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NuVasive, Inc. (NUVA) Reports Fourth Quarter and Full Year 2012 Financial Results



2/28/2013 9:32:10 AM

SAN DIEGO, CA--(Marketwire - February 26, 2013) - NuVasive, Inc. (NASDAQ: NUVA)

  • Fourth quarter 2012 total revenue of $165.8 million; up 10.4% from fourth quarter 2011 and up 11.7% from third quarter 2012

  • Full year 2012 total revenue of $620.3 million; up 14.8% from the full year 2011

  • GAAP operating margin of 2.5% for the fourth quarter 2012 and 6.0% for the full year 2012

  • Non-GAAP operating margin of 15.0% for the fourth quarter 2012 and 14.5% for the full year 2012

  • GAAP net loss of $2.7 million, or $0.06 per share, for the fourth quarter 2012 and GAAP net earnings of $3.1 million, or $0.07 per share, for the full year 2012

  • Non-GAAP earnings of $15.0 million, or $0.34 per share, for the fourth quarter 2012 and $45.8 million, or $1.04 per share, for the full year 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 and for the full year ended December 31, 2012.

Alex Lukianov, Chairman and Chief Executive Officer, said, "We are very proud of our strong close to 2012 and excellent revenue growth of 15% with profit translation. As we embark on 2013, we are excited to build upon our momentum with growing clinical evidence, game-changing new product launches, an energized sales force, and our expansion into new international markets. Over the last decade, NuVasive has positively changed the lives of over 100,000 spine patients through minimally invasive surgery with our XLIF procedure. We are highly focused on continually disrupting the global spine industry through innovation with advanced procedural solutions and executing to a long term plan of evolving into a $1 billion company with steadily increasing profitability. Our proven, three pillar market share taking strategy of Superior Outcomes, Absolute Responsiveness, and Speed of Innovation will sustain our future growth toward the #3 position within the global spine industry."

NuVasive reported fourth quarter 2012 revenue of $165.8 million, a 10.4% increase over the $150.2 million for the fourth quarter 2011 and an 11.7% increase over the $148.4 million reported for the third quarter 2012.

Gross profit for the fourth quarter 2012 was $123.6 million and gross margin was 74.5%, compared to a gross profit of $113.1 million and a gross margin of 75.3% for the fourth quarter 2011. For the third quarter 2012, gross profit was $110.6 million and gross margin was 74.6%. Gross profit for the full year 2012 was $466.8 million and gross margin was 75.3%, compared to a gross profit of $428.4 million and gross margin of 79.3% for the full year 2011.

Total operating expenses for the fourth quarter 2012 were $119.4 million compared to $122.9 million in the fourth quarter 2011 and $98.1 million in the third quarter 2012. The higher operating expenses in the fourth quarter 2011 resulted from a higher 2011 asset impairment charge. Full year 2012 operating expenses were $429.8 million compared to $513.4 million reported for the full year 2011. The higher operating expenses for the full year 2011 resulted primarily from a 2011 charge related to a litigation liability.

On a GAAP basis, the Company reported a net loss of $2.7 million, or $0.06 per share, for the fourth quarter 2012, and net income of $3.1 million, or $0.07 per share for the full year 2012.

On a Non-GAAP basis, the Company reported net income of $15.0 million, or $0.34 per share, for the fourth quarter 2012, and net income of $45.8 million, or $1.04 per share, for the full year 2012. The Non-GAAP earnings per share calculations for the fourth quarter and full year exclude, respectively, (i) non-cash stock-based compensation of $5.9 million and $26.3 million; (ii) certain intellectual property litigation expenses of $852,000 and $2.4 million; (iii) amortization of intangible assets of $3.6 million and $12.4 million; (iv) acquisition related items of $639,000 and $2.1 million; (v) non-cash interest expense on convertible notes of $3.3 million and $12.7 million; and (vi) intangible asset and goodwill impairment charges of $9.7 million and $9.7 million.

Cash, cash equivalents and short and long-term marketable securities were $346.1 million at December 31, 2012.

