NuVasive, Inc. Reports Second Quarter 2010 Financial Results

SAN DIEGO, CA--(Marketwire - July 27, 2010) - NuVasive, Inc. (NASDAQ: NUVA)

-- Total revenue of $119.6 million, up 35.2% over second quarter 2009 -- GAAP earnings of $6.7 million, or $0.17 per share; Non-GAAP earnings of $17.0 million, or $0.42 per share -- Non-GAAP operating margin of 15.8%, up from 11.3% for first quarter 2010; GAAP operating margin of 6.9% 

NuVasive, Inc. (NASDAQ: NUVA), a medical device company focused on developing products for minimally disruptive surgical treatments for the spine, announced today financial results for the quarter ended June 30, 2010.

NuVasive reported second quarter revenue of $119.6 million, a 35.2% increase over the $88.5 million for the second quarter 2009 and a 9.6% increase over the $109.1 million for the first quarter 2010.

Gross profit for the second quarter 2010 was $98.6 million and gross margin was 82.4%, compared to a gross profit of $74.2 million and a gross margin of 83.9% for the second quarter 2009. For the first quarter 2010, gross profit was $89.6 million and gross margin was 82.2%.

Total GAAP operating expenses for the second quarter 2010 were $90.3 million compared to $69.8 million in the second quarter 2009 and $86.7 million in the first quarter 2010.

On a GAAP basis, the Company reported net income of $6.7 million, or $0.17 per share, for the second quarter 2010.

On a Non-GAAP basis, the Company reported net income of $17.0 million, or $0.42 per share, for the second quarter 2010. The Non-GAAP earnings per share calculations for the second quarter exclude on a pre-tax basis (i) intellectual property litigation costs of $1.1 million; (ii) acquisition related costs of $0.6 million; (iii) stock-based compensation of $7.5 million; and (iv) amortization of intangible assets of $1.4 million.

Earnings per share reflect a change in the expected full year effective tax rate equating to an impact of $0.04 on a GAAP basis and $0.13 on a Non-GAAP basis for the second quarter 2010.

Cash, cash equivalents and short and long-term marketable securities were $213.2 million at June 30, 2010. Operating cash flow was $16.3 million for the second quarter 2010.

Alex Lukianov, Chairman and Chief Executive Officer, said, “We had a very solid quarter, achieving revenue growth of over 35% and showing significant increases in profitability. Our Non-GAAP operating margins significantly increased to approximately 16%, putting us soundly on track for meeting our 2010 profitability targets. Our strong momentum driven by continued adoption of the XLIF® technology and increased traction from our biologics and international areas gives us the confidence to increase guidance. We are keenly focused on being the most creative spine technology company in the world and achieving exceptional results through speed of innovation, Absolute Responsiveness®, and superior clinical outcomes as we drive towards $1 billion in revenue with increasing profitability.”

Updated Full Year 2010 Financial Guidance:

-- Revenue of $485 million to $500 million; up from previous guidance of $480 million to $500 million -- GAAP EPS, net of tax and “If-converted” method, of $1.77 to $1.91; up from previous guidance of $1.58 to $1.70 -- Non-GAAP EPS, net of tax and “If-converted” method, of $1.50 to $1.64; up from previous guidance of $1.13 to $1.25 -- Effective tax rate of ~15%; lowered from previous guidance of ~35% -- excludes reversal of remaining valuation allowance -- Non-GAAP Operating Margin of ~17% remains unchanged Reconciliation of Non-GAAP Operating Margin % Guidance FY 10 ----------- Gross Margin % [A] ~ 82.5% Non-GAAP Research and Development [B] ~ 8.5% Non-cash stock-based compensation ~ 1% ----------- Total research and development ~ 9.5% Non-GAAP Sales, Marketing and Administrative [C] ~ 56% - 58% Non-cash stock-based compensation ~ 5% Intellectual property litigation expenses ~ 1% Reversal of leasehold termination - Acquistion related items as incurred ----------- Total sales, marketing and administrative ~ 62% - 64% Amortization of intangible assets ~ 1% ----------- Non-GAAP Operating Income % [A-B-C] ~ 17% ----------- 2010 Tax Adjustments & WASO Guidance (millions) Q1 - Q3 Q4 FY10 ---------- ---------- ---------- Effective Tax Rate (ETR)* ~ 15% ~ 15% ~ 15% Reversal of remaining valution allowance ~($47.0) ~($47.0) Weighted avereage shares - Diluted 41.0 ~ 46.0 ~ 46.0 * ETR to be used on a pre-tax income prior to reversal of remaining valuation allowance 

