NuVasive Announces First Quarter 2018 Financial Results

2018 Guidance Range ¹

Prior

Current

(in Million's; except %'s and EPS)

 GAAP 

 Non-GAAP 

 GAAP 

 Non-GAAP 

Revenue

$    1,095

$    1,105

$    1,095

$    1,105

$    1,095

$    1,105

$    1,095

$    1,105

  % Growth - Reported ²

6.4%

7.3%

6.4%

7.3%

6.7%

7.6%

6.7%

7.6%

% Growth - Constant Currency ^{2, 3}

5.9%

6.9%

5.7%

6.6%

Operating margin

13.0%

13.0%

17.6%

17.6%

9.6%

9.7%

17.6%

17.6%

Earnings per share

$      1.56

$      1.59

$      2.44

$      2.47

$      0.71

$      0.74

$      2.44

$2.47

EBITDA

23.4%

23.4%

26.9%

26.9%

19.5%

19.5%

26.9%

26.9%

Tax Rate

~19%

~19%

~24%

~24%

~31%

~31%

~23%

~23%

 ¹

Prior guidance reflects the range provided February 26, 2018. Current guidance reflects the range provided May 1, 2018.

²

2017 has been recasted and presented based on our full retrospective method of adoption of ASC 606.

³

Constant currency is a measure that adjusts US GAAP revenue for the impact of currency over the same period in the prior year.

2017
Actuals ^{1, 2}

2018 Guidance Range ^{2, 3}

Prior ⁴

Current  ⁵

GAAP net income per share

$        1.48

$        1.56

$        1.59

$        0.71

$        0.74

Impact of change to diluted share count

0.08

0.01

0.01

0.01

0.01

GAAP net income per share, adjusted to diluted Non-GAAP share count

$        1.56

$        1.57

$        1.60

$        0.72

$        0.75

Business transition costs ⁶

0.08

0.04

0.04

0.07

0.07

Non-cash purchase accounting adjustments on acquisitions ⁷

0.01

0.02

0.02

0.02

0.02

Non-cash interest expense on convertible notes

0.33

0.32

0.32

0.32

0.32

Litigation liability ⁸

0.09

-

-

0.55

0.55

Non-recurring consulting fees ⁹

-

-

-

0.12

0.12

Impairment of strategic investment

-

-

-

0.17

0.17

Amortization of intangible assets ¹⁰

0.89

0.88

0.88

0.89

0.89

Tax effect of adjustments ¹¹

(1.07)

(0.39)

(0.39)

(0.42)

(0.42)

Non-GAAP earnings per share

$        1.89

$        2.44

$        2.47

$        2.44

$        2.47

GAAP Weighted shares outstanding - basic

50,874

51,025

51,025

51,025

51,025

GAAP Weighted shares outstanding - diluted

55,193

52,647

52,647

52,647

52,647

Non-GAAP Weighted shares outstanding - diluted ¹²

52,345

52,185

52,185

52,185

52,185

   ¹

2017 has been recasted and presented based on our full retrospective method of adoption of ASC 606.

²

Items may not foot due to rounding.

³

Prior guidance reflects the range provided February 26, 2018. Current guidance reflects the range provided May 1, 2018.

⁴

Effective tax expense rate of ~19% applied to GAAP earnings and ~24% applied to Non-GAAP earnings.

⁵

Effective tax expense rate of ~31% applied to GAAP earnings and ~23% 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

Related to the Medtronic litigation matter for fiscal year 2017 and for fiscal year 2018 represents the estimated loss contingency for the Madsen Medical, Inc. litigation matter.

⁹

Non-recurring consulting fees associated with the implementation of our state tax-planning strategy.

¹⁰

2017 results exclude the amortization associated with non-controlling interest.

¹¹

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 ~23% on a non-GAAP basis.

¹²

Represents the exclusion of diluted shares associated with the Company's convertible debt and warrant which are economically hedged by the Company's bond hedge arrangement on the Senior Convertible Notes due 2021.

Reconciliation of Non-GAAP Operating Margin %

2017 Actuals ^{1, 2}

2018 Guidance ^{2, 3}

(in thousands, except %)

Prior

Current

Non-GAAP Gross Margin %[A]

73.9%

74.0%

73.5%

Non-cash purchase accounting adjustments on acquisitions ⁴

(0.1%)

(0.1%)

(0.1%)

GAAP Gross Margin [B]

73.9%

73.9%

73.4%

Non-GAAP Sales, Marketing & Administrative Expense [C]

52.5%

51.1%

50.6%

Non-recurring consulting fees⁵

0.0%

0.0%

0.6%

GAAP Sales, Marketing & Administrative Expense [D]

52.5%

51.1%

51.2%

Non-GAAP Research & Development Expense [E]

4.9%

5.3%

5.3%

In-process research & development

0.0%

0.0%

0.0%

GAAP Research & Development Expense [F]

4.9%

5.3%

5.3%

Litigation liability [G] ⁶

0.4%

0.0%

2.6%

Amortization of intangible assets [H] ⁷

4.7%

4.3%

4.3%

Business transition costs [I] ⁸

0.4%

0.2%

0.4%

Non-GAAP Operating Margin % [A - C - E]

16.4%

17.6%

17.6%

GAAP Operating Margin % [B - D - F - G - H - I]

10.9%

13.0%

9.6%

   ¹

2017 has been recasted and presented based on our full retrospective method of adoption of ASC 606.

