SOURCE: NuVasive, Inc.

NuVasive, Inc.

October 24, 2012 07:00 ET

NuVasive Reports Third Quarter 2012 Financial Results

SAN DIEGO, CA--(Marketwire - Oct 24, 2012) - NuVasive, Inc. (NASDAQ: NUVA)

  • Third quarter 2012 total revenue of $148.4 million; up 11.7% from third quarter 2011
  • GAAP net income of $2.4 million, or $0.05 per share
  • Non-GAAP net income of $10.1 million, or $0.23 per share

NuVasive, Inc. (NASDAQ: NUVA), a medical device company focused on developing minimally disruptive surgical products and procedures for the spine, announced today financial results for the quarter ended September 30, 2012.

Alex Lukianov, Chairman and Chief Executive Officer, said, "Market challenges led third quarter results to fall short of our expectations. We provided early warning of the shortfall and have implemented a plan to address the issues. We are re-engaging with our sales force on a deeper level, accelerating the pace of sales force hiring to more than compensate for losses in the quarter, and increasing executive engagement with our top customers. Our market share taking strategy continues to be intact and we have a number of growth catalysts that will help drive growth for the balance of this year and beyond. We are in a unique position as the spine market continues to shift toward minimally invasive solutions and we intend to fully capitalize upon it." 

NuVasive reported third quarter 2012 revenue of $148.4 million, an 11.7% increase over the $132.9 million for the third quarter 2011 and 3.9% decrease compared to the $154.4 million reported for the second quarter 2012. 

Gross profit for the third quarter 2012 was $110.6 million and gross margin was 74.6%, compared to a gross profit of $106.9 million and a gross margin of 80.4% for the third quarter 2011. For the second quarter 2012, gross profit was $117.9 million and gross margin was 76.3%. 

Total operating expenses for the third quarter 2012 were $98.1 million compared to $198.3 million in the third quarter 2011 and $104.9 million in the second quarter 2012. The lower operating expenses in the third quarter 2012 compared to the prior year were primarily attributable to a $101.2 million charge related to a litigation liability in the prior year.

On a GAAP basis, the Company reported net income of $2.4 million, or $0.05 per share, for the third quarter 2012.

On a Non-GAAP basis, the Company reported net income of $10.1 million, or $0.23 per share, for the third quarter 2012. The Non-GAAP earnings per share calculations for the third quarter exclude, (i) non-cash stock-based compensation of $5.4 million; (ii) certain intellectual property litigation expenses of $751 thousand; (iii) amortization of intangible assets of $3.1 million; (iv) acquisition related items of $387 thousand; and (v) non-cash interest expense on convertible notes of $3.2 million.

Cash, cash equivalents and short and long-term marketable securities were $285.0 million at September 30, 2012.

Updated 2012 Full Year Financial Guidance

  • Revenue of approximately $601 - $606 million; compared to approximately $625 million previously
  • GAAP EPS of approximately $0.11 to $0.13; compared to approximately $0.16 previously
  • Non-GAAP EPS of approximately $0.88 to $0.90; compared to approximately $0.97 previously
  • Non-GAAP Operating Margin of approximately 14.0%; compared to approximately 14.5% previously
  • GAAP effective tax rate of approximately 60%; compared to approximately 55% previously
  • Non-GAAP effective tax rate of approximately 40% remains unchanged
     
     
  2012 Reconciliation of Full Year EPS Guidance
             
    Prior   Revised Guidance 2
    Guidance 1   Low   High
GAAP earnings per share guidance   $ 0.16   $ 0.11   $ 0.13
  Non-cash stock based compensation     0.43     0.37     0.37
  Certain intellectual property litigation expenses     0.03     0.04     0.04
  Amortization of intangible assets     0.16     0.16     0.16
  Acquisition related items 3     0.02     0.03     0.03
  Non-cash interest expense on convertible notes     0.17     0.17     0.17
Non-GAAP earnings per share guidance   $ 0.97   $ 0.88   $ 0.90
                   
Weighted shares outstanding - basic 4     43,500     43,500     43,500
Weighted shares outstanding - diluted 4     45,000     44,500     44,500
                   
1 Effective tax rate of ~55% applied to GAAP earnings and ~40% applied to Non-GAAP adjustments
2 Effective tax rate of ~60% applied to GAAP earnings and ~40% applied to Non-GAAP adjustments
3 Acquisition related items include expenses associated with prior M&A activity and as incurred
4 Weighted shares outstanding shown as pre "if-converted" method
         
