NuVasive Announces Third Quarter 2013 Financial Results

NuVasive, Inc. (NASDAQ: NUVA)

Third quarter 2013 revenue of $169.2 million; up 14.0% from third quarter 2012
Non-GAAP operating margin of 15.4%
GAAP net income of $7.5 million, or $0.16 per share
Non-GAAP net income of $18.3 million, or $0.39 per share
Increases 2013 guidance for revenue, non-GAAP operating 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, announced today financial results for the quarter ended September 30, 2013.

NuVasive reported third quarter 2013 revenue of $169.2 million, a 14.0% increase over the $148.4 million for the third quarter 2012.

Gross profit for the third quarter 2013 was $125.9 million and gross margin was 74.4%, compared to a gross profit of $110.6 million and a gross margin of 74.6% for the third quarter 2012.

Total operating expenses for the third quarter 2013 were $114.3 million compared to $98.1 million for the third quarter 2012. The higher operating expenses in the third quarter 2013 resulted primarily from additional costs associated with international infrastructure expansion and higher revenue.

On a GAAP basis, the Company reported net income of $7.5 million, or $0.16 per share, for the third quarter 2013.

On a Non-GAAP basis, the Company reported net income of $18.3 million, or $0.39 per share, for the third quarter 2013. The Non-GAAP earnings per share calculations for the third quarter exclude: (i) non-cash stock-based compensation of $8.5 million; (ii) certain intellectual property litigation expenses of $1.1 million; (iii) amortization of intangible assets of $5.0 million; (iv) acquisition related items of $17 thousand; and (v) non-cash interest expense on convertible notes of $3.4 million.

Cash, cash equivalents and short and long-term marketable securities were $303 million at September 30, 2013.

Alex Lukianov, Chairman and Chief Executive Officer, said, "The execution of our market share taking strategy has been outstanding through the first three quarters of 2013, and we are pleased to be increasing full year revenue and non-GAAP operating margin guidance to reflect solid outperformance. We are building on the momentum established at Eurospine and at NASS to close this year well and kick off 2014 with continued strategic execution!"

2013 Full Year Financial Guidance:

Revenue of approximately $670 million, up from prior guidance of $655 million
GAAP earnings per share of approximately $0.07, up from prior guidance of a loss per share of ($0.09)
Non-GAAP EPS of approximately $1.14, up from prior guidance of $1.00
Non-GAAP Operating Margin of approximately 14.5%, up from prior guidance of 14%
GAAP effective tax expense rate of approximately 40%, compared to a tax benefit rate of approximately 30% previously



Reconciliation of Full Year EPS Guidance

		2013 Guidance
		Prior ¹			Revised ²
GAAP (loss) earnings per share guidance		$	(0.09	)	$	0.07
Impact of change from basic to diluted share count		$	0.00		$	0.00
GAAP (loss) earnings per share, adjusted to diluted share count		$	(0.09	)	$	0.07
	Non-cash stock based compensation	$	0.45		$	0.44
	Certain intellectual property litigation expenses	$	0.06		$	0.06
	Amortization of intangible assets	$	0.27		$	0.26
	Acquisition related items ³	$	0.03		$	0.03
	Non-cash interest expense on convertible notes	$	0.18		$	0.18
	Out-of-period royalty expense charge	$	0.10		$	0.10
Non-GAAP earnings per share guidance		$	1.00		$	1.14

Weighted shares outstanding - basic			45,500			44,500
Weighted shares outstanding - diluted			46,500			46,500


¹	Effective tax benefit rate of ~30% applied to GAAP earnings and ~40% expense rate applied to Non-GAAP adjustments
²	Effective tax expense rate of ~40% applied to GAAP earnings and ~40% expense rate 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 %

		2013 Guidance
	2012 Actuals	Prior	Revised
Non-GAAP Gross Margin % [A]	75.3%	~75.0%	~75.0%
Out-of-period royalty expense charge	-	~(1.2%)	~(1.2%)
GAAP Gross Margin [B]	75.3%	~73.8%	~73.8%

