NuVasive Reports Second Quarter 2017 Financial Results

SAN DIEGOJuly 27, 2017 /PRNewswire/ — NuVasive, Inc. (Nasdaq: NUVA), a leading medical device company focused on transforming spine surgery with minimally disruptive, procedurally-integrated solutions, announced today financial results for the quarter ended June 30, 2017.

Second Quarter 2017 Highlights

  • Revenue increased 10.3% to $260.6 million, or 10.7% on a constant currency basis;
  • GAAP operating profit margin of 11.4%; Non-GAAP operating profit margin up 40 basis points from prior year to 16.3%;
  • GAAP diluted earnings per share of $0.22; Non-GAAP diluted earnings per share up 15.0% from prior year to $0.46; and
  • Company reiterates revenue, non-GAAP operating margin and non-GAAP diluted earnings per share guidance for 2017.

“NuVasive delivered better than expected operating profitability and earnings per share results in the second quarter 2017, along with continued strength across our International business, growing at more than 20% for the third quarter in a row,” said Gregory T. Lucier, chairman and chief executive officer of NuVasive. “In addition, several of our industry-disrupting technologies completed alpha and beta testing this quarter and will commercially launch over the next few months, giving surgeons and patients access to some of the most innovative technologies to address spine and trauma conditions, as well as radiation reduction in the operating room.”

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

Second Quarter 2017 Results

NuVasive reported second quarter 2017 total revenue of $260.6 million, a 10.3% increase compared to $236.2 million for the second quarter 2016. On a constant currency basis, second quarter 2017 total revenue increased 10.7% compared to the same period last year.

For the second quarter 2017, both GAAP and non-GAAP gross profit was $194.2 million, while both GAAP and non-GAAP gross margin was 74.5%. These results compared to GAAP and non-GAAP gross profit of $176.5 million and $183.8 million, respectively, and GAAP and non-GAAP gross margin of 74.7% and 77.8% respectively, for the second quarter 2016. Total GAAP and non-GAAP operating expenses were $164.4 million and $151.7 million, respectively, for the second quarter 2017. These results compared to GAAP and non-GAAP operating expenses of $116.4 million and $146.4 million, respectively, for the second quarter 2016.

NuVasive reported a GAAP net income of $12.7 million, or $0.22 per share, for the second quarter 2017 compared to $30.2 million, or $0.57 per share, for the second quarter 2016.

On a non-GAAP basis, the Company reported net income of $24.1 million, or $0.46 per share for the second quarter 2017 compared to $20.6 million, or $0.40 per share, for the second quarter 2016.

Cash, cash equivalents and short and long-term marketable securities were approximately $130.9 million at June 30, 2017.

Annual Guidance for 2017

The Company reiterated full year 2017 financial guidance in line with prior expectations, with the exception of the impact of updated foreign exchange rates.

2017 Guidance 1

(in Million’s; except %’s and EPS)

 GAAP 

 Non-GAAP 

Revenue

$  1,065

$          1,065

  % Growth – Reported

10.7%

10.7%

% Growth – Constant Currency 2

11.1%

Operating margin

12.4%

17.1%

Earnings per share

$    1.13

$            2.00

EBITDA

23.6%

26.7%

Tax Rate

~33%

~35%

    1

Current guidance reflects guidance provided July 27, 2017.

    2

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

 

  • Revenue of $1.065 billion, which now includes approximately $4 million in year-over-year currency headwinds, and reflects 10.7% growth on a reported basis and 11.1% growth on a constant currency basis compared to revenue of $962.1 million for 2016;
  • Non-GAAP diluted earnings per share of $2.00, an increase of 20% compared to non-GAAP diluted earnings per share of $1.66 for 2016;
  • Non-GAAP operating profit margin of 17.1%, an increase of 100 basis points compared to 16.1% for 2016; and
  • Adjusted EBITDA margin of 26.7%, an increase of 150 basis points compared to 25.2% for 2016.