2013 Full Year Financial Guidance

  • Revenue of approximately $655 million
  • GAAP EPS of approximately $0.07
  • Non-GAAP EPS of approximately $1.00
  • Non-GAAP Operating Margin of approximately 14%
  • GAAP effective tax expense rate of approximately 60%

Reconciliation of Full Year EPS Guidance 2013 Guidance (2) ------------- GAAP earnings per share guidance (1) $ 0.07 Non-cash stock based compensation 0.39 Certain intellectual property litigation expenses 0.06 Amortization of intangible assets 0.27 Acquisition related items (3) 0.03 Non-cash interest expense on convertible notes 0.18 ------------- Non-GAAP earnings per share guidance (1) $ 1.00 ============= Weighted shares outstanding - basic 45,500 ============= Weighted shares outstanding - diluted 46,500 ============= (1) Includes negative impact of Medical Device Excise Tax of ~$0.13 (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 Reconciliation of Non-GAAP Operating Margin % 2012 Actuals 2013 --------------------- Fourth Full Full Year Quarter Year Guidance ---------- ---------- ---------- Gross Margin % [A] 74.5% 75.3% ~74.0% (1) Non-GAAP Operating Expenses [B] 59.5% 60.8% ~60.0% Non-cash stock-based compensation 3.5% 4.2% ~5.0% Certain intellectual property litigation expenses 0.5% 0.4% ~1.0% Amortization of intangible assets 2.2% 2.0% ~3.0% Intangible asset and goodwill impairment charge 5.9% 1.5% - Acquisition related items (2) 0.4% 0.3% ~0.3% ---------- ---------- ---------- GAAP Operating Expenses 72.0% 69.3% ~69.3% ---------- ---------- ---------- Non-GAAP Operating Margin % [A-B] 15.0% 14.5% ~14.0% (1) ---------- ---------- ---------- (1) Includes negative impact of Medical Device Excise Tax of ~1.5%, or ~150bps (2) 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, which exclude non-cash stock-based compensation, certain intellectual property litigation expenses, amortization of intangible assets, acquisition related items, non-cash interest expense on convertible notes, and intangible asset and goodwill impairment charges. 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 Fourth Quarter 2012 Results (Loss) Pre-Tax Net of Tax Earnings (in thousands, except per share data) Adjustments (1) Per Share ----------- ----------- ----------- GAAP net income $ (2,746) $ (0.06) Impact of change from basic to diluted share count - ----------- ----------- GAAP net loss, adjusted to diluted share count $ (2,746) $ (0.06) Non-cash stock-based compensation $ 5,912 3,547 0.08 Certain intellectual property litigation expenses 852 511 0.01 Amortization of intangible assets 3,600 2,160 0.05 Acquisition related items 639 383 0.01 Non-cash interest expense on convertible notes 3,262 1,957 0.04 Intangible asset impairment charge 1,400 840 0.02 Goodwill impairment charge 8,300 8,300 0.19 ----------- ----------- Non-GAAP earnings $ 14,953 $ 0.34 =========== =========== GAAP weighted shares outstanding - basic and diluted 43,628 =========== Non-GAAP weighted shares outstanding - diluted 44,634 =========== (1) 40% tax rate applied to Non-GAAP adjustments, except for non-deductible goodwill impairment charge Reconciliation of Full Year 2012 Results Earnings Pre-Tax Net of Tax Per (in thousands, except per share data) Adjustments (1) Share ----------- ----------- ----------- GAAP net income $ 3,144 $ 0.07 Non-cash stock-based compensation $ 26,312 15,787 0.36 Certain intellectual property litigation expenses 2,419 1,451 0.03 Amortization of intangible assets 12,430 7,458 0.17 Acquisition related items 2,059 1,235 0.03 Non-cash interest expense on convertible notes 12,697 7,618 0.17 Intangible asset impairment charge 1,400 840 0.02 Goodwill impairment charge 8,300 8,300 0.19 ----------- ----------- Non-GAAP earnings $ 45,834 $ 1.04 =========== =========== Weighted shares outstanding - diluted 44,272 =========== (1) 40% tax rate applied to Non-GAAP adjustments, except for non-deductible goodwill impairment charge

Conference Call

NuVasive will hold a conference call today at 5:30 p.m. ET / 2:30 p.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 March 26, 2013. In addition, a telephonic replay of the call will be available until March 12, 2013. 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 406960.

