NuVasive Reports Third Quarter 2018 Financial Results
SAN DIEGO, Oct. 30, 2018 /PRNewswire/ -- NuVasive, Inc. (NASDAQ: NUVA), the leader in spine technology innovation, focused on transforming spine surgery with minimally disruptive, procedurally-integrated solutions, today announced financial results for the quarter ended September 30, 2018.
Third Quarter 2018 Highlights
-- Revenue increased 9.8% to $271.3 million, or 10.2% on a constant
currency basis;
-- GAAP operating profit margin of 6.6%; Non-GAAP operating profit margin
of 15.6%;
-- GAAP diluted earnings per share of $0.30; Non-GAAP diluted earnings per
share of $0.56; and
-- Company updates full-year 2018 guidance.
"Our third quarter results reflect accelerated year-over-year revenue growth of nearly 10%, supported by strong performances in both spinal hardware and surgical support business lines with overall U.S. case volumes up more than 7%," said Gregory T. Lucier, chairman and chief executive officer of NuVasive. "With the sense the overall U.S. spine market is trending healthier, we made strategic investments this quarter on the heels of this momentum in key R&D initiatives, additions to our commercial sales force and infrastructure upgrades to improve set fulfillment--all to support a strong start to 2019 and beyond."
The Company's financial results reflect continued improvement of its in-sourcing efforts at the West Carrollton, Ohio manufacturing facility, and the Company reiterated expectations that the facility will drive an additional 130 to 150 basis points in operating margins in 2019.
Lucier commented, "We made solid progress with our in-source manufacturing initiatives by bringing in additional SKUs during the third quarter with throughput ramping to higher volumes. This strategic investment is on track and will become a business advantage, both to drive a competitive cost position and to control the quality required to produce evermore complex implants."
NuVasive also recently made several key technology introductions and partnership announcements, including the unveiling of the NuVasive Pulse(TM) surgical automation platform, Spine Precision Partnership with Siemens Healthineers and signing of a strategic partnership with Biedermann Technologies to further enhance NuVasive's best-in-class complex spine deformity technologies. The Company also launched several new products to further reinvigorate its Biologics business line, which continues to recover at a faster-than-expected pace. The Company now anticipates its Biologic business will return to growth in the fourth quarter 2018.
A full reconciliation of GAAP to non-GAAP measures can be found in the tables of this news release.
Third Quarter 2018 Results
NuVasive reported third quarter 2018 total revenue of $271.3 million, a 9.8% increase compared to $247.1 million for the third quarter 2017. On a constant currency basis, third quarter 2018 total revenue increased 10.2% compared to the same period last year.
For the third quarter 2018, GAAP and non-GAAP gross profit was $197.1 million and $197.4 million, respectively, while GAAP and non-GAAP gross margin was 72.7% and 72.8%, respectively. These results compared to GAAP and non-GAAP gross profit of $181.5 million and $181.7 million, respectively, and both GAAP and non-GAAP gross margin of 73.5% for the third quarter 2017. Total GAAP and non-GAAP operating expenses were $179.2 million and $155.1 million, respectively, for the third quarter of 2018. These results compared to GAAP and non-GAAP operating expenses of $151.1 million and $138.4 million, respectively, for the third quarter 2017.
NuVasive reported GAAP net income of $15.9 million, or $0.30 per diluted share, for the third quarter 2018 compared to GAAP net income of $33.5 million, or $0.64 per diluted share, for the third quarter 2017. On a non-GAAP basis, NuVasive reported net income of $29.5 million, or $0.56 per diluted share, for the third quarter 2018 compared to net income of $26.6 million, or $0.51 per diluted share, for the third quarter 2017.
Annual Financial Guidance for 2018
The Company updated its full-year 2018 financial guidance by increasing its revenue guidance by $5 million to reflect a new range of $1,100 million to $1,110 million and reducing its non-GAAP operating margin guidance range to 15.0% - 15.5% as a result of accelerated investments in infrastructure and commercial sales force in anticipation of the overall spine market growth trending up to more historical averages.
