SOURCE: NuVasive, Inc.

NuVasive, Inc.

October 30, 2014 16:05 ET

NuVasive Reports Third Quarter 2014 Financial Results and Increases Full Year Guidance

SAN DIEGO, CA--(Marketwired - Oct 30, 2014) -  NuVasive, Inc. (NASDAQ: NUVA)

  • Third quarter total revenue increased 12.3% to $189.9 million;
  • Non-GAAP operating profit margin of 16.7%; GAAP operating margin of 8.6%; 
  • Non-GAAP earnings of $9.6 million, or $0.19 per share; GAAP net loss of $(1.8) million, or $(0.04) per share;
  • Generated record quarterly free cash flow at $35 million;
  • Company increases guidance for full year 2014 revenue and non-GAAP earnings per share.

NuVasive, Inc. (NASDAQ: NUVA) ("NuVasive" or the "Company"), a medical device company focused on developing minimally disruptive surgical products and procedures for the spine, today announced financial results for the quarter ended September 30, 2014.

"We are pleased to report results for the third quarter 2014 that exceeded revenue expectations, generated record free cash flow and demonstrated strong progress toward our commitment to increase operating profitability," said Alex Lukianov, Chairman and Chief Executive Officer of NuVasive. "Last quarter we announced our position as the #3 spine player globally. That is an incredible accomplishment for the entire NUVA family and we are proud that our strategy delivered continued market share gains in the third quarter. We are laser focused on delivering on our updated full year performance expectations with a strong finish to 2014. The combination of our dynamic share taking strategy with our well-defined levers for improving profitability is set to drive our growth this year and improve shareholder value over the next several years."

A full reconciliation of non-GAAP to GAAP measures can be found in the tables of this press release.

Third Quarter 2014

NuVasive reported third quarter 2014 revenue of $189.9 million, a 12.3% increase compared to $169.2 million for the third quarter 2013. 

GAAP gross profit for the third quarter 2014 was $142.2 million and gross margin was 74.9% compared to a gross profit of $125.9 million and a gross margin of 74.4% for the third quarter 2013.

Total GAAP operating expenses for the third quarter 2014 were $125.9 million compared to $114.3 million in the third quarter 2013. The increase in operating costs for the third quarter 2014 resulted primarily from investment to support international expansion. 

The Company reported a GAAP net loss of $(1.8) million, or $(0.04) per share, for the third quarter 2014. GAAP net loss for the quarter included a tax rate of 128%, which was higher than anticipated primarily due to the mix of earnings. The higher than anticipated tax rate negatively impacted results by approximately $(0.08), all of which the Company expects to recover in the fourth quarter 2014 and is reflected in the revised increase to full year 2014 EPS guidance.

On a non-GAAP basis, the Company reported net income of $9.6 million, or $0.19 per share, for the third quarter 2014. The Non-GAAP earnings per share calculations for the third quarter 2014 exclude the following amounts pre-tax: (i) non-cash stock-based compensation of $8.2 million; (ii) certain intellectual property litigation expenses of $1.2 million; (iii) amortization of intangible assets of $3.1 million; (iv) a leasehold related charge of $2.2 million; (v) one-time and acquisition related items of $0.6 million; and (vi) non-cash interest expense on convertible notes of $3.7 million. 

Cash, cash equivalents and short and long-term marketable securities were approximately $384.2 million at September 30, 2014. The Company generated $48.2 million in cash flows from operations and invested $13.1 million in capital expenditures, yielding $35.1 million for the third quarter 2014 in free cash flow, defined as operating cash flow less capital expenditures.

Annual Guidance for 2014

The Company provided the following updated projections to its full year 2014 guidance:

  • Revenue of approximately $755.0 million, which includes an incremental headwind from currency in the fourth quarter 2014, or 10% growth over 2013 revenue of $685.2 million; increased from previous guidance of approximately $745.0 million;
  • GAAP Loss per Share of approximately ($0.36); compared to previous guidance of approximately ($0.38);
  • Non-GAAP EPS of approximately $1.12; increased from previous guidance of approximately $1.11;
  • Non-GAAP Operating Margin of approximately 16.5%; unchanged from previous guidance;
  • GAAP effective tax expense of approximately $7.0 million; compared to previous guidance of approximately $6.0 million as a result of increased pre-tax earnings.

Supplementary Financial Information

For additional financial detail, please visit the Investor Relations section of the Company's website at www.nuvasive.com to access Supplementary Financial Information.

