NuVasive Announces First Quarter 2013 Financial Results

SAN DIEGO, CA--(Marketwired - Apr 30, 2013) - NuVasive, Inc. ( NASDAQ : NUVA )

• First quarter 2013 revenue of $159.5 million; up 5.2% from first quarter 2012
• GAAP operating margin of 4.0%
• Non-GAAP operating margin of 13.5%
• GAAP net income of $851 thousand, or $0.02 per share
• Non-GAAP earnings of $11.9 million, or $0.26 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, 2013.

NuVasive reported first quarter 2013 revenue of $159.5 million, a 5.2% increase over the $151.7 million for the first quarter 2012.

Gross profit for the first quarter 2013 was $120.4 million and gross margin was 75.5%, compared to a gross profit of $114.8 million and a gross margin of 75.7% for the first quarter 2012. 

Total operating expenses for the first quarter 2013 were $114.0 million compared to $107.5 million in the first quarter 2012. The higher operating expenses in the first quarter 2013 resulted primarily from additional costs associated with higher revenue and international infrastructure expansion.

On a GAAP basis, the Company reported net income of $851 thousand, or $0.02 per share, for the first quarter 2013. 

On a Non-GAAP basis, the Company reported net income of $11.9 million, or $0.26 per share, for the first quarter 2013. The Non-GAAP earnings per share calculations for the first quarter exclude: (i) non-cash stock-based compensation of $6.8 million; (ii) certain intellectual property litigation expenses of $1.4 million; (iii) amortization of intangible assets of $4.4 million; (iv) acquisition related items of $2.5 million; and (v) non-cash interest expense on convertible notes of $3.3 million.

Cash, cash equivalents and short and long-term marketable securities were $281.2 million at March 31, 2013.

The Company also announced a partial settlement in the ongoing patent litigation with Medtronic. The settlement resolves all disputes related to cervical plate patents and affords NuVasive broad access to Medtronic's portfolio of cervical plate patents. In exchange, NuVasive agreed to a $7.5 million up-front payment to Medtronic to settle Phase II of the litigation, all of which will be offset against any damage award ultimately paid in connection with Phase I. As well, NuVasive will assume an effective go-forward royalty rate of 3% on certain cervical plates that rely on the patents licensed. 

Alex Lukianov, Chairman and Chief Executive Officer, said, "Results in the first quarter demonstrate solid execution against our multiyear plan and are in line with our expectations for annual performance in 2013. Several positive developments in the form of strong clinical data to support fusions for Degenerative Disc Disease, in conjunction with the ongoing formulation of new clinical guidelines have the potential to improve long term US spine market growth. And regardless of what U.S. market growth ultimately looks like, NuVasive has massive opportunities to drive sustainable top and bottom line growth globally. Our proven, share taking strategy of Superior Outcomes, Absolute Responsiveness, and Speed of Innovation will enable us to execute our plan for growth toward $1 billion in revenue with an improved profitability profile."

2013 Full Year Financial Guidance:

• Revenue of approximately $655 million, unchanged from prior guidance
• GAAP EPS of approximately $0.02, compared to $0.07 previously
• Non-GAAP EPS of approximately $1.00, unchanged from prior guidance
• Non-GAAP Operating Margin of approximately 14%, unchanged from prior guidance
• GAAP effective tax expense rate of approximately 80%, compared to 60% previously

Reconciliation of Full Year EPS Guidance
			2013 Guidance
			Prior 1			Revised 2
GAAP earnings per share guidance			$	0.07		$	0.02
	Non-cash stock based compensation			0.39			0.45
	Certain intellectual property litigation expenses			0.06			0.06
	Amortization of intangible assets			0.27			0.27
	Acquisition related items 3			0.03			0.03
	Non-cash interest expense on convertible notes			0.18			0.18
Non-GAAP earnings per share guidance			$	1.00		$	1.00
Weighted shares outstanding - basic				45,500			45,500
Weighted shares outstanding - diluted				46,500			46,500

1		Effective tax rate of ~60% applied to GAAP earnings and ~40% applied to Non-GAAP adjustments
2		Effective tax rate of ~80% applied to GAAP earnings and ~40% applied to Non-GAAP adjustments
3		Acquisition related items include expenses associated with prior M&A activity and as incurred