2018 Guidance Range
1, 2
Prior
Current
(in million's; except %'s and EPS) GAAP Non-GAAP GAAP
Non-GAAP
Revenue
$1,095 - $1,105
$1,095 - $1,105
$1,105 - $1,110
$1,105 - $1,110
% Growth - Reported 6.7% - 7.6% 6.7% - 7.6% 7.6% - 8.1% 7.6% - 8.1%
% Growth - Constant Currency 3 6.3% - 7.3% 7.4% - 7.9%
Operating margin 8.0% - 8.1% 16.7% 5.4% - 5.9% 15.0% - 15.5%
Earnings per share
$0.45 - $0.48
$2.37 - $2.40
$0.22 - $0.31
$2.15 - $2.23
EBITDA 18.3% 25.9% 16.1% - 16.6% 24.4% - 24.9%
Tax Rate ~33% ~21% ~18% ~21%
1 Prior guidance reflects the range provided July 31, 2018. Current guidance reflects the range provided October 30,
2018.
2 Amounts for 2017 have been recasted and presented based on our full retrospective method of adoption of ASC 606.
Commencing with the fourth quarter of 2017, amounts also reflect expenses associated with ongoing litigation with
a former Board member and his current employer related to various matters, including infringement of the Company
'
s intellectual property.
3 Constant currency is a measure that adjusts US GAAP revenue for the impact of currency over the same period in the
prior year.
-- Full-year 2018 revenue in the range of $1,105 million to $1,110 million
reflecting reported growth of 7.6% to 8.1%, and growth in the range of
5.7% to 6.2%, exclusive of the SafePassage acquisition;
-- Non-GAAP diluted earnings per share in a range of $2.15 to $2.23
compared with the prior expectation of $2.37 to $2.40;
-- Non-GAAP operating profit margin in the range of 15.0% to 15.5%,
compared with the prior expectation of 16.7%;
-- Adjusted EBITDA margin in the range of 24.4% to 24.9%, compared with the
prior expectation of 25.9%;
-- Non-GAAP effective tax expense rate of approximately 21%;
-- The Company expects currency to have a positive impact on revenue in
2018 of approximately $2 million compared with the prior expectation of
$3 million; and
-- The Company expects to drive an adjusted EBITDA of approximately $269
million to $276 million, compared with the prior expectation of
approximately $283 million to $293 million.
The above guidance assumes a full-year benefit of U.S. tax reform, suspension of the medical device tax and the SafePassage acquisition.
Supplementary Financial Information
For additional financial detail, please visit the Investor Relations section of the Company's website at www.nuvasive.com to access Supplementary Financial Information.
Reconciliation of Full Year EPS Guidance
2017 2018 Guidance Range
1, 3
Actuals
1, 2
Prior
4 Current
5
GAAP net income per share $
1.48
$0.45 - $0.48
$0.22 - $0.31
Impact of change to diluted share count 0.08
GAAP net income per share, adjusted to
diluted Non-GAAP share count $
1.56
$0.45 - $0.48
$0.22 - $0.31
Business transition costs 6 0.08 0.13 0.15
Non-cash purchase accounting
adjustments on acquisitions 7 0.01 0.02 0.02
Non-cash interest expense on
convertible notes 0.33 0.32 0.32
Litigation related expenses and
settlements 8 0.09 0.60 0.63
Non-recurring consulting fees 9 0.13 0.12
Net loss on strategic investments 0.17 0.07
Amortization of intangible assets 10 0.89 0.95 0.95
Purchase of in-process research and
development 11 0.17
Tax effect of adjustments 12 (1.08) (0.40) (0.50)
Non-GAAP earnings per share $
1.89
$2.37 - $2.40
$2.15 - $2.23
GAAP Weighted shares outstanding -basic 50,874 51,397 51,396
GAAP Weighted shares outstanding -
diluted 55,193 52,131 52,853
Non-GAAP Weighted shares outstanding -
diluted 13 52,345 52,131 52,295
1
Items may not foot due to rounding.
2 Amounts for 2017 have been recasted and presented based on our full
retrospective method of adoption of ASC 606. Commencing with the fourth
quarter of 2017, amounts also reflect expenses associated with ongoing
litigation with a former Board member and his current employer related to
various matters, including infringement of the Company
'
s intellectual property.
3 Prior guidance reflects the range provided July 31, 2018. Current guidance
reflects the range provided October 30, 2018.
4 Effective tax expense rate of ~33% applied to GAAP earnings and ~21% applied
to Non-GAAP earnings.
5 Effective tax expense rate of ~18% applied to GAAP earnings and ~21% applied
to Non-GAAP earnings.