         
Reconciliation of Full Year EPS Guidance  
             
    2014 Guidance  
    Prior 1     Current 2  
GAAP earnings (loss) per share guidance   $ (0.38 )   $ (0.36 )
Impact of change from basic to diluted share count     0.02       0.02  
GAAP earnings (loss) per share, adjusted to diluted share count   $ (0.36 )   $ (0.34 )
  Non-cash stock based compensation     0.43       0.41  
  Litigation liability expense     0.36       0.36  
  Amortization of intangible assets     0.19       0.16  
  Non-cash interest expense on convertible notes     0.18       0.18  
  Intangible asset impairment     0.13       0.13  
  Leasehold related charges     0.09       0.13  
  Certain intellectual property litigation expenses     0.06       0.06  
  Acquisition related items 3     0.03       0.03  
Non-GAAP earnings per share guidance   $ 1.11     $ 1.12  
                 
Weighted shares outstanding - basic     47,500       46,750  
Weighted shares outstanding - diluted     50,000       49,750  
   
1 Effective tax expense rate of ~45% applied to GAAP earnings and ~40% applied to Non-GAAP adjustments
2 Effective tax expense rate of ~70% applied to GAAP earnings and ~40% applied to Non-GAAP adjustments
3 Acquisition related items include expenses associated with prior M&A related activity and as incurred
   
   
   
Reconciliation of Non-GAAP Operating Margin %  
               
    2013   2014 Guidance  
    Actuals   Prior   Current  
Non-GAAP Gross Margin % [A]   74.8 % 76.0 % 76.0 %
Non-cash stock based compensation   0.0 % 0.0 % 0.0 %
Out-of-period royalty expense charge   -1.2 % 0.0 % 0.0 %
GAAP Gross Margin [D]   73.7 % 76.0 % 76.0 %
               
Non-GAAP Sales, Marketing & Administrative Expense [B]   55.9 % 54.5 % 54.5 %
Non-cash stock based compensation   4.6 % 4.6 % 4.2 %
Certain intellectual property litigation expenses   0.8 % 0.7 % 0.7 %
Leasehold related charges   0.0 % 0.9 % 1.4 %
Acquisition related items*   0.0 % 0.2 % 0.2 %
GAAP Sales, Marketing & Administrative Expense [E]   61.3 % 60.9 % 61.0 %
               
Non-GAAP Research & Development Expense [C]   4.1 % 5.0 % 5.0 %
Non-cash stock based compensation   0.2 % 0.2 % 0.2 %
Acquisition related items*   0.4 % 0.2 % 0.2 %
GAAP Research & Development Expense [F]   4.7 % 5.4 % 5.4 %
               
Litigation liability expense [G]   0.0 % 4.1 % 4.0 %
Intangible asset impairment [H]   0.0 % 1.4 % 1.4 %
Amortization of intangible assets [I]   2.8 % 2.2 % 1.8 %
               
Non-GAAP Operating Margin % [A-B-C]   14.9 % 16.5 % 16.5 %
               
GAAP Operating Margin % [D-E-F-G-H-I]   4.8 % 2.0 % 2.4 %
               
* 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 earnings per share, Non-GAAP gross margin, Non-GAAP operating expenses, and Non-GAAP operating margin, which exclude non-cash stock-based compensation, certain intellectual property litigation expenses, amortization of intangible assets, a leasehold related charge, acquisition related items, non-cash interest expense on convertible notes, a litigation liability expense, an out-of-period royalty expense charge, and an intangible asset impairment charge. 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 further and more consistently analyze the period-to-period financial performance of its core business operations. Management believes that providing investors with these Non-GAAP measures gives them additional 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 2014 Results  
                 
(in thousands, except per share data)   Pre-Tax Adjustments   Net of Tax     Earnings Per Share  
GAAP net loss         $ (1,830 )   $ (0.04 )
Impact of change from basic to diluted share count                   -  
GAAP net loss, adjusted to diluted share count         $ (1,830 )     (0.04 )
  Non-cash stock-based compensation   $ 8,231     4,939       0.10  
  Certain intellectual property litigation expenses     1,224     734       0.01  
  Amortization of intangible assets     3,071     1,843       0.04  
  Leasehold related charges     2,232     1,339       0.03  
  One-time and acquisition related items     575     345       0.01  
  Non-cash interest expense on convertible notes     3,704     2,222       0.04  
                       
Non-GAAP earnings         $ 9,592       0.19  
                       
                       
GAAP weighted shares outstanding - basic and diluted                   46,990  
Non-GAAP weighted shares outstanding - diluted                   49,796  
                       
