss

(8,552)

(8,628)

Retained earnings

41,589

17,241

Treasury stock at cost; 5,327,656shares and 5,116,496 shares at June 30, 2019 and December 31, 2018, respectively

(584,309)

(571,978)

Total equity

862,724

834,525

Total liabilities and equity

$    1,805,310

$             1,707,859

NuVasive, Inc. 

Consolidated Statements of Cash Flows 

(in thousands) 

Six Months Ended June 30,

(unaudited)

2019

2018

Operating activities:

Consolidated net income (loss)

$   24,348

$ (15,601)

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

Depreciation and amortization

67,614

64,151

Impairment of strategic investment

—

9,004

Amortization of non-cash interest

10,494

9,920

Stock-based compensation

12,618

10,994

Reserves on current assets

8,267

9,444

Other non-cash adjustments

4,329

12,133

Deferred income taxes

5,721

(6,593)

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

Accounts receivable

(11,602)

852

Inventory

(31,856)

(19,615)

Prepaid expenses and other current assets

(2,811)

(2,141)

Accounts payable and accrued liabilities

9,301

8,931

Accrued payroll and related expenses

(3,699)

(6,358)

Litigation liability

1,835

2,150

Income taxes

(1,128)

(53)

Net cash provided by operating activities

93,431

77,218

Investing activities:

Acquisitions and investments

(4,100)

(52,081)

Purchases of intangible assets

(6,827)

(7,682)

Purchases of property and equipment

(65,385)

(53,388)

Net cash used in investing activities

(76,312)

(113,151)

Financing activities:

Proceeds from the issuance of common stock

3,888

5,312

Purchases of treasury stock

(11,702)

(2,222)

Payment of contingent consideration

(809)

(8,900)

Proceeds from revolving line of credit

—

100,000

Repayments on revolving line of credit

—

(63,000)

Other financing activities

1,769

(146)

Net cash (used in) provided by financing activities

(6,854)

31,044

Effect of exchange rate changes on cash

271

(837)

Increase (decrease) in cash, cash equivalents and restricted cash

10,536

(5,726)

Cash, cash equivalents and restricted cash at beginning of period

120,235

78,198

Cash, cash equivalents and restricted cash at end of period

$ 130,771

$  72,472