Reconciliation of Non-GAAP Operating Margin %
		2012		2013 Guidance
		Actuals		Prior		Revised
Gross Margin % [A]		75.3%		~74.0%		~74.0%
Non-GAAP Operating Expenses [B]		60.8%		~60.0%		~60.0%
Non-cash stock-based compensation		4.2%		~5.0%		~5.5%
Certain intellectual property litigation expenses		0.4%		~1.0%		~1.0%
Amortization of intangible assets		2.0%		~3.0%		~3.0%
Intangible asset and goodwill impairment charge		1.5%		-		-
Acquisition related items*		0.3%		~0.3%		~0.3%
GAAP Operating Expenses		69.3%		~69.3%		~69.8%
Non-GAAP Operating Margin % [A-B]		14.5%		~14.0%		~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 earnings per share, which exclude non-cash stock-based compensation, certain intellectual property litigation expenses, amortization of intangible assets, acquisition related items, non-cash interest expense on convertible notes, and intangible asset and goodwill impairment charges. Management does not consider these costs in evaluating the continuing operations of the Company. Therefore, management calculates the Non-GAAP financial measures provided in this earnings release excluding these costs and uses these Non-GAAP financial measures to enable it to analyze further, and more consistently, the period-to-period financial performance of its core business operations. Management believes that providing investors with these Non-GAAP measures gives them additional important information to enable them to assess, in the same way management assesses, the Company's current and future continuing operations. These Non-GAAP measures are not in accordance with, or an alternative for, GAAP, and may be different from Non-GAAP measures used by other companies. Set forth below are reconciliations of the Non-GAAP financial measures to the comparable GAAP financial measure.

Reconciliation of First Quarter 2013 Results
(in thousands, except per share data)			Pre-Tax Adjustments		Net of Tax		Earnings Per Share
GAAP net income					$ 851		$ 0.02
	Non-cash stock-based compensation		$ 6,787		4,072		0.09
	Certain intellectual property litigation expenses		1,409		845		0.02
	Amortization of intangible assets		4,376		2,626		0.06
	Acquisition related items		2,461		1,477		0.03
	Non-cash interest expense on convertible notes		3,322		1,993		0.04
Non-GAAP earnings					$ 11,864		$ 0.26
Weighted shares outstanding - diluted							45,316

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, 2013. In addition, a telephone replay of the call will be available until May 14, 2013. The replay dial-in numbers are 1-877-870-5176 for domestic callers and 1-858-384-5517 for international callers. Please use pin number: 410865.

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. The Company is the 4th largest player in the $8.2 billion global spine market.

NuVasive offers a comprehensive spine portfolio of over 80 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, NuVasive continues to be at the forefront of the spine industry's shift toward less invasive solutions. The Company places a large focus on clinical research and support of the Society of Lateral Access Surgery, or SOLAS ^® , to expand the body of clinical evidence in support of NuVasive's minimally disruptive solutions and to drive adoption of its techniques. The Company's dedication to innovation continues to spawn game changing technology such as the PCM ^® motion preserving disc for the cervical spine, XLIF ^® Corpectomy for tumor and trauma, and Armada ^® , which treats adult degenerative scoliosis in a less invasive fashion. The Company has also 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 the Company lays the groundwork to continue growing as a global business 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 that are not a description of historical facts are forward-looking statements that involve risks, uncertainties, assumptions and other factors which, if they do not materialize or prove correct, could cause NuVasive's results to differ materially from historical results or those expressed or implied by such forward-looking statements. The potential risks and uncertainties that could cause actual growth and results to differ materially include, but are not limited to: the risk that NuVasive's revenue or earnings projections may turn out to be inaccurate because of the preliminary nature of the forecasts; the risk of further adjustment, or unanticipated difficulty in selling products or generating expected profitability; and other risks and uncertainties more fully described in NuVasive's press releases and periodic filings with the Securities and Exchange Commission. NuVasive's public filings with the Securities and Exchange Commission are available at www.sec.gov . NuVasive assumes no obligation to update any forward-looking statement to reflect events or circumstances arising after the date on which it was made .