Reconciliation of Non-GAAP Information

Management uses certain Non-GAAP financial measures such as Non-GAAP earnings per share, which exclude intellectual property litigation expenses, acquisition related items, non-cash stock-based compensation, and the amortization of intangible assets. 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 Second Quarter 2010 Results pre-tax adjust- $ (net (in thousands, except per share data) ments of tax) per share --------- --------- --------- GAAP net income $ 6,723 $ 0.17 Intellectual property litigation expenses 1,104 1,076 0.03 Acquisition related items 558 544 0.01 Non-cash stock-based compensation 7,549 7,361 0.18 Amortization of intangible assets 1,355 1,322 0.03 --------- --------- Non-GAAP earnings $ 17,026 $ 0.42 ========= ========= Weighted average shares - Diluted 40,694 ========= Reconciliation of Full Year 2010 Guidance (Net of Tax, “If Converted” method) Range for Year Ending December 31, 2010 -------------------- (in thousands, except per share amounts) Low High GAAP earnings per share $ 1.77 $ 1.91 Intellectual property litigation expenses 0.09 0.09 Non-cash stock-based compensation 0.55 0.55 Amortization of intangible assets 0.11 0.11 Reversal of remaining valuation allowance (1.02) (1.02) --------- --------- Non-GAAP earnings per share $ 1.50 $ 1.64 ========= ========= Weighted shares outstanding - Diluted 46,000 46,000 ========= ========= 

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 1-877-407-4018 for domestic callers and 1-201-689-8471 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 August 27, 2010. In addition, a telephonic replay of the call will be available until August 10, 2010. The replay dial-in numbers are 1-877-660-6853 for domestic callers and 1-201-612-7415 for international callers. Please use account number 3055 and conference ID number 350903.

About NuVasive

NuVasive is a medical device company focused on the design, development, and marketing of products for the surgical treatment of spine disorders. The Company’s product portfolio is focused primarily on the $5.1 billion U.S. spine implant market. Additionally, the Company has expanded into the $1.7 billion global biologics market, the $1.7 billion international market, and is developing products for the emerging motion preservation market.

