UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended |
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission File Number:
NUVASIVE, INC.
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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The (NASDAQ Global Select Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 4, 2020 there were
2
NuVasive, Inc.
Quarterly Report on Form 10-Q
March 31, 2020
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Item 1. |
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4 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NUVASIVE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par values and share amounts)
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March 31, 2020 |
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December 31, 2019 |
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ASSETS |
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(Unaudited) |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowances of $ |
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Inventory, net |
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Prepaid income taxes |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Intangible assets, net |
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Goodwill |
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Operating lease right-of-use assets |
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Deferred tax assets |
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Restricted cash and investments |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable and accrued liabilities |
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$ |
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$ |
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Contingent consideration liabilities |
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Accrued payroll and related expenses |
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Operating lease liabilities |
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Income tax liabilities |
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Senior convertible notes |
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— |
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Total current liabilities |
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Long-term senior convertible notes |
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Deferred and income tax liabilities |
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Operating lease liabilities |
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Other long-term liabilities |
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Commitments and contingencies |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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Retained earnings |
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Treasury stock at cost; |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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See accompanying Notes to Unaudited Consolidated Financial Statements.
4
NUVASIVE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
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Three Months Ended March 31, |
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(unaudited) |
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2020 |
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2019 |
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Revenue |
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Product revenue |
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$ |
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$ |
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Service revenue |
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Total revenue |
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Cost of revenue (excluding below amortization of intangible assets) |
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Cost of products sold |
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Cost of services |
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Total cost of revenue |
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Gross profit |
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Operating expenses: |
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Sales, marketing and administrative |
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Research and development |
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Amortization of intangible assets |
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Business transition costs |
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Total operating expenses |
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Interest and other expense, net: |
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Interest income |
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Interest expense |
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( |
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( |
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Other (expense) income, net |
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( |
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( |
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Total interest and other expense, net |
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( |
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Income before income taxes |
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Income tax expense |
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( |
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Consolidated net income |
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$ |
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$ |
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Net income per share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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See accompanying Notes to Unaudited Consolidated Financial Statements.
5
NUVASIVE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
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Three Months Ended March 31, |
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(unaudited) |
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2020 |
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2019 |
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Consolidated net income |
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$ |
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$ |
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Other comprehensive loss: |
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Translation adjustments, net of tax |
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( |
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( |
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Other comprehensive loss |
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( |
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( |
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Total consolidated comprehensive income |
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$ |
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$ |
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See accompanying Notes to Unaudited Consolidated Financial Statements.
6
NUVASIVE, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Paid-in |
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Comprehensive |
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Treasury Stock |
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Stockholders' |
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(unaudited) |
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Shares |
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Amount |
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Capital |
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Loss |
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Retained Earnings |
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Shares |
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Amount |
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Equity |
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Balance at December 31, 2019 |
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$ |
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$ |
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$ |
( |
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$ |
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( |
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$ |
( |
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$ |
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Issuance of common stock under employee and director equity option and purchase plans |
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— |
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— |
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— |
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( |
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( |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Tax benefits related to convertible note issuance |
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— |
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— |
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— |
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— |
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— |
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— |
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Shares repurchased |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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( |
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Sale of warrants |
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— |
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— |
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— |
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— |
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— |
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— |
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Convertible note hedge |
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— |
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— |
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( |
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— |
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— |
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— |
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— |
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( |
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Equity component of convertible note issuance |
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— |
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— |
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— |
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— |
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— |
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— |
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Debt issuance costs attributable to convertible feature |
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— |
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— |
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( |
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— |
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— |
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— |
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— |
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( |
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Consolidated net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
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Balance at March 31, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
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( |
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$ |
( |
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$ |
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See accompanying Notes to Unaudited Consolidated Financial Statements.
7
NUVASIVE, INC.
CONSOLIDATED STATEMENTS OF EQUITY – (Continued)
(in thousands)
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Paid-in |
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Comprehensive |
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Retained Earnings |
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Treasury Stock |
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Stockholders' |
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(unaudited) |
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Shares |
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Amount |
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Capital |
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Loss |
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(Accumulated Deficit) |
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Shares |
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Amount |
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Equity |
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Balance at December 31, 2018 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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( |
) |
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$ |
( |
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$ |
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Issuance of common stock under employee and director equity option and purchase plans |
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— |
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— |
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— |
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( |
) |
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( |
) |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock in connection with royalty milestone achievement |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Consolidated net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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( |
) |
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Balance at March 31, 2019 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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( |
) |
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$ |
( |
) |
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$ |
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|
See accompanying Notes to Unaudited Consolidated Financial Statements.
