NuVasive, Inc. Reports First Quarter 2012 Financial Results

SAN DIEGO, CA--(Marketwire - April 30, 2012) - NuVasive, Inc. (NASDAQ: NUVA)

• First quarter 2012 total revenue of $151.7 million; up 21.9% from first quarter 2011 and up 1.0% from fourth quarter 2011

• GAAP net income of $673 thousand, or $0.02 per share

• Non-GAAP net income of $8.8 million, or $0.20 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 March 31, 2012.

Alex Lukianov, Chairman and Chief Executive Officer, said, “Our financial performance in the first quarter of 2012 attests to excellent execution of our market-share taking strategy, and gives us increased confidence in our ability to achieve our full year revenue and profitability guidance. As we focus on execution toward our 2012 objectives, we are also making the necessary investments into NuVasive’s differentiation and share taking strategy. Our commitment to maintain NuVasive’s innovative prowess, to drive superior clinical outcomes, and to nurture our Absolute Responsiveness culture are the drivers of our success to date and will carry us beyond $1 billion in revenue. Looking forward, we expect our top line to grow in conjunction with an improving profitability profile and continual improvements in free cash flow. We are laying the groundwork today to become the #3 spine company in the world.”

NuVasive reported first quarter 2012 revenue of $151.7 million, a 21.9% increase over the $124.5 million for the first quarter 2011 and a 1.0% increase over the $150.2 million reported for the fourth quarter 2011.

Gross profit for the first quarter 2012 was $114.8 million and gross margin was 75.7%, compared to a gross profit of $100.9 million and a gross margin of 81.1% for the first quarter 2011. For the fourth quarter 2011, gross profit was $113.1 million and gross margin was 75.3%.

Total operating expenses for the first quarter 2012 were $107.5 million compared to $96.3 million in the first quarter 2011 and $122.9 million in the fourth quarter 2011. The higher operating expenses in the first quarter 2012 compared to the prior year resulted primarily from additional costs associated with higher revenue and infrastructure expansion.

On a GAAP basis, the Company reported net income of $673 thousand, or $0.02 per share, for the first quarter 2012.

On a Non-GAAP basis, the Company reported net income of $8.8 million, or $0.20 per share, for the first quarter 2012. The Non-GAAP earnings per share calculations for the first quarter exclude, (i) non-cash stock-based compensation of $6.6 million; (ii) certain intellectual property litigation expenses of $524 thousand; (iii) amortization of intangible assets of $2.8 million; (iv) acquisition related items of $448 thousand; and (v) non-cash interest expense on convertible notes of $3.1 million.

Cash, cash equivalents and short and long-term marketable securities were $363.6 million at March 31, 2012.

2012 Full Year Financial Guidance

Remains unchanged and when compared to 2011 financial results, reflects the full year impacts of convertible note activity, the Impulse Monitoring business, an accrual for estimated patent litigation royalties, and a tax expense rate in comparison to a tax benefit rate.

• Revenue of approximately $615 million
• GAAP EPS of approximately $0.09
• Non-GAAP EPS of approximately $0.93
• Non-GAAP Operating Margin of approximately 14%
• GAAP effective tax expense rate of approximately 60%
• Non-GAAP effective tax expense rate of approximately 40%

 Reconciliation of Full Year EPS Guidance 2012 Guidance (1) ------------- GAAP earnings per share guidance $ 0.09 Non-cash stock-based compensation 0.46 Certain intellectual property litigation expenses 0.03 Amortization of intangible assets 0.16 Acquisition related items (2) 0.02 Non-cash interest expense on convertible notes 0.17 ------------- Non-GAAP earnings per share guidance $ 0.93 ============= Weighted shares outstanding - basic 43,500 ============= Weighted shares outstanding - diluted 45,000 ============= (1) Effective tax rate of ~60% applied to GAAP earnings and ~40% applied to Non-GAAP adjustments (2) Acquisition related items include expenses associated with prior M&A activity and as incurred 2012 Guidance Reconciliation of Non-GAAP Operating Margin % FY 12 Guidance ------------ Gross Margin % [A] ~76.0% Non-GAAP Operating Expenses [B] ~62.0% Non-cash stock-based compensation ~5.5% Certain intellectual property litigation expenses ~0.5% Amortization of intangible assets ~2.0% Acquisition related items* ~0.2% ------------ GAAP Operating Expenses ~70.2% ------------ Non-GAAP Operating Margin % [A-B] ~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 First Quarter 2012 Results Pre-Tax Earnings (in thousands, except per share data) Adjustments Net of Tax Per Share ----------- ----------- ----------- GAAP net income 673 $ 0.02 Non-cash stock-based compensation $ 6,621 3,973 $ 0.09 Certain intellectual property litigation expenses 524 314 $ 0.01 Amortization of intangible assets 2,846 1,708 $ 0.04 Acquisition related items 448 269 $ 0.01 Non-cash interest expense on convertible notes 3,088 1,853 $ 0.04 ----------- ----------- Non-GAAP earnings 8,790 $ 0.20 =========== =========== Weighted shares outstanding - diluted 43,397 =========== 

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 May 31, 2012. In addition, a telephonic replay of the call will be available until May 14, 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 390330.

