Financial

NuVasive Announces Second Quarter 2018 Financial Results

SAN DIEGOJuly 31, 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 June 30, 2018.

Second Quarter 2018 Highlights

  • Revenue increased 8.5% to $281.6 million, or 7.7% on a constant currency basis;
  • GAAP operating profit margin of 10.1%; Non-GAAP operating profit margin of 16.3%; and
  • GAAP diluted earnings per share increase of 5% to $0.22; Non-GAAP diluted earnings per share increase of 29% to $0.58.

“We are pleased with our second quarter total revenue growth of 8.5% year-over-year driven by momentum in our U.S. Spinal Hardware business where we saw spine case volumes up nearly 7% versus prior year,” said Gregory T. Lucier, chairman and chief executive officer of NuVasive. “We continue to see strong demand for new product introductions from late last year and positive surgeon conversion efforts as our new Lateral Single-Position Surgery procedure gains traction in the market. Our International business also delivered a solid performance with 21% year-over-year growth.”

A full reconciliation of GAAP to non-GAAP measures can be found in the tables of this news release.

Second Quarter 2018 Results

NuVasive reported second quarter 2018 total revenue of $281.6 million, an 8.5% increase compared to $259.4 million for the second quarter 2017. On a constant currency basis, second quarter 2018 total revenue increased 7.7% compared to the same period last year.

For the second quarter 2018, GAAP and non-GAAP gross profit was $204.5 million and $204.9 million, respectively, and GAAP and non-GAAP gross margin was 72.6% and 72.8%, respectively. These results compared to both GAAP and non-GAAP gross profit of $193.2 million, and both GAAP and non-GAAP gross margin of 74.5% for the second quarter 2017. Gross margins for the second quarter 2018 were impacted by the Company’s in-source manufacturing efforts at the West Carrollton facility, which are expected to improve over the second half of 2018.

The Company reported GAAP net income of $11.5 million, or $0.22 per share, for the second quarter 2018 compared to GAAP net income of $12.2 million, or $0.21 per share, for the second quarter 2017. On a non-GAAP basis, the Company reported net income of $30.3 million, or $0.58 per share, for the second quarter 2018 compared to net income of $23.6 million, or $0.45 per share, for the second quarter 2017.

Annual Financial Guidance for 2018 

The Company updated its full-year 2018 guidance as follows:

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

6.7%

7.6%

6.7%

7.6%

6.7%

7.6%

6.7%

7.6%

% Growth – Constant Currency 2, 3

5.7%

6.6%

6.3%

7.3%

Operating margin

9.6%

9.7%

17.6%

17.6%

8.0%

8.1%

16.7%

16.7%

Earnings per share

$      0.71

$      0.74

$   2.44

$      2.47

$   0.45

$   0.48

$   2.37

$   2.40

EBITDA

19.5%

19.5%

26.9%

26.9%

18.7%

18.7%

25.9%

25.9%

Tax Rate

~31%

~31%

~23%

~23%

~33%

~33%

~21%

~21%

  1

Prior guidance reflects the range provided May 1, 2018. Current guidance reflects the range provided July 31, 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.

  • Full-year 2018 revenue remains in the range of $1,095 million to $1,105 million reflecting reported growth of 6.7% to 7.6%, and growth in the range of 4.7% to 5.7%, exclusive of the SafePassage acquisition;
  • Non-GAAP diluted earnings per share in a range of $2.37 to $2.40 compared with the prior expectation of $2.44 to $2.47;
  • Non-GAAP operating profit margin of approximately 16.7% compared with the prior expectation of 17.6%;
  • Adjusted EBITDA margin of approximately 25.9% compared with the prior expectation of 26.9%;
  • Non-GAAP effective tax expense rate of approximately 21%, compared with the prior expectation of approximately 23%;
  • The Company expects currency to have a positive impact on revenue in 2018 of approximately $3 million compared with the prior expectation of $10 million; and
  • The Company expects to drive an adjusted EBITDA 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.comto access Supplementary Financial Information.

Reconciliation of Full Year EPS Guidance

2017

Actuals1, 2

2018 Guidance Range

Prior1, 3, 4

Current  1, 3, 5

GAAP net income per share

$       1.48

$  0.71

$  0.74

$  0.45

$  0.48

Impact of change to diluted share count

0.08

0.01

0.01

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

$       1.56

$  0.72

$  0.75

$  0.45

$  0.48

Business transition costs 6

0.08

0.07

0.07

0.13

0.13

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 related expenses and settlements 8

0.09

0.55

0.55

0.60

0.60

Non-recurring consulting fees 9

0.12

0.12

0.13

0.13

Impairment of strategic investment

0.17

0.17

0.17

0.17

Amortization of intangible assets 10

0.89

0.89

0.89

0.95

0.95

Tax effect of adjustments 11

(1.08)

(0.42)

(0.42)

(0.40)

(0.40)

Non-GAAP earnings per share

$       1.89

$  2.44

$  2.47

$  2.37

$  2.40

GAAP Weighted shares outstanding – basic

50,874

51,025

51,025

51,397

51,397

GAAP Weighted shares outstanding – diluted

55,193

52,647

52,647

52,131

52,131

Non-GAAP Weighted shares outstanding – diluted 12

52,345

52,185

52,185

52,131

52,131

1

Items may not foot due to rounding.

2

2017 has been recasted and presented based on our full retrospective method of adoption of ASC 606 as well as for 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 May 1, 2018. Current guidance reflects the range provided July 31, 2018.

4

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

5

Effective tax expense rate of ~33% 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

Related to the Medtronic litigation matter for fiscal year 2017. Represents the settlement loss in connection with 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 for fiscal year 2018.

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 ~33% on a GAAP basis and ~21% on a non-GAAP basis.

12

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.

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Josh Sandberg

Josh Sandberg is the President of Ortho Sales Partners and Partner for The De Angelis Group. He also serves as Co-Founder and Editor of OrthoSpineNews.

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