NuVasive Reports Second Quarter 2014 Financial Results and

SAN DIEGO, CA--(Marketwired - Jul 29, 2014) -

• Second quarter total revenue increased 15.1% to $190.7 million, moving NuVasive into the #3 spot in the global spine market;
• Non-GAAP operating profit margin of 16.0%; GAAP operating margin of 2.4%; 
• Non-GAAP earnings of $13.6 million, or $0.28 per share; GAAP net loss of ($4.1) million, or ($0.09) per share;
• Company increases guidance for full year 2014 revenue, non-GAAP operating profit margin, and non-GAAP earnings per share.

NuVasive, Inc. ( NASDAQ : NUVA ) a medical device company focused on developing minimally disruptive surgical products and procedures for the spine, today announced financial results for the quarter ended June 30, 2014.

"We are pleased to report results that exceeded our expectations for both revenue and earnings and demonstrated strong progress toward our commitment to increase operational efficiency within NuVasive," said Alex Lukianov, Chairman and Chief Executive Officer of NuVasive. "Strength across our lumbar and biologics products in the U.S. and the continued healthy growth of our international geographies drove results for the quarter as we continued to solidly execute our share-taking strategy. Based on the greater than expected second quarter results and the strong momentum of our minimally invasive lumbar solutions, we are increasing our full year revenue, operating margin and earnings guidance for the year."

Lukianov continued, "I am exceptionally proud of our ability to maintain the nimbleness that has propelled NuVasive into the #3 spot in the global spine market. Our focus on championing innovation to improve patient outcomes while increasing profitability will continue to foster our evolution into a larger, more profitable, global organization."

A full reconciliation of non-GAAP to GAAP measures can be found in the tables of today's press release.

Second Quarter 2014

NuVasive reported second quarter 2014 revenue of $190.7 million, a 15.1% increase over the $165.7 million for the second quarter 2013. 

GAAP gross profit for the second quarter 2014 was $145.8 million and gross margin was 76.5%, compared to a gross profit of $117.0 million and a gross margin of 70.6% for the second quarter 2013. Second quarter 2013 gross profit results reflected the impact of a one-time $7.9 million charge related to royalty accruals in connection with Phase I of the Company's patent litigation with Medtronic. Excluding the charge, gross profit for the second quarter 2013 was $124.9 million and gross margin was 75.4%.

Total GAAP operating expenses for the second quarter 2014 were $141.2 million compared to $116.9 million in the second quarter 2013. The higher operating costs for the second quarter 2014 resulted primarily from an intangible asset impairment charge of $10.7 million related to the developed technology for the PCM® device acquired from Cervitech in 2009, and from investment to support international expansion. 

With this intangible asset impairment charge, the Company reported a GAAP net loss of ($4.1) million, or ($0.09) per share, for the second quarter 2014.

On a non-GAAP basis, the Company reported net income of $13.6 million, or $0.28 per share, for the second quarter 2014. The Non-GAAP earnings per share calculations for the second quarter 2014 exclude the following amounts pre-tax: (i) non-cash stock-based compensation of $8.8 million; (ii) certain intellectual property litigation expenses of $1.2 million; (iii) amortization of intangible assets of $3.5 million; (iv) a leasehold related charge of $0.5 million; (v) one-time and acquisition related items of $1.1 million; (vi) non-cash interest expense on convertible notes of $3.6 million; and (vii) an intangible asset impairment charge of $10.7 million.

Cash, cash equivalents and short and long-term marketable securities were approximately $350.2 million at June 30, 2014.

Annual Guidance for 2014

The Company provided the following updated projections to its full year 2014 guidance:

• Revenue of approximately $745 million or 9% growth over 2013 revenue of $685 million; increased from approximately $725 million previously
• GAAP Loss per Share of approximately ($0.38); compared to Loss per Share of approximately ($0.27) previously
• Non-GAAP EPS of approximately $1.11; increased from approximately $1.06 previously
• Non-GAAP Operating Margin of approximately 16.5%; increased from approximately 16% previously
• GAAP effective tax expense of approximately $6.0 million; compared to approximately $6.5 million previously

Supplementary Financial Information

For additional financial detail, please  CLICK HERE to access Supplementary Financial Information or visit the Investor Relations section of our website at www.nuvasive.com .