NuVasive, Inc.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
			Three Months Ended March 31,
			2013				2012
Revenue			$	159,504			$	151,691
Cost of goods sold (excluding amortization of purchased technology)				39,096				36,933
Gross profit				120,408				114,758
Operating expenses:
	Sales, marketing and administrative			99,886				94,678
	Research and development			9,694				9,988
	Amortization of intangible assets			4,376				2,846
Total operating expenses				113,956				107,512
Interest and other expense, net:
	Interest income			172				208
	Interest expense			(7,032	)			(6,825	)
	Other income, net			240				437
Total interest and other expense, net				(6,620	)			(6,180	)
(Loss) income before income taxes				(168	)			1,066
Income tax (benefit) expense				(764	)			597
Consolidated net income			$	596			$	469
Net loss attributable to noncontrolling interests			$	(255	)		$	(204	)
Net income attributable to NuVasive, Inc.			$	851			$	673
Net income per share attributable to NuVasive, Inc.:
	Basic and diluted		$	0.02			$	0.02
Weighted average shares outstanding:
	Basic			44,025				42,844
	Diluted			45,316				43,397
Stock-based compensation is included in expenses in the following categories:
	Sales, marketing and administrative		$	6,424			$	6,142
	Research and development			342				465
	Cost of goods sold			21				14
			$	6,787			$	6,621

NuVasive, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
			March 31, 2013				December 31, 2012
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	78,472			$	123,299
	Short-term marketable securities			121,897				138,405
	Accounts receivable, net			90,410				88,958
	Inventory			129,583				126,335
	Deferred tax assets, current			31,136				28,236
	Prepaid expenses and other current assets			9,078				8,516
Total current assets				460,576				513,749
Property and equipment, net				122,897				125,123
Long-term marketable securities				80,829				84,412
Intangible assets, net				101,992				101,362
Goodwill				154,056				154,106
Deferred tax assets				37,676				40,575
Restricted cash and investments				119,046				118,995
Other assets				24,380				25,463
Total assets			$	1,101,452			$	1,163,785
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued liabilities		$	72,227			$	62,048
	Accrued payroll and related expenses			20,952				27,916
	Litigation liability			7,500				-
	Senior Convertible Notes, current			-				74,311
Total current liabilities				100,679				164,275
Senior Convertible Notes				335,726				332,404
Deferred tax liabilities				3,123				3,129
Litigation liability				93,700				101,200
Other long-term liabilities				15,056				15,199
Commitments and contingencies
Noncontrolling interests				9,748				10,003
Stockholders' equity:
	Preferred stock			-				-
	Common stock			44				44
	Additional paid-in capital			721,688				714,865
	Accumulated other comprehensive (loss) income			(1,043	)			786
	Accumulated deficit			(177,269	)			(178,120	)
Total stockholders' equity				543,420				537,575
Total liabilities and stockholders' equity			$	1,101,452			$	1,163,785

NuVasive, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
			Three Months Ended March 31,
			2013				2012
Operating activities:
Consolidated net income			$	596			$	469
	Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			14,581				12,087
	Amortization of debt discount			3,322				3,088
	Amortization of debt issuance costs			478				451
	Stock-based compensation			6,787				6,621
	Allowance for doubtful accounts and sales return reserve			(129	)			663
	Allowance for excess and obsolete inventory, net of write-offs			157				1,200
	Accretion of contingent consideration			17				397
	Other non-cash adjustments			1,393				1,446
	Changes in operating assets and liabilities, net of effects from acquisitions:
	Accounts receivable			(1,619	)			2,193
	Inventory			(4,098	)			(3,502	)
	Prepaid expenses and other current assets			(929	)			10,959
	Accounts payable and accrued liabilities			10,373				7,834
	Accrued payroll and related expenses			(6,823	)			(4,166	)
Net cash provided by operating activities				24,106				39,740
Investing activities:
	Cash paid for business and asset acquisitions			(5,031	)			(3,667	)
	Purchases of property and equipment			(9,200	)			(14,567	)
	Purchases of marketable securities			(48,916	)			-
	Sales of marketable securities			68,621				84,831
Net cash provided by investing activities				5,474				66,597
Financing activities:
	Principal payment of 2013 Senior Convertible Notes			(74,311	)			-
	Proceeds from the issuance of common stock			36				314
	Other assets			100				76
Net cash (used in) provided by financing activities				(74,175	)			390
Effect of exchange rate changes on cash				(232	)			(39	)
(Decrease) increase in cash and cash equivalents				(44,827	)			106,688
Cash and cash equivalents at beginning of period				123,299				163,492
Cash and cash equivalents at end of period			$	78,472			$	270,180