NUVASIVE INC - FORM 8-K - EX-99.1 - PRESS RELEASE

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8-K - FORM 8-K - NUVASIVE INC	d426223d8k.htm

Exhibit 99.1

LOGO

PRESS RELEASE


Contact:		Investors:
Michael J. Lambert		Patrick F. Williams
EVP & Chief Financial Officer		Vice President, Strategy & Investor Relations
NuVasive, Inc.		NuVasive, Inc.
858-909-3394		858-638-5511
investorrelations@nuvasive.com		investorrelations@nuvasive.com

		Media:
		Nicholas S. Laudico
		The Ruth Group
		646-536-7030
		nlaudico@theruthgroup.com

NUVASIVE REPORTS THIRD QUARTER 2012 FINANCIAL RESULTS

•

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

SAN DIEGO, October 24, 2012 - 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 4^th 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.

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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

NUVASIVE INC - FORM 8-K - EX-99.1 - PRESS RELEASE - October 24, 2012

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