Reconciliation of Full Year EPS Guidance
		2014 Guidance
		Prior 1				Current 2
GAAP earnings (loss) per share guidance		$	(0.27	)		$	(0.38	)
Impact of change from basic to diluted share count			0.01				0.02
GAAP earnings (loss) per share, adjusted to diluted share count		$	(0.26	)		$	(0.36	)
	Non-cash stock based compensation		0.43				0.43
	Litigation liability expense		0.36				0.36
	Amortization of intangible assets		0.19				0.19
	Non-cash interest expense on convertible notes		0.18				0.18
	Intangible asset impairment		-				0.13
	Leasehold related charges		0.08				0.09
	Certain intellectual property litigation expenses		0.06				0.06
	Acquisition related items 3		0.02				0.03
Non-GAAP earnings per share guidance		$	1.06			$	1.11
Weighted shares outstanding - basic			47,500				47,500
Weighted shares outstanding - diluted			50,000				50,000

1	Effective tax expense rate of ~85% applied to GAAP earnings and ~40% applied to Non-GAAP adjustments
2	Effective tax expense rate of ~45% applied to GAAP earnings and ~40% applied to Non-GAAP adjustments
3	Acquisition related items include expenses associated with prior M&A related activity and as incurred

Reconciliation of Non-GAAP Operating Margin %
		2013			2014 Guidance
		Actuals			Prior			Current
Non-GAAP Gross Margin % [A]		74.8	%		76.0	%		76.0	%
Non-cash stock based compensation		0.0	%		0.0	%		0.0	%
Out-of-period royalty expense charge		-1.2	%		0.0	%		0.0	%
GAAP Gross Margin [D]		73.7	%		76.0	%		76.0	%
Non-GAAP Sales, Marketing & Administrative Expense [B]		55.9	%		54.5	%		54.5	%
Non-cash stock based compensation		4.6	%		4.8	%		4.6	%
Certain intellectual property litigation expenses		0.8	%		0.7	%		0.7	%
Leasehold related charges		0.0	%		0.9	%		0.9	%
Acquisition related items*		0.0	%		0.2	%		0.2	%
GAAP Sales, Marketing & Administrative Expense [E]		61.3	%		61.1	%		60.9	%
Non-GAAP Research & Development Expense [C]		4.1	%		5.5	%		5.0	%
Non-cash stock based compensation		0.2	%		0.2	%		0.2	%
Acquisition related items*		0.4	%		0.1	%		0.2	%
GAAP Research & Development Expense [F]		4.7	%		5.8	%		5.4	%
Litigation liability expense [G]		0.0	%		4.1	%		4.1	%
Intangible asset impairment [H]		0.0	%		0.0	%		1.4	%
Amortization of intangible assets [I]		2.8	%		2.2	%		2.2	%
Non-GAAP Operating Margin % [A-B-C]		14.9	%		16.0	%		16.5	%
GAAP Operating Margin % [D-E-F-G-H-I]		4.8	%		2.8	%		2.0	%

* 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 earnings per share, Non-GAAP gross margin, Non-GAAP operating expenses, and Non-GAAP operating margin, which exclude non-cash stock-based compensation, certain intellectual property litigation expenses, amortization of intangible assets, a leasehold related charge, acquisition related items, non-cash interest expense on convertible notes, a litigation liability expense, an out-of-period royalty expense charge, and an intangible asset impairment charge. 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 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 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 2014 Results
(in thousands, except per share data)			Pre-Tax Adjustments			Net of Tax				Earnings Per Share
GAAP net loss						$	(4,088	)		$	(0.09	)
Impact of change from basic to diluted share count											0.01
GAAP net loss, adjusted to diluted share count						$	(4,088	)			(0.08	)
	Non-cash stock-based compensation		$	8,785			5,271				0.11
	Certain intellectual property litigation expenses			1,224			734				0.02
	Amortization of intangible assets			3,473			2,084				0.04
	Intangible asset impairment charge			10,708			6,425				0.13
	Leasehold related charges			524			314				0.01
	One-time and acquisition related items			1,147			688				0.01
	Non-cash interest expense on convertible notes			3,638			2,183				0.04
Non-GAAP earnings						$	13,611				0.28
GAAP weighted shares outstanding - basic and diluted											46,832
Non-GAAP weighted shares outstanding - diluted											49,301