Supplementary Financial Information

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

Reconciliation of Full Year EPS Guidance

2017 Guidance

2016
Actuals

Prior 1, 2

Current 1, 3

GAAP net income per share

$  0.69

$  1.13

$         1.13

Impact of change to diluted share count

0.02

0.07

0.09

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

$  0.71

$  1.20

$         1.22

Litigation liability gain

(0.83)

Business transition costs 4

0.35

0.04

0.05

Non-cash interest expense on convertible notes

0.38

0.33

0.33

Non-cash purchase accounting adjustments on acquisitions 5

0.28

Loss on repurchase of convertible notes

0.37

Amortization of intangible assets 6

0.78

0.89

0.88

Tax effect of adjustments 7

(0.38)

(0.46)

(0.48)

Non-GAAP earnings per share

$  1.66

$  2.00

$         2.00

GAAP Weighted shares outstanding – basic

50,077

50,967

50,864

GAAP Weighted shares outstanding – diluted

54,102

56,269

56,617

Non-GAAP Weighted shares outstanding – diluted

51,981

53,069

52,738

  1

Prior guidance provided April 25, 2017.  Current guidance reflects guidance provided July 27, 2017.

 2

Effective tax expense rate of ~34% applied to GAAP earnings and ~35% applied to Non-GAAP earnings.

 3

Effective tax expense rate of ~33% applied to GAAP earnings and ~35% applied to Non-GAAP earnings.

 4

Costs related to acquisition, integration and business transition activities which include severance, relocation, consulting, leasehold exit costs, third party merger and acquisitions costs and other costs directly associated with such activities.

5

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.

 6

Excludes the amortization associated with non-controlling interest.

7

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 estimated rate of ~35% on a non-GAAP basis. 

Reconciliation of Non-GAAP Operating Margin %

2017 Guidance

(in thousands, except %)

2016
Actuals

Prior 1

Current 1

Non-GAAP Gross Margin %[A]

76.6%

76.1%

75.6%

Non-cash purchase accounting adjustments on acquisitions 2

(1.5%)

0.0%

0.0%

GAAP Gross Margin [B]

75.0%

76.1%

75.6%

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

55.5%

54.0%

53.5%

Non-GAAP Research & Development Expense [D]

5.0%

5.0%

5.0%

In-process research & development

0.0%

0.0%

0.0%

GAAP Research & Development Expense [E]

5.0%

5.0%

5.0%

Litigation liability [F]

(4.5%)

0.0%

0.0%

Amortization of intangible assets [G] 3

4.4%

4.6%

4.5%

Business transition costs [H] 4

1.9%

0.2%

0.2%

Non-GAAP Operating Margin % [A – C – D]

16.1%

17.1%

17.1%

GAAP Operating Margin % [B – C – E – F – G – H]

12.8%

12.3%

12.4%

               1

Prior guidance provided April 25, 2017.  Current guidance reflects guidance provided July 27, 2017.

          2

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.

             3

Excludes the amortization associated with non-controlling interest.

          4

Costs related to acquisition, integration and business transition activities which include severance, relocation, consulting, leasehold exit costs, third party merger and acquisitions costs and other costs directly associated with such activities.

Reconciliation of EBITDA %

 2017 Guidance 

(in thousands, except %)

2016
Actuals

Prior 1

Current 1

Net Income / (Loss)

3.9%

6.0%

6.0%

Interest (income) / expense, net 2

6.1%

3.5%

3.6%

Provision for income taxes

3.0%

3.0%

2.9%

Depreciation and amortization 3

10.5%

11.1%

11.0%

EBITDA

23.5%

23.6%

23.6%

Non-cash stock based compensation

2.8%

3.0%

3.0%

Business transition costs 4

1.9%

0.2%

0.2%

Non-cash purchase accounting adjustments on acquisitions 5

1.5%

0.0%

0.0%

In-process research & development

0.0%

0.0%

0.0%

Litigation liability gain

(4.5%)

0.0%

0.0%

Adjusted EBITDA

25.2%

26.7%

26.7%

1

Prior guidance provided April 25, 2017.  Current guidance reflects guidance provided July 27, 2017.

2

Interest (income) / expense, net for the quarter and year ended December 31, 2016 includes loss on extinguishment of debt for $1.6 million and $19.1 million, respectively.

3

Excludes the amortization associated with non-controlling interest.