6 Costs related to acquisition, integration and business transition activities
which include severance, relocation, consulting, leasehold exit costs, third
party merger and acquisitions costs, contingent consideration fair value
adjustments, and other costs directly associated with such activities.
7 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.
8 For 2017, amounts relate primarily to the Medtronic litigation matter. For
2018, amounts relate primarily to the loss recorded in connection with the
settlement of the Madsen Medical, Inc. litigation matter. Commencing with
the fourth quarter of 2017, amounts also reflect expenses associated with
ongoing litigation with a former Board member and his current employer
related to various matters, including infringement of the Company
'
s intellectual property.
9 Non-recurring consulting fees associated with the implementation of our state
tax-planning strategy.
10 For 2017, amortization excludes the amortization attributable to non-
controlling interest. In January 2018, the Company completed the acquisition
of the non-controlling interest.
11 Purchase of an in-process research and development asset which had no
future alternative use.
12 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 ~18% on a GAAP basis and ~21% on a non-GAAP
basis.
13 Adjusted non-GAAP diluted WASO 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 Non-GAAP Operating Margin %
2018 Guidance Range
2, 3
(in thousands, except %) 2017 Prior Current
Actuals
1,
2
Non-GAAP Gross Margin % [A] 73.9% 72.6% 72.3%
Non-cash purchase accounting
adjustments on acquisitions 4 (0.1%) (0.1%) (0.1%)
GAAP Gross Margin [B] 73.9% 72.5% 72.2%
Non-GAAP Sales, Marketing &
Administrative Expense [C] 52.5% 50.6% 51.5% - 52.0%
Non-recurring consulting fees 5 0.0% 0.6% 0.6%
GAAP Sales, Marketing & Administrative
Expense [D] 52.5% 51.2% 52.1% - 52.6%
GAAP & Non-GAAP Research &
Development Expense [E] 4.9% 5.3% 5.3%
Purchase of in-process research and
development [F] 6 0.0% 0.0% 0.8%
Litigation related expenses and
settlements [G] 7 0.5% 2.9% 3.0%
Amortization of intangible assets [H]
8 4.7% 4.5% 4.5%
Business transition costs [I] 9 0.5% 0.6% 0.6%
Non-GAAP Operating Margin % [A - C -
E] 16.5% 16.7% 15.0% - 15.5%
GAAP Operating Margin % [B -D -E -F
-G -H -I] 10.9% 8.0% 5.4% - 5.9%
1 Amounts for 2017 have been recasted and presented based on our full
retrospective method of adoption of ASC 606. Commencing with the fourth
quarter of 2017, amounts also reflect expenses associated with ongoing
litigation with a former Board member and his current employer related to
various matters, including infringement of the Company
'
s intellectual property.
2
Items may not foot due to rounding.
3 Prior guidance reflects the range provided July 31, 2018. Current guidance
reflects the range provided October 30, 2018.
4 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.
5 Non-recurring consulting fees associated with the implementation of our
state tax-planning strategy.
6 Purchase of an in-process research and development asset which had no
future alternative use.
7 For 2017, amounts relate primarily to the Medtronic litigation matter.
For 2018, amounts relate primarily to the loss recorded in connection
with the settlement of the Madsen Medical, Inc. litigation matter.
Commencing with the fourth quarter of 2017, amounts also reflect expenses
associated with ongoing litigation with a former Board member and his
current employer related to various matters, including infringement of
the Company
'
s intellectual property.
8 For fiscal year 2017 amortization excludes the amortization attributable
to non-controlling interest. In January 2018, the Company completed the
acquisition of the non-controlling interest.
9 Costs related to acquisition, integration and business transition
activities which include severance, relocation, consulting, leasehold
exit costs, third party merger and acquisitions costs, contingent
consideration fair value adjustments, and other costs directly associated
with such activities.