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 $8.2 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 may 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 may significantly improve surgical outcomes 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 a complete portfolio of products spanning lumbar, thoracic, and cervical applications, the Company will continue to expand and evolve its offering predicated on its focus on innovation 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; the risk of further adjustment, or unanticipated difficulty in selling products or generating expected profitability; 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 Year Ended December 31, December 31, -------------------- -------------------- 2012 2011 2012 2011 --------- --------- --------- --------- Revenue $ 165,754 $ 150,194 $ 620,255 $ 540,506 Cost of goods sold (excluding amortization of purchased technology) 42,196 37,062 153,409 112,111 --------- --------- --------- --------- Gross profit 123,558 113,132 466,846 428,395 Operating expenses: Sales, marketing and administrative 97,713 93,428 372,416 349,052 Research and development 8,398 8,888 35,296 38,408 Amortization of intangible assets 3,600 2,368 12,430 6,609 Impairment of goodwill and intangible assets 9,700 18,167 9,700 18,167 Litigation award - - - 101,200 --------- --------- --------- --------- Total operating expenses 119,411 122,851 429,842 513,436 Interest and other expense, net: Interest income 254 241 915 832 Interest expense (7,028) (6,971) (27,710) (17,933) Other income (expense), net 901 (225) 1,047 2,078 --------- --------- --------- --------- Total interest and other expense, net (5,873) (6,955) (25,748) (15,023) --------- --------- --------- --------- (Loss) income before income taxes (1,726) (16,674) 11,256 (100,064) Income tax expense (benefit) 1,050 (6,328) 8,814 (29,043) --------- --------- --------- --------- Consolidated net (loss) income $ (2,776) $ (10,346) $ 2,442 $ (71,021) ========= ========= ========= ========= Net loss attributable to noncontrolling interests $ (30) $ (310) $ (702) $ (1,172) ========= ========= ========= ========= Net (loss) income attributable to NuVasive, Inc. $ (2,746) $ (10,036) $ 3,144 $ (69,849) ========= ========= ========= ========= Net (loss) income per share attributable to NuVasive, Inc.: Basic $ (0.06) $ (0.24) $ 0.07 $ (1.73) ========= ========= ========= ========= Diluted $ (0.06) $ (0.24) $ 0.07 $ (1.73) ========= ========= ========= ========= Weighted average shares outstanding: Basic 43,628 42,172 43,328 40,372 ========= ========= ========= ========= Diluted 43,628 42,172 44,272 40,372 ========= ========= ========= ========= Stock-based compensation is included in expenses in the following categories: Sales, marketing and administrative $ 5,373 $ 7,627 $ 24,096 $ 29,583 Research and development 514 654 2,138 2,487 Cost of goods sold 25 - 78 - --------- --------- --------- --------- $ 5,912 $ 8,281 $ 26,312 $ 32,070 ========= ========= ========= ========= NuVasive, Inc. Unaudited Condensed Consolidated Balance Sheets (in thousands) December 31, December 31, 2012 2011 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 123,299 $ 163,492 Short-term marketable securities 138,405 146,228 Accounts receivable, net 88,958 87,736 Inventory 126,335 119,313 Deferred tax assets, current 28,236 54,550 Prepaid expenses and other current assets 8,516 20,518 ------------- ------------- Total current assets 513,749 591,837 Property and equipment, net 125,123 124,754 Long-term marketable securities 84,412 32,503 Intangible assets, net 101,362 108,140 Goodwill 154,106 159,349 Deferred tax assets 40,575 19,857 Restricted cash and investments 118,995 68,600 Other assets 25,463 18,522 ------------- ------------- Total assets $ 1,163,785 $ 1,123,562 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 62,048 $ 51,744 Accrued payroll and related expenses 27,916 22,215 Litigation liability - 101,200 Acquisition-related liabilities - 32,221 Senior Convertible Notes, current 74,311 - ------------- ------------- Total current liabilities 164,275 207,380 Senior Convertible Notes 332,404 394,019 Deferred tax liabilities 3,129 3,952 Litigation liability 101,200 - Other long-term liabilities 15,199 13,461 Commitments and contingencies Noncontrolling interests 10,003 10,705 Stockholders' equity: Preferred stock - - Common stock 44 42 Additional paid-in capital 714,865 674,790 Accumulated other comprehensive income 786 477 Accumulated deficit (178,120) (181,264) ------------- ------------- Total stockholders' equity 537,575 494,045 ------------- ------------- Total liabilities and stockholders' equity $ 1,163,785 $ 1,123,562 ============= ============= NuVasive, Inc. Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, ------------------------------- 2012 2011 2010 --------- --------- --------- Operating activities: Consolidated net income (loss) $ 2,442 $ (71,021) $ 76,533 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 51,909 36,242 36,737 Deferred income tax expense (benefit) 4,525 (30,967) (53,664) Amortization of debt discount 12,697 6,108 - Amortization of debt issuance costs 1,872 1,816 1,493 Stock-based compensation 26,312 32,070 28,225 Impairment of goodwill and intangible assets 9,700 18,167 - Loss on repurchase of Senior Convertible Notes, net - 332 - Gain recognized on change in fair value of derivatives - (2,387) - Allowance for doubtful accounts and sales return reserve 103 1,345 (995) Allowance for excess and obsolete inventory, net of write-offs 5,475 6,028 1,607 Accretion of contingent consideration 1,364 980 962 Other non-cash adjustments 5,919 5,247 3,844 Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable (2,005) (9,929) (17,865) Inventory (11,022) (17,170) (18,664) Prepaid expenses and other current assets 12,725 (14,396) (2,105) Accounts payable and accrued liabilities


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