Non-GAAP Operating Expenses [C]	60.8%	~61.0%	~60.5%
Non-cash stock-based compensation	4.2%	~5.5%	~5.0%
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 [D]	69.3%	~70.8%	~69.8%

Non-GAAP Operating Margin % [A-C]	14.5%	~14.0%	~14.5%
GAAP Operating Margin % [B-D]	6.0%	~3.0%	~4.0%

* 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, intangible asset and goodwill impairment charges, acquisition related items, non-cash interest expense on convertible notes, and an out-of-period royalty expense 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 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 Third Quarter 2013 Results

(in thousands, except per share data)		Pre-Tax Adjustments		Net of Tax		Earnings Per Share
GAAP net income				$	7,511	$	0.16
	Non-cash stock-based compensation	$	8,454		5,073	$	0.11
	Certain intellectual property litigation expenses		1,074		644	$	0.01
	Amortization of intangible assets		4,974		2,985	$	0.06
	Acquisition related items		17		10	$	-
	Non-cash interest expense on convertible notes		3,444		2,066	$	0.04

Non-GAAP earnings				$	18,289	$	0.39


Weighted shares outstanding - diluted							47,220


Reconciliation of Year To Date 2013 Results

(in thousands, except per share data)		Pre-Tax Adjustments		Net of Tax		Earnings Per Share
GAAP net income				$	1,893	$	0.04
	Non-cash stock-based compensation	$	24,002		14,401	$	0.31
	Certain intellectual property litigation expenses		3,963		2,378	$	0.05
	Amortization of intangible assets		14,263		8,558	$	0.18
	Acquisition related items		2,534		1,520	$	0.03
	Non-cash interest expense on convertible notes		10,148		6,089	$	0.13
	Out-of-period royalty expense charge		7,901		4,741	$	0.10

Non-GAAP earnings				$	39,580	$	0.85

Weighted shares outstanding - diluted							46,387

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 November 28, 2013. In addition, a telephone replay of the call will be available until November 12, 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: 419918.

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'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 to financial results or future financial expectations; unanticipated difficulty in selling products, generating revenue or producing 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 September 30,						Nine Months Ended September 30,
		2013			2012			2013			2012

Revenue		$	169,156		$	148,391		$	494,358		$	454,501
Cost of goods sold (excluding amortization of purchased technology)			43,291			37,746			131,131			111,213
Gross profit			125,865			110,645			363,227			343,288

Operating expenses:
	Sales, marketing and administrative		102,085			87,410			306,243			274,703
	Research and development		7,248			7,575			24,654			26,898
	Amortization of intangible assets		4,974			3,081			14,263			8,830
Total operating expenses			114,307			98,066			345,160			310,431

Interest and other expense, net:
	Interest income		157			249			560			661
	Interest expense		(6,712	)		(6,885	)		(20,396	)		(20,682	)
	Other income, net		3,137			260			2,937			146
Total interest and other expense, net			(3,418	)		(6,376	)		(16,899	)		(19,875	)

Income before income taxes			8,140			6,203			1,168			12,982
Income tax expense			860			4,064			20			7,764
Consolidated net income		$	7,280		$	2,139		$	1,148		$	5,218
Net loss attributable to noncontrolling interests		$	(231	)	$	(215	)	$	(745	)	$	(672	)
Net income attributable to NuVasive, Inc.		$	7,511		$	2,354		$	1,893		$	5,890

Net income per share attributable to NuVasive, Inc.:
	Basic	$	0.17		$	0.05		$	0.04		$	0.14
	Diluted	$	0.16		$	0.05		$	0.04		$	0.13
Weighted average shares outstanding:
	Basic		44,572			43,488			44,339			43,227
	Diluted		47,220			44,735			46,387			44,151

Stock-based compensation is included in expenses in the following categories:
	Sales, marketing and administrative	$	7,965		$	4,844		$	22,667		$	18,723
	Research and development		448			567			1,239			1,624
	Cost of goods sold		41			23			96			53
		$	8,454		$	5,434		$	24,002		$	20,400