Reconciliation of EBITDA %
2018 Guidance Range 2, 3
(in thousands, except %) 2017 Prior Current
Actuals 1, 2
Net Income /(Loss) 7.9% 2.2% 1.0% - 1.4%
Interest (income) /expense, net 3.7% 3.5% 3.4%
Provision for income taxes (0.7%) 1.1% 0.2%
Depreciation and amortization 4 11.7% 11.5% 11.5%
EBITDA 22.6% 18.3% 16.1% - 16.6%
Non-cash stock based compensation 2.2% 2.6% 2.8%
Business transition costs 5 0.4% 0.6% 0.7%
Non-cash purchase accounting adjustments
on acquisitions 6 0.1% 0.1% 0.1%
Litigation related expenses and
settlements 7 0.5% 2.9% 3.0%
Non-recurring consulting fees 8 0.0% 0.6% 0.6%
Purchase of in-process research and
development 9 0.0% 0.0% 0.8%
Net loss on strategic investments 0.0% 0.8% 0.3%
Adjusted EBITDA 25.7% 25.9% 24.4% - 24.9%
1 Amounts for 2017 have been recasted and presented based on our full
retrospective method of adoption of ASC 606. Commencing with the fourth
quarter of 2017, amounts also reflect expenses associated with ongoing
litigation with a former Board member and his current employer related to
various matters, including infringement of the Company
'
s intellectual property.
2 Items may not foot due to rounding.
3 Prior guidance reflects the range provided July 31, 2018. Current guidance
reflects the range provided October 30, 2018.
4 For fiscal year 2017 amortization excludes the amortization attributable to non-
controlling interest. In January 2018, the Company completed the acquisition of
the non-controlling interest.
5 Costs related to acquisition, integration and business transition activities
which include severance, relocation, consulting, leasehold exit costs, third
party merger and acquisitions costs, contingent consideration fair value
adjustments, and other costs directly associated with such activities.
6 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.
7 For 2017, amounts relate primarily to the Medtronic litigation matter. For
2018, amounts relate primarily to the loss recorded in connection with the
settlement of the Madsen Medical, Inc. litigation matter. Commencing with the
fourth quarter of 2017, amounts also reflect expenses associated with ongoing
litigation with a former Board member and his current employer related to
various matters, including infringement of the Company
'
s intellectual property.
8 Non-recurring consulting fees associated with the implementation of
our state tax-planning strategy.
9 Purchase of an in-process research and development asset which had no
future alternative use.
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, business transition costs, purchased in-process research and development, one-time restructuring and related items in connection with acquisitions, investments and divestitures, non-recurring consulting fees, certain litigation expenses and settlements, gains and losses from strategic investments, and non-cash interest expense (excluding debt issuance cost). Management also uses certain non-GAAP measures which are intended to exclude the impact of foreign exchange currency fluctuations. The measure constant currency utilizes 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, business transition costs, purchased in-process research and development, one-time restructuring and related items in connection with acquisitions, investments and divestitures, non-recurring consulting fees, certain litigation expenses and settlements, gains and losses on strategic investments, 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.
During the quarter ended June 30, 2018, the Company began excluding from its non-GAAP financial results certain litigation related expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Company's intellectual property. For consistency and comparability, the Company has re-casted non-GAAP financial results for each of the quarters ended December 31, 2017 and March 31, 2018 to exclude these litigation expenses in such periods, which were $0.4 million and $0.6 million, respectively.
For the Three Months Ended September 30, 2018
Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
(Unaudited - in thousands, except per share data)
Gross Operating Net Income Diluted Diluted WASO
Profit EPS
6 Net
Profit Income to
Adjusted
EBITDA
Reported GAAP $
197,141 $
17,971 $
15,923 $
0.30 53,189 $
15,923
% of revenue 72.7 6.6
% %
Non-cash purchase accounting
adjustments on acquisitions (1) 270 270 270 270
Amortization of intangible assets 12,349 12,349
Litigation related expenses and
settlements 2 1,333 1,333 1,333
Business transition costs 3 1,443 1,443 1,443
Purchase of in-process research
and development 4 8,913 8,913 8,913
Non-cash interest expense on
convertible notes 4,208
Net gain on strategic investments (5,137) (5,137)
Tax effect of adjustments 5 (9,798)
Interest expense/(income), net 8,905
Income tax benefit (2,618)
Depreciation and amortization 32,258
Non-cash stock based compensation 11,068
Adjusted Non-GAAP $
197,411 $
42,279 $
29,504 $
0.56 52,539 $
72,358
% of revenue 72.8 15.6 26.7
% % %
1 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.
2 Represents expenses associated with ongoing litigation with a former Board member and his current employer
related to various matters, including infringement of the Company
'
s intellectual
property.
3 Costs related to acquisition, integration and business transition activities which include severance,
relocation, consulting, leasehold exit costs, third party merger and acquisitions costs, contingent
consideration fair value adjustments, and other costs directly associated with such activities.