         
2012 Guidance Reconciliation of Non-GAAP Operating Margin %
         
    Prior
Guidance
  Revised
Guidance
Gross Margin % [A]   ~75.5%   ~75.0%
         
Non-GAAP Operating Expenses [B]   ~61.0%   ~61.0%
Non-cash stock-based compensation   ~5.0%   ~4.5%
Certain intellectual property litigation expenses   ~0.5%   ~0.5%
Amortization of intangible assets   ~2.0%   ~2.0%
Acquisition related items*   ~0.2%   ~0.3%
GAAP Operating Expenses   ~68.7%   ~68.3%
         
Non-GAAP Operating Margin % [A-B]   ~14.5%   ~14.0%
         
* Acquisition related items include expenses associated with prior M&A activity and as incurred

Reconciliation of Non-GAAP Information
Management uses certain Non-GAAP financial measures such as Non-GAAP operating margin and Non-GAAP earnings per share, which exclude such items as non-cash stock-based compensation, certain intellectual property litigation expenses, amortization of intangible assets, acquisition related items, and non-cash interest expense on convertible notes. Management does not consider these costs in evaluating the continuing operations of the Company. Therefore, 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 analyze further, and more consistently, the period-to-period financial performance of its core business operations. Management believes that providing investors with these Non-GAAP measures gives them additional important 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.

             
Reconciliation of Third Quarter 2012 Results
             
(in thousands, except per share data)   Pre-Tax Adjustments   Net of Tax   Earnings Per Share
GAAP net income         $ 2,354   $ 0.05
  Non-cash stock-based compensation   $ 5,434     3,260     0.07
  Certain intellectual property litigation expenses     751     451     0.01
  Amortization of intangible assets     3,081     1,849     0.04
  Acquisition related items     387     232     0.01
  Non-cash interest expense on convertible notes     3,202     1,921     0.04
Non-GAAP earnings         $ 10,067   $ 0.23
                   
Weighted shares outstanding - diluted                 44,735
             
             
Reconciliation of Year To Date 2012 Results
             
(in thousands, except per share data)   Pre-Tax Adjustments   Net of Tax   Earnings Per Share
GAAP net income         $ 5,890   $ 0.13
  Non-cash stock-based compensation   $ 20,400     12,240     0.28
  Certain intellectual property litigation expenses     1,567     940     0.02
  Amortization of intangible assets     8,830     5,298     0.12
  Acquisition related items     1,420     852     0.02
  Non-cash interest expense on convertible notes     9,435     5,661     0.13
Non-GAAP earnings         $ 30,881   $ 0.70
                   
Weighted shares outstanding - diluted                 44,151

Conference Call
NuVasive will hold a conference call today at 8:00 a.m. ET / 5:00 a.m. PT to discuss the results. The dial-in numbers are 1-877-407-9039 for domestic callers and 1-201-689-8470 for international callers. A live webcast of the conference call will be available online from the investor relations page of the Company's corporate website at www.nuvasive.com.

After the live webcast, the call will remain available on NuVasive's website, www.nuvasive.com, through November 23, 2012. In addition, a telephonic replay of the call will be available until November 7, 2012. The replay dial-in numbers are 1-877-870-5176 for domestic callers and 1-858-384-5517 for international callers. Please use pin number 399418.

About NuVasive
NuVasive is a medical device company focused on developing minimally disruptive surgical products and procedurally integrated solutions for the spine. The Company is the 4th largest player in the $7.9 billion global spine market.

NuVasive's principal product offering is based on its Maximum Access Surgery, or MAS® platform. The MAS platform combines several categories of solutions that collectively minimize soft tissue disruption during spine surgery with maximum visualization and safe, easy reproducibility for the surgeon: a proprietary software-driven nerve avoidance system and intra-operative monitoring support; MaXcess®, a unique split-blade retractor system; a wide variety of specialized implants; and several biologic fusion enhancers. MAS significantly reduces surgery time and returns patients to activities of daily living much faster than conventional approaches. Having redefined spine surgery with the MAS platform's lateral approach, known as eXtreme Lateral Interbody Fusion, or XLIF®, NuVasive has built an entire spine franchise. With over 75 products today spanning lumbar, thoracic and cervical applications, the Company will continue to expand and evolve its offering predicated on its R&D focus and dedication to outstanding service levels supported by a culture of Absolute Responsiveness®.