NuVasive, Inc.
Condensed Consolidated Balance Sheets
(in thousands)

		September 30, 2013			December 31, 2012
		(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents	$	100,616		$	123,299
	Short-term marketable securities		109,214			138,405
	Accounts receivable, net		96,208			88,958
	Inventory		140,709			126,335
	Deferred tax assets, current		31,136			28,236
	Prepaid expenses and other current assets		10,100			8,516
Total current assets			487,983			513,749
Property and equipment, net			130,796			125,123
Long-term marketable securities			92,999			84,412
Intangible assets, net			93,037			101,362
Goodwill			154,913			154,106
Deferred tax assets			39,719			40,575
Restricted cash and investments			119,168			118,995
Other assets			21,624			25,463
Total assets		$	1,140,239		$	1,163,785
LIABILITIES AND EQUITY
Current liabilities:
	Accounts payable and accrued liabilities	$	81,820		$	62,048
	Accrued payroll and related expenses		26,117			27,916
	Senior Convertible Notes, current		-			74,311
Total current liabilities			107,937			164,275
Senior Convertible Notes			342,552			332,404
Deferred tax liabilities			3,143			3,129
Litigation liability			93,700			101,200
Other long-term liabilities			14,789			15,199
Commitments and contingencies
Noncontrolling interests			-			10,003
Stockholders' equity:
	Preferred stock		-			-
	Common stock		45			44
	Additional paid-in capital		746,518			714,865
	Accumulated other comprehensive (loss) income		(1,476	)		786
	Accumulated deficit		(176,227	)		(178,120	)
Total NuVasive, Inc. stockholders' equity			568,860			537,575
Noncontrolling interests			9,258			-
Total equity			578,118			537,575
Total liabilities and equity		$	1,140,239		$	1,163,785



NuVasive, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)

		Nine Months Ended September 30,
		2013			2012

Operating activities:
Consolidated net income		$	1,148		$	5,218
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization		46,289			38,237
	Amortization of debt discount		10,148			9,435
	Amortization of debt issuance costs		1,265			1,386
	Stock-based compensation		24,002			20,400
	Allowance for doubtful accounts and sales return reserves		665			816
	Allowance for excess and obsolete inventory, net of write-offs		1,984			2,000
	Other non-cash adjustments		3,881			5,002
Changes in operating assets and liabilities, net of effects from acquisitions:
	Accounts receivable		(8,253	)		8,421
	Inventory		(16,749	)		(14,222	)
	Prepaid expenses and other current assets		(2,838	)		13,582
	Accounts payable and accrued liabilities		10,415			9,480
	Accrued payroll and related expenses		(1,824	)		(269	)
Net cash provided by operating activities			70,133			99,486
Investing activities:
Cash paid for business and asset acquisitions			(8,019	)		(9,838	)
Purchases of property and equipment			(38,018	)		(35,706	)
Purchases of marketable securities			(164,338	)		(192,759	)
Sales of marketable securities			183,756			193,035
Purchases of restricted investments			-			(113,331	)
Net cash used in investing activities			(26,619	)		(158,599	)
Financing activities:
Principal payment of 2013 Senior Convertible Notes			(74,311	)		-
Tax benefits related to stock-based compensation awards			5,247			-
Proceeds from the issuance of common stock			3,492			3,183
Other assets			(72	)		132
Net cash (used in) provided by financing activities			(65,644	)		3,315
Effect of exchange rate changes on cash			(553	)		37
Decrease in cash and cash equivalents			(22,683	)		(55,761	)
Cash and cash equivalents at beginning of period			123,299			163,492
Cash and cash equivalents at end of period		$	100,616		$	107,731

Contact:

Investor
Tina Jacobsen
NuVasive, Inc.
858-320-5215
Email Contact

Media
Nicole Collins
NuVasive, Inc.
858-909-1907
Email Contact

NuVasive Inc ( NUVA )

NuVasive Announces Third Quarter 2013 Financial Results