8
NUVASIVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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Three Months Ended March 31, |
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(unaudited) |
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2020 |
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2019 |
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Operating activities: |
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Consolidated net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Amortization of non-cash interest |
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Stock-based compensation |
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( |
) |
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Reserves on current assets |
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Net loss on strategic investments |
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— |
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Other non-cash adjustments |
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Deferred income taxes |
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Changes in operating assets and liabilities, net of effects from acquisitions: |
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Accounts receivable |
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Inventory |
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( |
) |
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( |
) |
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Prepaid expenses and other current assets |
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( |
) |
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( |
) |
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Accounts payable and accrued liabilities |
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( |
) |
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( |
) |
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Accrued payroll and related expenses |
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( |
) |
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( |
) |
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Income taxes |
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( |
) |
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( |
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Net cash provided by operating activities |
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Investing activities: |
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Purchases of intangible assets |
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( |
) |
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( |
) |
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Purchases of property and equipment |
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( |
) |
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( |
) |
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Net cash used in investing activities |
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( |
) |
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( |
) |
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Financing activities: |
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Purchases of treasury stock |
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( |
) |
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( |
) |
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Payment of contingent consideration |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from issuance of convertible debt, net of issuance costs |
|
|
|
|
|
|
— |
|
|
Proceeds from sale of warrants |
|
|
|
|
|
|
— |
|
|
Purchase of convertible note hedge |
|
|
( |
) |
|
|
— |
|
|
Other financing activities |
|
|
( |
) |
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
|
|
|
|
( |
) |
|
Effect of exchange rate changes on cash |
|
|
( |
) |
|
|
( |
) |
|
Increase (decrease) in cash, cash equivalents and restricted cash |
|
|
|
|
|
|
( |
) |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
|
$ |
|
|
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on our Unaudited Consolidated Statements of Cash Flows for the periods presented:
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
Restricted cash |
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and restricted cash shown in the Unaudited Consolidated Statement of Cash Flows |
|
$ |
|
|
|
$ |
|
|
See accompanying Notes to Unaudited Consolidated Financial Statements.
9
NUVASIVE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Basis of Presentation
Description of Business
NuVasive, Inc. (the “Company” or “NuVasive”) was incorporated in Delaware on July 21, 1997, and began commercializing its products in 2001. The Company’s principal product offering includes a minimally disruptive surgical platform called Maximum Access Surgery, or MAS. The MAS platform combines three categories of solutions that collectively minimize soft tissue disruption during spine fusion surgery, provide maximum visualization and are designed to enable safe and reproducible outcomes for the surgeon and the patient. The platform includes the Company’s proprietary software-driven nerve detection and avoidance systems and Intraoperative Monitoring (“IOM”) services and support; MaXcess, an integrated split-blade retractor system; and a wide variety of specialized implants and biologics. To assist with surgical procedures, the Company offers a technology platform called Integrated Global Alignment (“iGA”); in which products and computer assisted technology under the MAS platform help achieve more precise spinal alignment. The individual components of the MAS platform, and many of the Company’s products, can also be used in open or traditional spine surgery. The Company continues to focus research and development efforts to expand its MAS product platform and advance the applications of its unique technology into procedurally integrated surgical solutions. The Company dedicates significant resources toward training spine surgeons on its unique technology and products.
The Company’s procedurally integrated solutions use innovative, technological advancements and the MAS platform to provide surgical efficiency, operative reliability, and procedural versatility. The Company offers a range of implants for spinal surgery, which include its porous titanium and polyetheretherketone (“PEEK”) implants under its Advanced Materials Science portfolio, fixation products such as customizable rods, plates and screws, bone allograft in patented saline packaging, allogeneic and synthetic biologics, and disposables used in IOM. The Company makes available MAS instrument sets, MaXcess and neuromonitoring systems to hospitals to facilitate surgeon access to the spine to perform restorative and fusion procedures using the Company’s implants and fixation products. The Company sells MAS instrument sets, MaXcess and neuromonitoring systems to hospitals, however, such sales are immaterial to the Company’s results of operations.