                       
                       
Reconciliation of Year To Date 2014 Results  
                 
(in thousands, except per share data)   Pre-Tax Adjustments   Net of Tax     Earnings Per Share  
GAAP net loss         $ (24,194 )   $ (0.52 )
Impact of change from basic to diluted share count                   0.03  
GAAP net loss, adjusted to diluted share count         $ (24,194 )     (0.49 )
  Non-cash stock-based compensation   $ 24,779     14,867       0.30  
  Certain intellectual property litigation expenses   $ 3,771     2,263       0.05  
  Amortization of intangible assets   $ 10,541     6,325       0.13  
  Intangible asset impairment charge   $ 10,708     6,425       0.13  
  Leasehold related charges   $ 9,164     5,498       0.11  
  One-time and acquisition related items   $ 2,966     1,780       0.04  
  Non-cash interest expense on convertible notes   $ 10,914     6,548       0.13  
  Litigation liability expense   $ 30,000     18,000       0.36  
                       
Non-GAAP earnings         $ 37,512       0.76  
                       
                       
GAAP weighted shares outstanding - basic and diluted                   46,546  
Non-GAAP weighted shares outstanding - diluted                   49,370  
                       

Conference Call

NuVasive will hold a conference call today at 5:30 p.m. ET / 2:30 p.m. PT to discuss these 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 28, 2014. In addition, a telephone replay of the call will be available until November 13, 2014. 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: 13593345.

About NuVasive

NuVasive is an innovative global medical device company that is changing spine surgery with minimally disruptive surgical products and procedurally-integrated solutions for the spine. The Company is the third largest player in the $8.7 billion global spine market. NuVasive offers a comprehensive spine portfolio of more than 90 unique products developed to improve spine surgery and patient outcomes. The Company's principal procedural solution is its Maximum Access Surgery, or MAS®, platform for lateral spine fusion. MAS was designed to provide safe, reproducible, and clinically proven outcomes, and is a highly differentiated solution with fully integrated neuromonitoring, customizable exposure, and a broad offering of application-specific implants and fixation devices designed to address a variety of pathologies.

NuVasive cautions you that statements included in this press release or made on the earnings call referenced herein 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; the risk of further adjustment to financial results or future financial expectations; unanticipated difficulty in selling products, generating revenue or producing expected profitability; and those 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.  
Consolidated Statements of Operations  
(in thousands, except per share data)  
   
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2014     2013     2014     2013  
(Unaudited)                                
                                 
Revenue   $ 189,918     $ 169,156     $ 558,090     $ 494,358  
Cost of goods sold (excluding amortization and impairment of intangible assets)     47,719       43,291       135,849       131,131  
Gross profit     142,199       125,865       422,241       363,227  
                                 
Operating expenses:                                
  Sales, marketing and administrative     113,746       102,085       348,820       306,243  
  Research and development     9,068       7,248       28,590       24,654  
  Amortization of intangible assets     3,071       4,974       10,541       14,263  
  Impairment of intangible assets     -       -       10,708       -  
  Litigation liability     -       -       30,000       -  
Total operating expenses     125,885       114,307       428,659       345,160  
                                 
Interest and other expense, net:                                
  Interest income     241       157       691       560  
  Interest expense     (6,965 )     (6,712 )     (20,809 )     (20,396 )
  Other (expense) income, net     (2,489 )     3,137       (2,318 )     2,937  
Total interest and other expense, net     (9,213 )     (3,418 )     (22,436 )     (16,899 )
                                 
Income (loss) before income taxes     7,101       8,140       (28,854 )     1,168  
Income tax expense (benefit)     9,088       860       (4,065 )     20  
Consolidated net income (loss)   $ (1,987 )   $ 7,280     $ (24,789 )   $ 1,148  
Net loss attributable to noncontrolling interests   $ (157 )   $ (231 )   $ (595 )   $ (745 )
Net loss attributable to NuVasive, Inc.   $ (1,830 )   $ 7,511     $ (24,194 )   $ 1,893  
                                 
Net (loss) income per share attributable to NuVasive, Inc.:                                
                                   
  Basic   $ (0.04 )   $ 0.17     $ (0.52 )   $ 0.04  
  Diluted   $ (0.04 )   $ 0.16     $ (0.52 )   $ 0.04  
Weighted average shares outstanding:                                
  Basic     46,990       44,572       46,546       44,339  
  Diluted     46,990       47,220       46,546       46,387  
                                 
                                 
                                 