4

Costs related to acquisition, integration and business transition activities which include severance, relocation, consulting, leasehold exit costs, third party merger and acquisitions costs and other costs directly associated with such activities.

5

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.

Reconciliation of Non-GAAP Information

Management uses certain non-GAAP financial measures such as non-GAAP earnings per share, non-GAAP net income, non-GAAP operating expenses and non-GAAP operating profit margin, which exclude amortization of intangible assets, purchase accounting related charges, leasehold related charges, integration related expenses associated with acquired businesses, one-time restructuring and acquisition related items, CEO transition related costs, certain litigation charges, non-cash interest expense and/or losses on convertible notes, and the impact from taxes related to these items, including those taxes that would have occurred in lieu of these items. Management also uses certain non-GAAP measures which are intended to exclude the impact of foreign exchange currency fluctuations.  The measure constant currency is the use of an exchange rate that eliminates fluctuations when calculating financial performance numbers.

The Company also uses measures such as free cash flow, which represents cash flow from operations less cash used in the acquisition and disposition of capital.  Additionally, the Company uses an adjusted EBITDA measure which represents earnings before interest, taxes, depreciation and amortization and excludes the impact of stock-based compensation, purchase accounting related changes, leasehold related charges, integration related expenses associated with acquired businesses, CEO transition related costs, certain litigation liabilities, acquisition related items and other significant one-time items. 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 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 Second Quarter 2017 Results

GAAP Net Income per Share to Non-GAAP Earnings per Share

(in thousands, except per share data)

Adjustments

Diluted Earnings Per
Share

GAAP net income

$    12,661

$                     0.22

Business transition costs 1

1,369

Non-cash interest expense on convertible notes

4,665

Amortization of intangible assets 2

11,028

Tax effect of adjustments 3

(5,661)

Adjustments to GAAP net income

11,401

Non-GAAP earnings

$    24,062

$                     0.46

GAAP weighted shares outstanding – diluted

58,330

Non-GAAP weighted shares outstanding – diluted 4

52,743

1

Costs related to acquisition, integration and business transition activities which include severance, relocation, consulting, leasehold exit costs, third party merger and acquisitions costs and other costs directly associated with such activities.

2

Excludes the amortization associated with non-controlling interest.

3

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 estimated rate of ~35% on a non-GAAP basis.

4

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 Year To Date 2017 Results

GAAP Net Income per Share to Non-GAAP Earnings per Share

(in thousands, except per share data)

Adjustments

Diluted Earnings Per
Share

GAAP net income

$    25,429

$                     0.44

   Business transition costs 1

1,424

   Non-cash interest expense on convertible notes

9,264

   Amortization of intangible assets 2

22,766

   Tax effect of adjustments 3

(14,784)

Adjustments to GAAP net income

18,670

Non-GAAP earnings

$    44,099

$                     0.84

GAAP weighted shares outstanding – diluted

58,059

Non-GAAP weighted shares outstanding – diluted 4

52,713

1

Costs related to acquisition, integration and business transition activities which include severance, relocation, consulting, leasehold exit costs, third party merger and acquisitions costs and other costs directly associated with such activities.

2

Excludes the amortization associated with non-controlling interest.

3

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 estimated rate of ~35% on a non-GAAP basis.

4

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 Second Quarter and Six Months 2017 Results

GAAP net income to Adjusted EBITDA

Three months ended

Six months ended

(in thousands, except per share data)

June 30, 2017

June 30, 2017

GAAP net income

$                            12,661

$                                   25,429

Interest expense/(income), net

9,944

19,606

Provision for income taxes

7,079

8,569

Depreciation and amortization 1

28,856

58,014

EBITDA

$                            58,540

$                                 111,618

Business transition costs2

1,369

1,424

Non-cash stock based compensation

8,394

15,411

Adjusted EBITDA

$                            68,303

$                                 128,453

As a percentage of revenue

26.2%

25.2%

1

Excludes the amortization associated with non-controlling interest.

2

Costs related to acquisition, integration and business transition activities which includes severance, relocation, consulting, leasehold exit costs, third party merger and acquisitions costs and other costs directly associated with such activities.