4 Purchase of an in-process research and development asset which had no future alternative use.
5 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 ~18% on a GAAP basis and ~21% on a non-GAAP
basis.
6 Adjusted non-GAAP diluted WASO excludes the impact of dilutive convertible notes and warrants for which the
Company is economically hedged through its anti-dilutive bond hedge arrangements.
For the Nine Months Ended September 30, 2018
Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
(Unaudited - in thousands, except per share data)
Gross Operating Net Diluted EPS Diluted WASO Net Loss to
Profit Adjusted
7
Profit Income EBITDA
Reported GAAP $
588,357 $
28,312 $
322 $
0.01 52,296 $
322
% of revenue 72.3 3.5
% %
Non-cash purchase accounting
adjustments on acquisitions (1) 1,080 1,080 1,080 1,080
Non-recurring consulting fees (2) 6,084 6,084 6,084
Amortization of intangible assets 37,402 37,402
Litigation related expenses and
settlements (3) 31,302 31,302 31,302
Business transition costs 4 7,694 7,694 7,694
Purchase of in-process research
and development 5 8,913 8,913 8,913
Non-cash interest expense on
convertible notes 12,460
Net loss on strategic investments 3,867 3,867
Tax effect of adjustments 6 (28,682)
Interest expense/(income), net 28,078
Income tax benefit (7,931)
Depreciation and amortization 96,409
Non-cash stock based compensation 22,062
Adjusted Non-GAAP $
589,437 $
120,787 $
80,442 $
1.54 52,079 $
197,880
% of revenue 72.5 14.8 24.3
% % %
1 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.
2 Non-recurring consulting fees associated with the implementation of our state tax-planning strategy.
3 Represents the loss recorded in connection with the settlement of the Madsen Medical, Inc. litigation matter, as
well as expenses associated with ongoing litigation with a former Board member and his current employer related
to various matters, including infringement of the Company
'
s intellectual property.
4 Costs related to acquisition, integration and business transition activities which include severance,
relocation, consulting, leasehold exit costs, third party merger and acquisitions costs, contingent
consideration fair value adjustments, and other costs directly associated with such activities.
5 Purchase of an in-process research and development asset which had no future alternative use.
6 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 ~18% on a GAAP basis and ~21% on a non-GAAP basis.
7 Adjusted non-GAAP diluted WASO excludes the impact of dilutive convertible notes and warrants for which the
Company is economically hedged through its anti-dilutive bond hedge arrangements.
For the Three Months Ended September 30, 2017
Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
(Unaudited - in thousands, except per share data)
Gross Operating Net Diluted EPS Diluted WASO Net Income to
Profit Adjusted
6 EBITDA
Profit Income
Reported GAAP 1 $
181,544 $
30,450 $
33,528 $
0.64 52,794 $
33,528
% of revenue 73.5 12.3
% %
Non-cash purchase accounting
adjustments on acquisitions (2) 136 136 136 136
Amortization of intangible assets
(3) 11,630 11,307
Litigation related expenses and
settlements 750 750 750
Business transition costs 4 345 345 345
Non-cash interest expense on
convertible notes 3,980
Tax effect of adjustments 5 (23,413)
Interest expense/(income), net 8,819
Income tax benefit (11,604)
Depreciation and amortization 3 29,858
Non-cash stock based compensation (427)
Adjusted Non-GAAP $
181,680 $
43,311 $
26,633 $
0.51 51,751 $
61,405
% of revenue 73.5 17.5 24.9
% % %
1 Reported GAAP figures for 2017 have been recasted and presented based on the full retrospective method of
adoption of ASC 606.
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 When reconciling from reported GAAP net income, the adjustment for amortization of intangible assets excludes
the amortization associated with non-controlling interest. In January 2018, the Company completed the
acquisition of the 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, contingent
consideration fair value adjustments, and other costs directly associated with such activities.
5 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 ~7% benefit on a GAAP basis and ~34% on a non-GAAP basis.
6 Adjusted non-GAAP diluted WASO excludes the impact of dilutive convertible notes and warrants for which the
Company is economically hedged through its anti-dilutive bond hedge arrangements.