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 5th largest player in the $7.6 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 70 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 March 31, -------------------------- 2012 2011 ------------ ------------ Revenue $ 151,691 $ 124,466 Cost of goods sold (excluding amortization of purchased technology) 36,933 23,526 ------------ ------------ Gross profit 114,758 100,940 Operating expenses: Sales, marketing and administrative 94,271 84,220 Research and development 10,395 10,769 Amortization of intangible assets 2,846 1,342 ------------ ------------ Total operating expenses 107,512 96,331 Interest and other expense, net: Interest income 208 183 Interest expense (6,825) (1,771) Other income, net 437 497 ------------ ------------ Total interest and other expense, net (6,180) (1,091) ------------ ------------ Income before income taxes 1,066 3,518 Income tax expense 597 1,540 ------------ ------------ Consolidated net income $ 469 $ 1,978 ============ ============ Net loss attributable to noncontrolling interests $ (204) $ (381) ============ ============ Net income attributable to NuVasive, Inc. $ 673 $ 2,359 ============ ============ Net income per share attributable to NuVasive, Inc.: Basic and diluted $ 0.02 $ 0.06 ============ ============ Weighted average shares outstanding: Basic 42,844 39,616 ============ ============ Diluted 43,397 40,511 ============ ============ Stock-based compensation is included in expenses in the following categories: Sales, marketing and administrative $ 6,142 $ 7,335 Research and development 465 611 Cost of goods sold 14 - ------------ ------------ $ 6,621 $ 7,946 ============ ============ NuVasive, Inc. Condensed Consolidated Balance Sheets (in thousands) March 31, December 31, 2012 2011 ------------ ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 270,180 $ 163,492 Short-term marketable securities 88,417 146,228 Accounts receivable, net 85,570 88,350 Inventory 122,027 119,313 Deferred tax assets, current 54,550 54,550 Prepaid expenses and other current assets 9,209 19,904 ------------ ------------ Total current assets 629,953 591,837 Property and equipment, net 131,041 124,754 Long-term marketable securities 4,999 32,503 Intangible assets, net 105,307 108,140 Goodwill 160,745 159,349 Deferred tax assets 19,857 19,857 Restricted cash and investments 68,547 68,600 Other assets 28,690 18,522 ------------ ------------ Total assets $ 1,149,139 $ 1,123,562 ============ ============ LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued liabilities $ 61,470 $ 51,744 Accrued payroll and related expenses 18,582 22,215 Litigation liability 101,200 101,200 Acquisition-related liabilities 32,089 32,221 Senior Convertible Notes, current 74,311 - ------------ ------------ Total current liabilities 287,652 207,380 Senior Convertible Notes 322,796 394,019 Deferred tax liabilities 3,952 3,952 Other long-term liabilities 14,693 13,461 Commitments and contingencies Noncontrolling interests 10,501 10,705 Stockholders’ equity: Preferred stock - - Common stock 43 42 Additional paid-in capital 688,992 674,790 Accumulated other comprehensive income 1,101 477 Accumulated deficit (180,591) (181,264) ------------ ------------ Total stockholders’ equity 509,545 494,045 ------------ ------------ Total liabilities and stockholders’ equity $ 1,149,139 $ 1,123,562 ============ ============ NuVasive, Inc. Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) Three Months Ended March 31, -------------------------- 2012 2011 ------------ ------------ Operating activities: Consolidated net income $ 469 $ 1,978 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12,087 7,781 Amortization of debt discount 3,088 - Amortization of debt issuance costs 451 373 Stock-based compensation 6,621 7,946 Allowance for excess and obsolete inventory, net of write-offs 1,200 216 Allowance for doubtful accounts and sales return reserve 663 6 Other non-cash adjustments 1,843 1,422 Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable 2,193 942 Inventory (3,502) (6,658) Prepaid expenses and other current assets 10,959 (751) Accounts payable and accrued liabilities 7,834 3,959 Accrued payroll and related expenses (4,166) (2,670) ------------ ------------ Net cash provided by operating activities 39,740 14,544 Investing activities: Cash paid for business and asset acquisitions (3,667) - Purchases of property and equipment (14,567) (10,000) Purchases of marketable securities - (26,018) Sales of marketable securities 84,831 71,185 Payment for specific rights in connection with supply agreement - (8,000) ------------ ------------ Net cash provided by investing activities 66,597 27,167 Financing activities: Proceeds from the issuance of common stock 314 425 Other assets 76 (709) ------------ ------------ Net cash provided by (used in) financing activities 390 (284) Effect of exchange rate changes on cash (39) 77 ------------ ------------ Increase in cash and cash equivalents 106,688 41,504 Cash and cash equivalents at beginning of period 163,492 92,597 ------------ ------------ Cash and cash equivalents at end of period $ 270,180 $ 134,101 ============ ============