    ²

Items may not foot due to rounding.

³

Prior guidance reflects the range provided February 26, 2018. Current guidance reflects the range provided May 1, 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

Related to the Medtronic litigation matter for fiscal year 2017 and for fiscal year 2018 represents the estimated loss contingency for the Madsen Medical, Inc. litigation matter.

⁷

2017 results exclude the amortization associated with non-controlling interest.

⁸

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 %

2017 Actuals ^{1, 2}

2018 Guidance ^{2, 3}

(in thousands, except %)

Prior

Current

Net Income / (Loss)

7.9%

7.5%

3.4%

Interest (income) / expense, net 

3.7%

3.6%

3.6%

Provision for income taxes

1.7%

1.6%

Depreciation and amortization ⁴

11.7%

10.6%

10.9%

EBITDA

22.6%

23.4%

19.5%

Non-cash stock based compensation

2.2%

3.2%

3.0%

Business transition costs ⁵

0.4%

0.2%

0.3%

Non-cash purchase accounting adjustments on acquisitions ⁶

0.1%

0.1%

0.1%

Litigation liability ⁷

0.4%

0.0%

2.6%

Non-recurring consulting fees ⁸

0.0%

0.0%

0.6%

Impairment of strategic investment

0.0%

0.0%

0.8%

Adjusted EBITDA

25.6%

26.9%

26.9%

    ¹

²

Items may not foot due to rounding.

³

Prior guidance reflects the range provided February 26, 2018. Current guidance reflects the range provided May 1, 2018.

⁴

2017 results exclude the amortization associated with 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

Related to the Medtronic litigation matter for fiscal year 2017 and for fiscal year 2018 represents the estimated loss contingency for the Madsen Medical, Inc. litigation matter.

⁸

Non-recurring consulting fees associated with the implementation of our state tax-planning strategy.

Reconciliation of First Quarter 2018 Results

GAAP Net Loss to Adjusted EBITDA

Three months ended

(in thousands, except per share data)

March 31, 2018

GAAP net loss

$                                        (27,132)

Interest expense/(income), net

9,333

Provision for income taxes

(10,126)

Depreciation and amortization

32,090

EBITDA

$                                            4,165

Business transition costs¹

2,253

Non-cash purchase accounting adjustments on acquisitions ²

405

Litigation liability ³

28,995

Non-recurring consulting fees ⁴

6,084

Impairment of strategic investment

9,004

Non-cash stock based compensation

4,134

Adjusted EBITDA

$                                          55,040

As a percentage of revenue

21.1%

¹

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.

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

Represents the amount accrued as an estimated loss contingency in connection with the Madsen Medical, Inc. litigation matter.

⁴

Reconciliation of First Quarter 2018 Results

GAAP Net Loss per Share to Non-GAAP Earnings per Share

Adjustments

Diluted Earnings Per Share

(in thousands, except per share data)

GAAP net loss

$               (27,132)

$                          (0.53)

Business transition costs ¹

2,253

Non-cash purchase accounting adjustments on acquisitions ²

405

Non-cash interest expense on convertible notes

4,099

Litigation liability ³

28,995

Non-recurring consulting fees ⁴

6,084

Impairment of strategic investment

9,004

Amortization of intangible assets

12,425

Tax effect of adjustments ⁵

(15,976)

Adjustments to GAAP net loss

47,289

Non-GAAP earnings

$                20,157

$                           0.39

GAAP weighted shares outstanding - basic and diluted

51,226

Non-GAAP weighted shares outstanding - diluted⁶

51,742

¹

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.

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

Represents the amount accrued as an estimated loss contingency in connection with the Madsen Medical, Inc. litigation matter.

⁴

Non-recurring consulting fees associated with the implementation of our state tax-planning strategy.

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 ~23% on a non-GAAP basis.

NuVasive, Inc. 