NuVasive’s principal product offering is based on its Maximum Access Surgery, or MAS® platform. The MAS platform combines four categories of products that collectively minimize soft tissue disruption during spine surgery with maximum visualization and safe, easy reproducibility for the surgeon: NeuroVision®, a proprietary software-driven nerve avoidance system; 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 55 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 Statement of Operations (in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2010 2009 2010 2009 --------- --------- --------- --------- Revenue $ 119,584 $ 88,481 $ 228,671 $ 168,490 Cost of goods sold (excluding amortization of purchased technology) 21,014 14,235 40,457 27,234 --------- --------- --------- --------- Gross profit 98,570 74,246 188,214 141,256 Operating expenses: Sales, marketing and administrative 77,726 60,274 152,387 120,801 Research and development 11,205 8,178 21,904 16,764 Amortization of intangible assets 1,355 1,372 2,705 2,708 --------- --------- --------- --------- Total operating expenses 90,286 69,824 176,996 140,273 Interest and other income (expense), net: Interest income 178 383 367 1,115 Interest expense (1,668) (2,060) (3,337) (3,830) Other income (expense), net (30) 93 87 135 --------- --------- --------- --------- Total interest and other income (expense), net (1,520) (1,584) (2,883) (2,580) --------- --------- --------- --------- Income (loss) before income taxes 6,764 2,838 8,335 (1,597) Income tax expense 574 526 1,439 623 --------- --------- --------- --------- Consolidated net income (loss) $ 6,190 $ 2,312 $ 6,896 $ (2,220) ========= ========= ========= ========= Net loss attributable to noncontrolling interests $ (533) $ (453) $ (915) $ (683) ========= ========= ========= ========= Net income (loss) attributable to NuVasive, Inc. $ 6,723 $ 2,765 $ 7,811 $ (1,537) ========= ========= ========= ========= Net income (loss) per share attributable to NuVasive, Inc.: Basic $ 0.17 $ 0.07 $ 0.20 $ (0.04) ========= ========= ========= ========= Diluted $ 0.17 $ 0.07 $ 0.19 $ (0.04) ========= ========= ========= ========= Weighted average shares: Basic 39,242 36,910 39,071 36,639 ========= ========= ========= ========= Diluted 40,694 38,301 40,383 36,639 ========= ========= ========= ========= Stock-based compensation is included in operating expenses in the following categories: Sales, marketing and administrative $ 6,672 $ 5,243 $ 12,352 $ 10,484 Research and development 877 1,074 1,631 2,515 --------- --------- --------- --------- $ 7,549 $ 6,317 $ 13,983 $ 12,999 ========= ========= ========= ========= NuVasive, Inc. Condensed Consolidated Balance Sheets (in thousands) June 30, December 31, 2010 2009 ------------ ------------ ASSETS Unaudited Current assets: Cash and cash equivalents $ 67,513 $ 65,413 Short-term marketable securities 111,666 99,279 Accounts receivable, net 68,230 58,462 Inventory 93,106 90,191 Prepaid expenses and other current assets 3,768 3,757 ------------ ------------ Total current assets 344,283 317,102 Property and equipment, net 89,801 82,602 Long-term marketable securities 34,046 39,968 Intangible assets, net 100,833 103,338 Goodwill 101,938 101,938 Other assets 14,781 7,872 ------------ ------------ Total assets $ 685,682 $ 652,820 ============ ============ LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued liabilities $ 38,337 $ 33,302 Accrued payroll and related expenses 13,088 19,111 Royalties payable 2,484 2,334 ------------ ------------ Total current liabilities 53,909 54,747 Senior convertible notes 230,000 230,000 Long-term acquisition related liabilities 30,876 30,694 Other long-term liabilities 27,810 27,528 Commitments and contingencies Noncontrolling interests 12,714 13,629 Stockholders’ equity: Common stock 39 39 Additional paid-in capital 513,072 485,757 Accumulated other comprehensive income (loss) (849) 126 Accumulated deficit (181,889) (189,700) ------------ ------------ Total stockholders’ equity 330,373 296,222 ------------ ------------ Total liabilities and stockholders’ equity $ 685,682 $ 652,820 ============ ============ NuVasive, Inc. Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) Six Months Ended June 30, -------------------- 2010 2009 --------- --------- Operating activities: Consolidated net income (loss) $ 6,896 $ (2,220) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 17,065 12,811 Stock-based compensation 13,983 12,999 Allowance for doubtful accounts and sales return reserve, net of write offs (1,007) 1,290 Allowance for excess and obsolete inventory 906 2,038 Other non-cash adjustments 2,773 - Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable (8,514) 2,221 Inventory (4,258) (19,939) Prepaid expenses and other current assets (1,397) (694) Accounts payable and accrued liabilities 4,588 332 Accrued payroll and related expenses (5,574) (1,272) --------- --------- Net cash provided by operating activities 25,461 7,566 Investing activities: Cash paid for acquisitions and investments - (44,055) Purchases of property and equipment (22,059) (12,440) Purchases of marketable securities (95,015) (29,678) Sales of marketable securities 88,028 76,270 --------- --------- Net cash used in investing activities (29,046) (9,903) Financing activities: Issuance of common stock 11,963 6,297 Other assets (7,481) - Tax benefits related to stock based compensation awards 1,369 - --------- --------- Net cash provided by financing activities 5,851 6,297 Effect of exchange rate changes on cash (166) 48 --------- --------- Increase in cash and cash equivalents 2,100 4,008 Cash and cash equivalents at beginning of period 65,413 132,318 --------- --------- Cash and cash equivalents at end of period $ 67,513 $ 136,326 ========= =========