NuVasive cautions you that statements included in this press release that are not a description of historical facts are forward-looking statements that involve risks, uncertainties, assumptions and other factors which, if they do not materialize or prove correct, could cause NuVasive's results to differ materially from historical results or those expressed or implied by such forward-looking statements. The potential risks and uncertainties that could cause actual growth and results to differ materially include, but are not limited to: the risk that NuVasive's revenue or earnings projections may turn out to be inaccurate because of the preliminary nature of the forecasts and the risk of further adjustment, or unanticipated difficulty in selling products or generating expected profitability; the uncertain process of seeking regulatory approval or clearance for NuVasive's products or devices, including risks that such process could be significantly delayed; the possibility that the FDA may require significant changes to NuVasive's products or clinical studies; the risk that products may not perform as intended and may therefore not achieve commercial success; the risk that competitors may develop superior products or may have a greater market position enabling more successful commercialization; the risk that additional clinical data may call into question the benefits of NuVasive's products to patients, hospitals and surgeons; and other risks and uncertainties more fully described in NuVasive's press releases and periodic filings with the Securities and Exchange Commission. NuVasive's public filings with the Securities and Exchange Commission are available at www.sec.gov. NuVasive assumes no obligation to update any forward-looking statement to reflect events or circumstances arising after the date on which it was made.

   
NuVasive, Inc.  
Unaudited Condensed Consolidated Statements of Operations  
(in thousands, except per share data)  
   
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2012     2011     2012     2011  
                                 
Revenue   $ 148,391     $ 132,880     $ 454,501     $ 390,312  
Cost of goods sold (excluding amortization of purchased technology)     37,746       26,015       111,213       75,049  
Gross profit     110,645       106,865       343,288       315,263  
                                 
Operating expenses:                                
  Sales, marketing and administrative     87,052       85,482       273,669       254,025  
  Research and development     7,933       10,092       27,932       31,119  
  Amortization of intangible assets     3,081       1,504       8,830       4,241  
  Litigation award     -       101,200       -       101,200  
Total operating expenses     98,066       198,278       310,431       390,585  
                                 
Interest and other expense, net:                                
  Interest income     249       257       661       591  
  Interest expense     (6,885 )     (7,276 )     (20,682 )     (10,962 )
  Other income, net     260       1,726       146       2,303  
Total interest and other expense, net     (6,376 )     (5,293 )     (19,875 )     (8,068 )
                                 
Income (loss) before income taxes     6,203       (96,706 )     12,982       (83,390 )
Income tax expense (benefit)     4,064       (29,031 )     7,764       (22,715 )
Consolidated net income (loss)   $ 2,139     $ (67,675 )   $ 5,218     $ (60,675 )
Net loss attributable to noncontrolling interests   $ (215 )   $ (123 )   $ (672 )   $ (862 )
Net income (loss) attributable to NuVasive, Inc.   $ 2,354     $ (67,552 )   $ 5,890     $ (59,813 )
                                 
Net income (loss) per share attributable to NuVasive, Inc.:                                
  Basic   $ 0.05     $ (1.69 )   $ 0.14     $ (1.50 )
  Diluted   $ 0.05     $ (1.69 )   $ 0.13     $ (1.50 )
Weighted average shares outstanding:                                
  Basic     43,488       39,892       43,227       39,766  
  Diluted     44,735       39,892       44,151       39,766  
                                 
Stock-based compensation is included in expenses in the following categories:                          
  Sales, marketing and administrative   $ 4,844     $ 7,497     $ 18,723     $ 21,956  
  Research and development     567       621       1,624       1,833  
  Cost of goods sold     23       -       53       -  
    $ 5,434     $ 8,118     $ 20,400     $ 23,789  
   
   
NuVasive, Inc.  
Condensed Consolidated Balance Sheets  
(in thousands)  
   