Investor Conference Call

NuVasive will hold a conference call today at 4:30 p.m. ET / 1:30 p.m. PT to discuss the results of its financial performance for the second quarter 2017. 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 website at www.nuvasive.com. After the live webcast, the call will remain available on NuVasive’s website through August 28, 2017. In addition, a telephone replay of the call will be available until August 3, 2017. The replay dial-in numbers are 1-844-512-2921 for domestic callers and 1-412-317-6617 for international callers. Please use pin number: 13665648.

About NuVasive

NuVasive, Inc. (NASDAQ: NUVA) is transforming spine surgery and beyond with minimally invasive, procedurally-integrated solutions designed to deliver reproducible and clinically-proven surgical outcomes. The Company’s portfolio includes access instruments, implantable hardware, biologics, software systems for surgical planning, navigation and imaging solutions, magnetically adjustable implant systems for spine and orthopedics, and intraoperative monitoring service offerings. With $962 million in revenues (2016), NuVasive has an approximate 2,300 person workforce in more than 40 countries serving surgeons, hospitals and patients. For more information, please visit www.nuvasive.com.

Forward-Looking Statements

NuVasive cautions you that statements included in this news release or made on the investor conference 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. In addition, this news release contains selected financial results from the second quarter 2017, as well as projections for 2017 financial guidance and longer-term financial performance goals. The numbers for the second quarter 2017 are prior to the completion of review procedures by the Company’s external auditors and are subject to adjustment. In addition, the Company’s projections for 2017 financial guidance and longer-term financial performance goals represent current estimates, including initial estimates of the potential benefits, synergies and cost savings associated with acquisitions, which are subject to the risk of being inaccurate because of the preliminary nature of the forecasts, the risk of further adjustment, or unanticipated difficulty in selling products or generating expected profitability. 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; the risk that acquisitions will not be integrated successfully or that the benefits and synergies from the acquisition may not be fully realized or may take longer to realize than expected; and those other risks and uncertainties more fully described in the Company’s news 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. The forward-looking statements contained herein are based on the current expectations and assumptions of NuVasive and not on historical facts. 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 June 30,

Six Months Ended June 30,

(unaudited)

2017

2016

2017

2016

Revenue

$ 260,573

$ 236,210

$ 510,437

$ 451,314

Cost of goods sold (excluding below amortization of intangible assets)

66,421

59,745

128,034

113,971

Gross profit

194,152

176,465

382,403

337,343

Operating expenses:

Sales, marketing and administrative

139,109

134,487

279,611

259,325

Research and development

12,572

11,871

24,986

22,500

Amortization of intangible assets

11,349

10,603

23,410

18,474

Litigation liability (gain)

(43,310)

(43,310)

Business transition costs

1,369

2,756

1,424

8,063

Total operating expenses

164,399

116,407

329,431

265,052

Interest and other expense, net:

Interest income

139

406

276

734

Interest expense

(10,083)

(10,537)

(19,882)

(19,009)

Loss on repurchases of convertible notes

(17,444)

Other expense, net

(501)

(246)

(243)

(196)

Total interest and other expense, net

(10,445)

(10,377)

(19,849)

(35,915)

Income before income taxes

19,308

49,681

33,123

36,376

Income tax expense

(7,079)

(19,891)

(8,569)

(10,411)

Consolidated net income

$   12,229

$   29,790

$   24,554

$   25,965

Add back net loss attributable to non-controlling interest

$      (432)

$      (423)

$      (875)

$      (880)

Net income attributable to NuVasive, Inc.

$   12,661

$   30,213

$   25,429

$   26,845

Net income per share attributable to NuVasive, Inc.:

Basic

$       0.25

$       0.60

$       0.50

$       0.54

Diluted

$       0.22

$       0.57

$       0.44

$       0.51

Weighted average shares outstanding:

Basic

51,082

50,027

50,825

49,822

Diluted

58,330

53,159

58,059

52,354

NuVasive, Inc. 