Consolidated Statements of Operations 

(in thousands, except per share data)

Three Months Ended March 31,

(unaudited)

2018

2017

Revenue

Product revenue

$ 233,515

$ 224,955

Service revenue

27,007

24,058

Total revenue

260,522

249,013

Cost of revenue (excluding below amortization of intangible assets)

Cost of products sold 

55,191

45,901

Cost of services

18,623

15,542

Total cost of revenue

73,814

61,443

Gross profit

186,708

187,570

Operating expenses:

Sales, marketing and administrative

146,766

140,368

Research and development

14,491

12,414

Amortization of intangible assets

12,425

12,061

Litigation liability loss

28,995

—

Business transition costs

2,253

55

Total operating expenses

204,930

164,898

Interest and other expense, net:

Interest income

134

137

Interest expense

(9,467)

(9,799)

Other (expense) income, net

(9,703)

258

Total interest and other expense, net

(19,036)

(9,404)

(Loss) income before income taxes

(37,258)

13,268

Income tax benefit (expense)

10,126

(1,285)

Consolidated net (loss) income

$ (27,132)

$   11,983

Add back net loss attributable to non-controlling interest

$          —

$      (443)

Net (loss) income attributable to NuVasive, Inc.

$ (27,132)

$   12,426

Net (loss) income per share attributable to NuVasive, Inc.:

Basic

$     (0.53)

$       0.25

Diluted

$     (0.53)

$       0.22

Weighted average shares outstanding:

Basic

51,226

50,566

Diluted

51,226

57,786

NuVasive, Inc. 

Consolidated Balance Sheets 

(in thousands, except par values and share amounts) 

March 31, 2018

December 31, 2017

ASSETS

(Unaudited)

Current assets:

Cash and cash equivalents

$           73,741

$                  72,803

Restricted cash and investments

—

3,901

Accounts receivable, net of allowances of $14,734 and $13,026, respectively

188,107

200,220

Inventory, net

257,982

247,138

Prepaid income taxes

16,877

17,209

Prepaid expenses and other current assets

21,102

18,792

Total current assets

557,809

560,063

Property and equipment, net

227,573

215,326

Intangible assets, net

287,600

280,774

Goodwill

563,046

536,926

Deferred tax assets

5,277

6,440

Restricted cash and investments

2,394

1,494

Other assets

27,433

39,117

Total assets

$      1,671,132

$             1,640,140

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$           83,136

$                  75,767

Contingent consideration liabilities

11,670

18,952

Accrued payroll and related expenses

39,369

55,618

Litigation liabilities

38,190

8,150

Short-term borrowings

55,000

—

Income tax liabilities

3,899

2,908

Total current liabilities

231,264

161,395

Long-term senior convertible notes

587,716

582,920

Deferred and income tax liabilities, non-current

4,900

18,870

Other long-term liabilities

84,856

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 March 31, 2018 and December 31, 2017, 56,335,550 and 56,164,060 issued and outstanding at March 31, 2018 and December 31, 2017, respectively

60

60

Additional paid-in capital

1,358,759

1,363,549

Accumulated other comprehensive loss

(4,353)

(6,933)

(Accumulated deficit) retained earnings

(22,370)

4,762

Treasury stock at cost; 5,077,543 shares and 5,001,886 shares at March 31, 2018 and December 31, 2017, respectively

(569,700)

(565,867)

Total NuVasive, Inc. stockholders' equity

762,396

795,571

Non-controlling interest

—

3,845

Total equity

762,396

799,416

Total liabilities and equity

$      1,671,132

$             1,640,140

NuVasive, Inc. 

Consolidated Statements of Cash Flows 

(in thousands) 

Three Months Ended March 31,

(unaudited)

2018

2017

Operating activities:

Consolidated net (loss) income

$ (27,132)

$   11,983

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

32,090

29,510

Impairment of strategic investment

9,003

—

Amortization of non-cash interest

4,925

5,369

Stock-based compensation

4,134

7,017

Reserves on current assets

4,080

(1,998)

Other non-cash adjustments

4,456

3,013

Deferred income taxes

(12,671)

1,440

Changes in operating assets and liabilities, net of effects from acquisitions:

Accounts receivable

16,933

1,719

Inventory

(12,126)

(13,800)

Prepaid expenses and other current assets

(1,737)

(2,614)

Accounts payable and accrued liabilities

1,579

550

Accrued payroll and related expenses

(18,493)

(12,721)

Litigation liability

30,040

—

Income taxes

1,294

(1,298)

Net cash provided by operating activities

36,375

28,170

Investing activities:

Acquisitions and investments

(51,794)

(2,500)

Purchases of intangible assets

(2,657)

(1,249)

Purchases of property and equipment

(29,109)

(34,545)

Net cash used in investing activities

(83,560)

(38,294)

Financing activities:

Proceeds from the issuance of common stock

336

410

Purchase of treasury stock

(2,155)

(10,356)

Payment of contingent consideration

(8,900)

—

Proceeds from revolving line of credit

65,000

—

Repayments on revolving line of credit

(10,000)

—

Other financing activities

(141)

(181)

Net cash provided by (used in) financing activities

44,140

(10,127)

Effect of exchange rate changes on cash

982

758

Decrease in cash, cash equivalents and restricted cash

(2,063)

(19,493)

Cash, cash equivalents and restricted cash at beginning of period

78,198

161,048

Cash, cash equivalents and restricted cash at end of period

$  76,135

$ 141,555