    September 30, 2012     December 31, 2011  
    (Unaudited)        
ASSETS        
Current assets:                
  Cash and cash equivalents   $ 107,731     $ 163,492  
  Short-term marketable securities     134,899       146,228  
  Accounts receivable, net     78,140       87,736  
  Inventory     132,958       119,313  
  Deferred tax assets, current     54,550       54,550  
  Prepaid expenses and other current assets     7,264       20,518  
Total current assets     515,542       591,837  
Property and equipment, net     131,158       124,754  
Long-term marketable securities     42,416       32,503  
Intangible assets, net     105,086       108,140  
Goodwill     162,333       159,349  
Deferred tax assets     19,857       19,857  
Restricted cash and investments     182,067       68,600  
Other assets     26,169       18,522  
Total assets   $ 1,184,628     $ 1,123,562  
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
  Accounts payable and accrued liabilities   $ 63,498     $ 51,744  
  Accrued payroll and related expenses     22,527       22,215  
  Litigation liability     -       101,200  
  Acquisition-related liabilities     32,389       32,221  
  Senior Convertible Notes, current     74,311       -  
Total current liabilities     192,725       207,380  
Senior Convertible Notes     329,143       394,019  
Deferred tax liabilities     4,180       3,952  
Litigation liability     101,200       -  
Other long-term liabilities     15,581       13,461  
Commitments and contingencies                
Noncontrolling interests     10,033       10,705  
Stockholders' equity:                
  Preferred stock     -       -  
  Common stock     44       42  
  Additional paid-in capital     705,931       674,790  
  Accumulated other comprehensive income     1,166       477  
  Accumulated deficit     (175,375 )     (181,264 )
Total stockholders' equity     531,766       494,045  
Total liabilities and stockholders' equity   $ 1,184,628     $ 1,123,562  
   
   
NuVasive, Inc.  
Unaudited Condensed Consolidated Statements of Cash Flows  
(in thousands)  
   
    Nine Months Ended September 30,  
    2012     2011  
                 
Operating activities:                
  Consolidated net income (loss)   $ 5,218     $ (60,675 )
  Adjustments to reconcile net income (loss) to net cash provided by operating activities:                
    Depreciation and amortization     38,237       24,847  
    Amortization of debt discount     9,435       3,076  
    Amortization of debt issuance costs     1,386       2,588  
    Stock-based compensation     20,400       23,789  
    Allowance for excess and obsolete inventory, net of write-offs     2,000       4,642  
    Allowance for doubtful accounts and sales return reserve     816       1,261  
    Accretion of contingent consideration     708       587  
    Gain recognized on change in fair value of derivatives     -       (2,387 )
    Deferred income tax expense     -       6,238  
    Other non-cash adjustments     4,294       3,545  
  Changes in operating assets and liabilities, net of effects of acquisitions:                
    Accounts receivable     8,421       (3,152 )
    Inventory     (14,222 )     (19,933 )
    Prepaid expenses and other current assets     13,582       (1,061 )
    Accounts payable and accrued liabilities     4,474       504  
    Litigation liability     -       101,200  
    Accrued payroll and related expenses     (269 )     584  
    Income taxes payable     5,006       (32,237 )
  Net cash provided by operating activities     99,486       53,416  
Investing activities:                
    Cash paid for business and asset acquisitions     (9,838 )     (1,100 )
    Purchases of property and equipment     (35,706 )     (39,435 )
    Purchases of marketable securities     (192,759 )     (244,209 )
    Sales of marketable securities     193,035       124,205  
    Purchases of restricted investments     (113,331 )     (4,535 )
    Payment for specific rights in connection with supply agreement, net of refund received     -       (5,000 )
  Net cash used in investing activities     (158,599 )     (170,074 )
Financing activities:                
    Proceeds from the sale of warrants     -       47,898  
    Proceeds from the issuance of convertible debt, net of issuance costs     -       391,334  
    Purchase of convertible note hedges     -       (80,097 )
    Repurchase of 2013 Senior Convertible Notes     -       (118,702 )
    Proceeds from the issuance of common stock     3,183       4,461  
    Other assets     132       (349 )
    Tax benefits related to stock-based compensation awards     -       638  
  Net cash provided by financing activities     3,315       245,183  
Effect of exchange rate changes on cash     37       (179 )
(Decrease) increase in cash and cash equivalents     (55,761 )     128,346  
Cash and cash equivalents at beginning of period     163,492       92,597  
Cash and cash equivalents at end of period   $ 107,731     $ 220,943  

Contact Information

  • Contact:
    Michael J. Lambert
    EVP & Chief Financial Officer
    NuVasive, Inc.
    858-909-3394
    Email Contact

    Investors:
    Patrick F. Williams
    Vice President, Strategy & Investor Relations
    NuVasive, Inc.
    858-638-5511
    Email Contact

    Media:
    Nicholas S. Laudico
    The Ruth Group
    646-536-7030
    Email Contact