Reconciliation of Year To Date 2014 Results
(in thousands, except per share data)			Pre-Tax Adjustments			Net of Tax				Earnings Per Share
GAAP net loss						$	(22,364	)		$	(0.49	)
Impact of change from basic to diluted share count											0.04
GAAP net loss, adjusted to diluted share count						$	(22,364	)			(0.45	)
	Non-cash stock-based compensation		$	16,549			9,929				0.20
	Certain intellectual property litigation expenses			2,547			1,528				0.03
	Amortization of intangible assets			7,471			4,483				0.09
	Intangible asset impairment charge			10,708			6,425				0.13
	Leasehold related charges			6,932			4,159				0.08
	One-time and acquisition related items			2,391			1,435				0.03
	Non-cash interest expense on convertible notes			7,210			4,326				0.09
	Litigation liability expense			30,000			18,000				0.37
Non-GAAP earnings						$	27,921				0.57
GAAP weighted shares outstanding - basic and diluted											46,320
Non-GAAP weighted shares outstanding - diluted											49,154

Conference Call

NuVasive will hold a conference call today at 5:30 p.m. ET / 2:30 p.m. PT to discuss these 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 August 28, 2014. In addition, a telephone replay of the call will be available until August 12, 2014. 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: 13583165.

About NuVasive

NuVasive is an innovative global medical device company that is changing spine surgery with minimally disruptive surgical products and procedurally integrated solutions for the spine.

As the 3 ^rd largest player in the $8.7 billion global spine market, NuVasive offers a comprehensive spine portfolio of more than 90 unique products developed to improve spine surgery and patient outcomes. The Company's principal procedural solution is its Maximum Access Surgery (or MAS ^® ) platform for lateral spine fusion. MAS provides safe, reproducible, and clinically proven outcomes, and is a highly differentiated solution with fully-integrated neuromonitoring, customizable exposure, and a broad offering of application-specific implants and fixation devices designed to address a variety of pathologies.

Having pioneered the lateral approach to spine fusion with our groundbreaking XLIF ^® procedures, NuVasive continues to be at the forefront of the spine industry's shift toward less invasive solutions. The Company has developed procedural solutions that completely redefine and improve upon traditional procedures like TLIF, PLIF, Posterior Fixation, and ALIF. NuVasive's solutions are increasingly being adopted internationally as it continues to expand its international footprint and to offer industry-leading, Absolutely Responsive customer service to surgeons world-wide. NuVasive is focused on becoming a $1 Billion Start-up ^™ ; taking market share by maintaining a commitment to Superior Clinical Outcomes, Speed of Innovation ^® , and Absolute Responsiveness ^® .

NuVasive cautions you that statements included in this press release or made on the earnings 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. 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 to financial results or future financial expectations; unanticipated difficulty in selling products, generating revenue or producing expected profitability; and those 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.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
			Three Months Ended June 30,								Six Months Ended June 30,
			2014				2013				2014				2013
			(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Revenue			$	190,677			$	165,698			$	368,172			$	325,202
Cost of goods sold (excluding amortization and impairment of intangible assets)				44,836				48,744				88,130				87,840
Gross profit				145,841				116,954				280,042				237,362
Operating expenses:
	Sales, marketing and administrative			116,970				104,272				235,074				204,158
	Research and development			10,067				7,712				19,522				17,407
	Amortization of intangible assets			3,473				4,913				7,470				9,288
	Impairment of intangible assets			10,708				-				10,708				-
	Litigation liability			-				-				30,000				-
Total operating expenses				141,218				116,897				302,774				230,853
Interest and other expense, net:
	Interest income			233				231				450				403
	Interest expense			(6,979	)			(6,652	)			(13,844	)			(13,685	)
	Other (expense) income, net			(205	)			(440	)			171				(199	)
Total interest and other expense, net				(6,951	)			(6,861	)			(13,223	)			(13,481	)
Loss before income taxes				(2,328	)			(6,804	)			(35,955	)			(6,972	)
Income tax expense (benefit)				1,942				(76	)			(13,153	)			(840	)
Consolidated net loss			$	(4,270	)		$	(6,728	)		$	(22,802	)		$	(6,132	)
Net loss attributable to noncontrolling interests			$	(182	)		$	(259	)		$	(438	)		$	(514	)
Net loss attributable to NuVasive, Inc.			$	(4,088	)		$	(6,469	)		$	(22,364	)		$	(5,618	)
Net loss per share attributable to NuVasive, Inc.:
	Basic		$	(0.09	)		$	(0.15	)		$	(0.48	)		$	(0.13	)
	Diluted		$	(0.09	)		$	(0.15	)		$	(0.48	)		$	(0.13	)
Weighted average shares outstanding:
	Basic			46,832				44,412				46,320				44,220
	Diluted			46,832				44,412				46,320				44,220