The Company also designs and sells expandable growing rod implant systems that can be non-invasively lengthened following implantation with precise, incremental adjustments via an external remote controller using magnetic technology called MAGnetic External Control, or MAGEC, which allows for the minimally invasive treatment of early-onset and adolescent scoliosis. This technology is also the basis for the Company’s Precice limb lengthening system, which allows for the correction of long bone limb length discrepancy, as well as enhanced bone healing in patients that have experienced traumatic injury.
The Company has developed a procedural solution for spine surgery that includes IOM services, iGA and hardware and software technology offerings. The Company has also invested in the development of capital equipment designed to further improve clinical and economic outcomes through proceduralization, including LessRay and Pulse. LessRay is an image enhancement platform designed to reduce radiation exposure in the operating room by allowing surgeons to take low-quality, low-dose images and improve them to look like conventional full-dose images. Pulse integrates multiple enabling technologies within a single, expandable platform and is engineered to improve workflow, reduce variability, and increase the reproducibility of surgical outcomes. Revenue from the sale or lease of capital equipment does not make up a material portion of the Company’s total revenue.
Basis of Presentation and Principles of Consolidation
The accompanying Unaudited Consolidated Financial Statements include the accounts of the Company and its majority-owned or controlled subsidiaries, collectively referred to as either NuVasive or the Company. The Company translates the financial statements of its foreign subsidiaries using end-of-period exchange rates for assets and liabilities and average exchange rates during each reporting period for results of operations. When there is a portion of equity in an acquired subsidiary not attributable, directly or indirectly, to the respective parent entity, the Company records the fair value of the non-controlling interest at the acquisition date and classifies the amounts attributable to non-controlling interest separately in equity in the Company's Consolidated Financial Statements. Any subsequent changes in a parent's ownership interest while the parent retains its controlling financial interest in its subsidiary are accounted for as equity transactions. All significant intercompany balances and transactions have been eliminated in consolidation.
10
The accompanying Unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to these rules and regulations, the Company has condensed or omitted certain information and footnote disclosures it normally includes in its annual Consolidated Financial Statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for any other interim period or for the full year. These Unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC. In the opinion of management, the Unaudited Consolidated Financial Statements and notes thereto include all adjustments that are of a normal and recurring nature that are necessary for the fair presentation of the Company’s financial position and of the results of operations and cash flows for the periods presented.
Use of Estimates
To prepare financial statements in conformity with GAAP, management must make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Recent Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which modifies Accounting Standard Codification 740 – Income Taxes, to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions for intraperiod tax allocation, recognizing deferred taxes for investments and simplifies guidance to reduce complexity in certain areas. This update is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, and early adoption is permitted. The Company is in the process of determining the impact the adoption will have on its Consolidated Financial Statements as well as whether to early adopt the new guidance.
In January 2020, the FASB issued Accounting Standards Update No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force), which clarifies the interaction of the accounting for equity securities, investments accounted for under the equity method, and certain forward contracts and purchased options. This update is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, and early adoption is permitted. The Company is in the process of determining the impact the adoption will have on its Consolidated Financial Statements as well as whether to early adopt the new guidance.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses, which changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. The amendments in this update were adopted using a modified retrospective transition method as of January 1, 2020, which had
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles – Goodwill and Other, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The Company adopted the amendments in this update on January 1, 2020, which will be applied using a prospective transition method. The adoption did not have a material impact on the Company’s Unaudited Consolidated Financial Statements.
In August 2018, the FASB issued Accounting Standards Update No. 2018-13, Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which adds and modifies certain disclosure requirements for fair value measurements. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements. However, public companies will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. The Company adopted ASU 2018-13 as of January 1, 2020. The adoption did not have a material impact on the Company’s Unaudited Consolidated Financial Statements. See Note 3 to the Unaudited Consolidated Financial Statements for further discussion on fair value measurements.
11
In September 2018, the FASB issued Accounting Standards Update No. 2018-15, Intangible – Goodwill and Other – Internal-Use Software (“ASU 2018-15”), which requires a customer in a cloud computing arrangement to determine whether implementation costs