For the Nine Months Ended September 30, 2017
Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
(Unaudited - in thousands, except per share data)
Gross Operating Net Diluted EPS Diluted WASO
Profit 6 Net
Profit Income Income to
Adjusted
EBITDA
Reported GAAP 1 $
562,327 $
82,078 $
58,121 $
1.03 56,304 $
58,121
% of revenue 74.4 10.9
% %
Non-cash purchase accounting
adjustments on acquisitions (2) 136 136 136 136
Amortization of intangible assets
(3) 35,040 34,073
Litigation related expenses and
settlements 750 750 750
Business transition costs 4 1,769 1,769 1,769
Non-cash interest expense on
convertible notes 13,244
Tax effect of adjustments 5 (38,203)
Interest expense/(income), net 28,425
Income tax benefit (3,543)
Depreciation and amortization 3 87,872
Non-cash stock based compensation 14,984
Adjusted Non-GAAP $
562,463 $
119,773 $
69,890 $
1.33 52,507 $
188,514
% of revenue 74.5 15.9 25.0
% % %
1 Reported GAAP figures for 2017 have been recasted and presented based on the full retrospective method of
adoption of ASC 606.
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 When reconciling from reported GAAP net income, the adjustment for amortization of intangible assets excludes
the amortization associated with non-controlling interest. In January 2018, the Company completed the
acquisition of the 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, contingent
consideration fair value adjustments, and other costs directly associated with such activities.
5 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 ~7% benefit on a GAAP basis and ~34% on a non-GAAP basis.
6 Adjusted non-GAAP diluted WASO excludes the impact of dilutive convertible notes and warrants for which the
Company is economically hedged through its anti-dilutive bond hedge arrangements.
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 third quarter 2018. 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 November 27, 2018. In addition, a telephone replay of the call will be available until November 6, 2018. The replay dial-in numbers are 1-844-512-2921 for domestic callers and 1-412-317-6671 for international callers. Please use pin number: 13683334.
About NuVasive
NuVasive, Inc. (NASDAQ: NUVA) is the leader in spine technology innovation, focused on transforming spine surgery and beyond with minimally disruptive, 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 over $1 billion in revenues, NuVasive has an approximate 2,400 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 third quarter 2018, as well as projections for 2018 financial guidance and longer-term financial performance goals. The Company's results for the third quarter 2018 are prior to the completion of review and audit procedures by the Company's external auditors and are subject to adjustment. In addition, the Company's projections for 2018 financial guidance and longer-term financial performance goals represent initial estimates, and 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 which contribute to the uncertain nature of these statements include, among others, risks associated with acceptance of the Company's surgical products and procedures by spine surgeons, development and acceptance of new products or product enhancements, clinical and statistical verification of the benefits achieved via the use of NuVasive's products (including the iGA(TM) platform), the Company's ability to effectually manage inventory as it continues to release new products, its ability to recruit and retain management and key personnel, and the 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. 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 September 30, Nine Months Ended September 30,
(unaudited) 2018 2017 2018 2017
Revenue
Product revenue $
242,030 $
227,321 $
728,232 $
690,100
Service revenue 29,271 19,730 85,155 65,363
Total revenue 271,301 247,051 813,387 755,463
Cost of revenue (excluding below
amortization of intangible assets)
Cost of products sold 54,741 50,856 168,134 147,292
Cost of services 19,419 14,651 56,896 45,844
Total cost of revenue 74,160 65,507 225,030 193,136
Gross profit 197,141 181,544 588,357 562,327
Operating expenses:
Sales, marketing and administrative 141,211 125,649 433,635 404,984
Research and development 15,254 12,720 44,601 37,706
Amortization of intangible assets 12,349 11,630 37,402 35,040
Purchase of in-process research and
development 8,913 8,913
Litigation liability loss 750 27,800 750
Business transition costs 1,443 345 7,694 1,769
Total operating expenses 179,170 151,094 560,045 480,249
Interest and other expense, net:
Interest income 130 79 380 355
Interest expense (9,035) (8,898) (28,458) (28,780)
Other income (expense), net 4,239 (139) (7,843) (382)
Total interest and other expense, net (4,666) (8,958) (35,921) (28,807)
Income (loss) before income taxes 13,305 21,492 (7,609) 53,271
Income tax benefit 2,618 11,604 7,931 3,543
Consolidated net income $
15,923 $
33,096 $
322 $
56,814
Add back net loss attributable to non-
controlling interest
$ $
(432)
$ $
(1,307)
Net income attributable to NuVasive, Inc. $
15,923 $
33,528 $
322 $
58,121
Net income per share attributable to
NuVasive, Inc.:
Basic $
0.31 $
0.66 $
0.01 $
1.14
Diluted $
0.30 $
0.64 $
0.01 $
1.03
Weighted average shares outstanding:
Basic 51,439 50,747 51,341 50,799
Diluted 53,189 52,794 52,296 56,304
NuVasive, Inc.