NuVasive, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except par values and share amounts)
		June 30,				December 31,
		2014				2013
		(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents	$	106,461			$	102,825
	Short-term marketable securities		140,849				143,449
	Accounts receivable, net of allowances of $4,495 and $3,481, respectively		112,572				104,774
	Inventory, net		157,361				136,937
	Deferred tax assets, current		37,105				37,076
	Income taxes receivable		21,013				-
	Prepaid expenses and other current assets		11,774				10,947
Total current assets			587,135				536,008
Property and equipment, net			134,863				128,064
Long-term marketable securities			102,920				79,829
Intangible assets, net			75,312				93,986
Goodwill			154,637				154,944
Deferred tax assets, non-current			46,886				42,863
Restricted cash and investments			123,140				119,195
Other assets			29,231				24,679
Total assets		$	1,254,124			$	1,179,568
LIABILITIES AND EQUITY
Current liabilities:
	Accounts payable and accrued liabilities	$	102,224			$	86,057
	Accrued payroll and related expenses		26,966				31,095
	Current litigation liability		30,000				-
Total current liabilities			159,190				117,152
Senior Convertible Notes			353,269				346,060
Deferred tax liabilities, non-current			2,980				2,934
Litigation liability			93,700				93,700
Other long-term liabilities			16,674				14,844
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 June 30, 2014 and December 31, 2013, respectively, 46,941,192 and 44,943,233 issued and outstanding at June 30, 2014 and December 31, 2013, respectively		47				45
	Additional paid-in capital		813,541				769,203
	Accumulated other comprehensive loss		(1,299	)			(3,238	)
	Accumulated deficit		(192,582	)			(170,218	)
	Treasury stock, at cost; 1,285 shares and no shares at June 30, 2014 and December 31, 2013, respectively		(44	)			-
Total NuVasive, Inc. stockholders' equity			619,663				595,792
Noncontrolling interests			8,648				9,086
Total equity			628,311				604,878
Total liabilities and stockholders' equity		$	1,254,124			$	1,179,568

NuVasive, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
			Six Months Ended June 30,
			2014				2013
			(Unaudited)				(Unaudited)
Operating activities:
Consolidated net loss			$	(22,802	)		$	(6,132	)
Adjustments to reconcile net loss to net cash provided by operating activities:
	Depreciation and amortization			31,043				30,341
	Amortization of non-cash interest			8,081				7,569
	Stock-based compensation			16,549				15,548
	Impairment of intangible assets			10,708				-
	Reserves			2,383				1,783
	Other non-cash adjustments			4,114				4,175
Changes in operating assets and liabilities, net of effects from acquisitions:
	Accounts receivable			(8,603	)			(8,443	)
	Inventory			(20,930	)			(13,680	)
	Prepaid expenses and other current assets			(2,839	)			(1,722	)
	Accounts payable and accrued liabilities			5,080				8,830
	Litigation liability			30,000				-
	Accrued payroll and related expenses			(4,473	)			(5,885	)
Net cash provided by operating activities				48,311				32,384
Investing activities:
Cash paid for business and asset acquisitions				(59	)			(7,719	)
Purchases of property and equipment				(32,560	)			(26,209	)
Purchases of marketable securities				(129,080	)			(136,988	)
Sales of marketable securities				103,650				145,014
Net cash used in investing activities				(58,049	)			(25,902	)
Financing activities:
Principal payment of 2013 Senior Convertible Notes				-				(74,311	)
Tax benefits related to stock-based compensation awards				-				1,261
Proceeds from the issuance of common stock				14,193				3,123
Purchases of treasury stock				(44	)			-
Other financing activities				(1,142	)			26
Net cash provided by (used in) financing activities				13,007				(69,901	)
Effect of exchange rate changes on cash				367				(1,000	)
Increase (decrease) in cash and cash equivalents				3,636				(64,419	)
Cash and cash equivalents at beginning of year				102,825				123,299
Cash and cash equivalents at end of year			$	106,461			$	58,880