Consolidated Balance Sheets 

(in thousands, except par values and share amounts) 

June 30, 2017

December 31, 2016

ASSETS

(Unaudited)

Current assets:

Cash and cash equivalents

$       130,932

$                153,643

Restricted cash and investments

2,402

Accounts receivable, net of allowances of $9,399 and $8,912, respectively

190,169

171,595

Inventory, net

236,839

208,249

Prepaid income taxes

19,576

31,926

Prepaid expenses and other current assets

12,310

10,030

Total current assets

592,228

575,443

Property and equipment, net

214,601

181,524

Intangible assets, net

268,466

291,143

Goodwill

486,439

485,685

Deferred tax assets

5,961

5,810

Restricted cash and investments

4,945

7,405

Other assets

33,744

23,794

Total assets

$    1,606,384

$             1,570,804

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$         82,933

$                  77,585

Contingent consideration liabilities

19,271

49,742

Accrued payroll and related expenses

49,323

51,000

Income tax liabilities

11,995

2,469

Short-term borrowings

20,000

Senior convertible notes

63,302

61,701

Total current liabilities

246,824

242,497

Long-term senior convertible notes

573,532

564,412

Deferred and income tax liabilities, non-current

16,110

18,607

Other long-term liabilities

46,312

44,764

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, 2017 and December 31, 2016, 58,081,702 and 55,184,660 issued and outstanding at June 30, 2017 and December 31, 2016, respectively

58

55

Additional paid-in capital

1,033,546

1,010,238

Accumulated other comprehensive loss

(8,131)

(10,631)

Accumulated deficit

(53,077)

(66,859)

Treasury stock at cost; 4,974,534 shares and 4,758,828 shares at June 30, 2017 and December 31, 2016, respectively

(253,503)

(237,867)

Total NuVasive, Inc. stockholders’ equity

718,893

694,936

Non-controlling interest

4,713

5,588

Total equity

723,606

700,524

Total liabilities and equity

$    1,606,384

$             1,570,804

NuVasive, Inc. 

Consolidated Statements of Cash Flows 

(in thousands) 

Six Months Ended June 30,

(unaudited)

2017

2016

Operating activities:

Consolidated net income

$   24,554

$   25,965

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

58,688

46,329

Loss on repurchases of convertible notes

17,444

Amortization of non-cash interest

10,882

10,943

Stock-based compensation

15,411

12,357

Reserves on current assets

(95)

6,751

Other non-cash adjustments

7,380

8,387

Deferred income taxes

(2,570)

14,691

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

Accounts receivable

(17,586)

(8,615)

Inventory

(29,012)

(12,019)

Prepaid expenses and other current assets

(2,485)

728

Contingent consideration liabilities

(11,200)

Accounts payable and accrued liabilities

4,987

14,384

Litigation liability

(43,310)

Accrued payroll and related expenses

(2,004)

(4,356)

Income taxes

10,172

10,534

Net cash provided by operating activities

67,122

100,213

Investing activities:

Acquisition of Ellipse Technologies, net of cash acquired

(380,080)

Other acquisitions and investments

(14,417)

(8,079)

Purchases of intangible assets

(1,695)

(5,918)

Purchases of property and equipment

(68,690)

(52,566)

Purchases of marketable securities

(128,956)

Proceeds from sales of marketable securities

339,320

Net cash used in investing activities

(84,802)

(236,279)

Financing activities:

Proceeds from the issuance of common stock

5,369

6,150

Purchase of treasury stock

(10,844)

(22,549)

Payment of contingent consideration

(18,800)

Proceeds from issuance of convertible debt, net of issuance costs

634,140

Proceeds from sale of warrants

44,850

Purchase of convertible note hedge

(111,150)

Repurchases of convertible notes

(343,835)

Proceeds from revolving line of credit

20,000

50,000

Repayments on revolving line of credit

(50,000)

Other financing activities

(2,205)

(1,545)

Net cash (used in)provided by financing activities

(6,480)

206,061

Effect of exchange rate changes on cash

1,449

748

(Decrease) increase in cash and cash equivalents

(22,711)

70,743

Cash and cash equivalents at beginning of period

153,643

192,339

Cash and cash equivalents at end of period

$ 130,932

$ 263,082

 

SOURCE NuVasive, Inc.

Related Links

http://www.nuvasive.com

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