Consolidated Balance Sheets
(in thousands, except par values and share amounts)
September 30, 2018 December 31, 2017
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $
75,112 $
72,803
Restricted cash and investments 3,901
Accounts receivable, net of allowances of
$16,883 and $13,026, respectively 191,571 200,220
Inventory, net 271,347 247,138
Prepaid income taxes 18,215 17,209
Prepaid expenses and other current assets 23,408 18,792
Total current assets 579,653 560,063
Property and equipment, net 237,491 215,326
Intangible assets, net 262,945 280,774
Goodwill 560,401 536,926
Deferred tax assets 4,939 6,440
Restricted cash and investments 2,394 1,494
Other assets 27,577 39,117
Total assets $
1,675,400 $
1,640,140
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities $
100,912 $
75,767
Contingent consideration liabilities 2,207 18,952
Accrued payroll and related expenses 47,798 55,618
Litigation liabilities 8,316 8,150
Short-term borrowings 5,000
Income tax liabilities 4,002 2,908
Total current liabilities 168,235 161,395
Long-term senior convertible notes 597,518 582,920
Deferred and income tax liabilities, non-
current 6,200 18,870
Other long-term liabilities 99,826 77,539
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 September 30, 2018
and December 31, 2017, 56,566,654 and
56,164,060 issued and outstanding at
September 30, 2018 and December 31, 2017,
respectively 61 60
Additional paid-in capital 1,380,519 1,363,549
Accumulated other comprehensive loss (10,194) (6,933)
Retained earnings 5,084 4,762
Treasury stock at cost; 5,114,438 shares
and 5,001,886 shares at September 30, 2018
and December 31, 2017, respectively (571,849) (565,867)
Total NuVasive, Inc. stockholders' equity 803,621 795,571
Non-controlling interest 3,845
Total equity 803,621 799,416
Total liabilities and equity $
1,675,400 $
1,640,140
NuVasive, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended September 30,
(unaudited) 2018 2017
Operating activities:
Consolidated net income $
322 $
56,814
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 96,409 88,922
Purchase of in-process research and development 8,913
Amortization of non-cash interest 14,986 15,676
Stock-based compensation 22,062 14,984
Reserves on current assets 11,116 1,745
Net loss on strategic investments 3,867
Other non-cash adjustments 16,560 11,029
Deferred income taxes (9,938) (4,277)
Changes in operating assets and liabilities, net of effects from
acquisitions:
Accounts receivable 8,622 (12,448)
Inventory (33,491) (36,661)
Contingent consideration liabilities (300) (11,200)
Prepaid expenses and other current assets (1,047) 169
Accounts payable and accrued liabilities 21,700 (5,974)
Accrued payroll and related expenses (9,566) 245
Litigation liability 166 1,000
Income taxes 108 (1,195)
Net cash provided by operating activities 150,489 118,829
Investing activities:
Acquisitions and investments (52,555) (62,371)
Purchases of intangible assets (7,682) (2,270)
Purchases of property and equipment (78,405) (97,030)
Net cash used in investing activities (138,642) (161,671)
Financing activities:
Proceeds from the issuance of common stock 5,563 5,517
Purchase of treasury stock (2,817) (11,709)
Payment of contingent consideration (18,700) (18,800)
Repurchases of convertible notes (63,317)
Proceeds from revolving line of credit 82,000 60,000
Repayments on revolving line of credit (77,000) (20,000)
Other financing activities (236) (2,316)
Net cash used in financing activities (11,190) (50,625)
Effect of exchange rate changes on cash (1,349) 1,967
Decrease in cash, cash equivalents, restricted cash and investments (692) (91,500)
Cash, cash equivalents, restricted cash and investments at beginning of
period 78,198 161,048
Cash, cash equivalents, restricted cash and investments at end of period $
77,506 $
69,548
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SOURCE NuVasive, Inc.