NuVasive, Inc.  
Consolidated Balance Sheets  
(in thousands, except par values and share amounts)  
   
    September 30,     December 31,  
    2014     2013  
    (Unaudited)        
ASSETS            
Current assets:                
  Cash and cash equivalents   $ 130,657     $ 102,825  
  Short-term marketable securities     169,824       143,449  
  Accounts receivable, net of allowances of $4,696 and $3,481, respectively     108,367       104,774  
  Inventory, net     159,708       136,937  
  Deferred tax assets, current     37,049       37,076  
  Income tax receivable     13,809       -  
  Prepaid expenses and other current assets     10,216       10,947  
Total current assets     629,630       536,008  
Property and equipment, net     131,217       128,064  
Long-term marketable securities     83,752       79,829  
Intangible assets, net     72,210       93,986  
Goodwill     154,512       154,944  
Deferred tax assets, non-current     46,827       42,863  
Restricted cash and investments     123,170       119,195  
Other assets     28,065       24,679  
Total assets   $ 1,269,383     $ 1,179,568  
LIABILITIES AND EQUITY                
Current liabilities:                
  Accounts payable and accrued liabilities   $ 107,956     $ 86,057  
  Accrued payroll and related expenses     31,289       31,095  
  Current litigation liability     30,000       -  
Total current liabilities     169,245       117,152  
Senior Convertible Notes     356,974       346,060  
Deferred tax liabilities, non-current     2,967       2,934  
Litigation liability     93,700       93,700  
Other long-term liabilities     14,088       14,844  
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 September 30, 2014 and December 31, 2013, respectively, 47,038,365 and 44,943,233 issued and outstanding at September 30, 2014 and December 31, 2013, respectively     47       45  
  Additional paid-in capital     822,854       769,203  
  Accumulated other comprehensive income     (3,907 )     (3,238 )
  Accumulated deficit     (194,412 )     (170,218 )
  Less cost of treasury stock; 18,350 shares and 0 shares at September 30, 2014 and December 31, 2013, respectively     (664 )     -  
Total NuVasive, Inc. stockholders' equity     623,918       595,792  
Noncontrolling interests     8,491       9,086  
Total equity     632,409       604,878  
Total liabilities and stockholders' equity   $ 1,269,383     $ 1,179,568  
                 
                 
                 
NuVasive, Inc.  
Consolidated Statements of Cash Flows  
(in thousands)  
   
    Nine Months Ended
September 30,
 
    2014     2013  
(Unaudited)                
Operating activities:                
Consolidated net (loss) income   $ (24,789 )   $ 1,148  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:                
  Depreciation and amortization     46,521       46,289  
  Amortization of non-cash interest     12,244       11,413  
  Stock-based compensation     24,779       24,002  
  Impairment of intangible assets     10,708       -  
  Reserves     4,062       2,649  
  Other non-cash adjustments     11,317       3,881  
Changes in operating assets and liabilities, net of effects from acquisitions:                
  Accounts receivable     (5,519 )     (8,253 )
  Inventory     (27,190 )     (16,749 )
  Prepaid expenses and other assets     (1,837 )     (2,838 )
  Accounts payable and accrued liabilities     16,037       17,915  
  Litigation liability     30,000       (7,500 )
  Accrued payroll and related expenses     151       (1,824 )
Net cash provided by operating activities     96,484       70,133  
Investing activities:                
Cash paid for business and asset acquisitions     (59 )     (8,019 )
Purchases of property and equipment     (45,692 )     (38,018 )
Purchases of marketable securities     (177,850 )     (164,338 )
Sales of marketable securities     142,051       183,756  
Net cash used in investing activities     (81,550 )     (26,619 )
Financing activities:                
Principal payment of 2013 Senior Convertible Notes     -       (74,311 )
Tax benefits related to stock-based compensation awards     -       5,247  
Proceeds from the issuance of common stock     15,341       3,492  
Purchases of treasury stock     (664 )     -  
Other financing activities     (1,166 )     (72 )
Net cash provided by (used in) financing activities     13,511       (65,644 )
Effect of exchange rate changes on cash     (613 )     (553 )
Increase (decrease) in cash and cash equivalents     27,832       (22,683 )
Cash and cash equivalents at beginning of year     102,825       123,299  
Cash and cash equivalents at end of year   $ 130,657     $ 100,616  

Contact Information

  • Investor Contact:
    Carol Cox
    NuVasive, Inc.
    858-638-5533
    Email Contact

    Media Contact:
    Stacy Roughan
    NuVasive, Inc.
    858-909-1812
    Email Contact