Financial

NuVasive Reports Third Quarter 2018 Financial Results

SAN DIEGOOct. 30, 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 September 30, 2018.

Third Quarter 2018 Highlights

  • Revenue increased 9.8% to $271.3 million, or 10.2% on a constant currency basis;
  • GAAP operating profit margin of 6.6%; Non-GAAP operating profit margin of 15.6%;
  • GAAP diluted earnings per share of $0.30; Non-GAAP diluted earnings per share of $0.56; and
  • Company updates full-year 2018 guidance.

“Our third quarter results reflect accelerated year-over-year revenue growth of nearly 10%, supported by strong performances in both spinal hardware and surgical support business lines with overall U.S. case volumes up more than 7%,” said Gregory T. Lucier, chairman and chief executive officer of NuVasive. “With the sense the overall U.S. spine market is trending healthier, we made strategic investments this quarter on the heels of this momentum in key R&D initiatives, additions to our commercial sales force and infrastructure upgrades to improve set fulfillment—all to support a strong start to 2019 and beyond.” 

The Company’s financial results reflect continued improvement of its in-sourcing efforts at the West Carrollton, Ohiomanufacturing facility, and the Company reiterated expectations that the facility will drive an additional 130 to 150 basis points in operating margins in 2019.

Lucier commented, “We made solid progress with our in-source manufacturing initiatives by bringing in additional SKUs during the third quarter with throughput ramping to higher volumes. This strategic investment is on track and will become a business advantage, both to drive a competitive cost position and to control the quality required to produce evermore complex implants.”

NuVasive also recently made several key technology introductions and partnership announcements, including the unveiling of the NuVasive Pulse™ surgical automation platform, Spine Precision Partnership with Siemens Healthineers and signing of a strategic partnership with Biedermann Technologies to further enhance NuVasive’s best-in-class complex spine deformity technologies. The Company also launched several new products to further reinvigorate its Biologics business line, which continues to recover at a faster-than-expected pace. The Company now anticipates its Biologic business will return to growth in the fourth quarter 2018.

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

Third Quarter 2018 Results

NuVasive reported third quarter 2018 total revenue of $271.3 million, a 9.8% increase compared to $247.1 million for the third quarter 2017. On a constant currency basis, third quarter 2018 total revenue increased 10.2% compared to the same period last year.

For the third quarter 2018, GAAP and non-GAAP gross profit was $197.1 million and $197.4 million, respectively, while GAAP and non-GAAP gross margin was 72.7% and 72.8%, respectively. These results compared to GAAP and non-GAAP gross profit of $181.5 million and $181.7 million, respectively, and both GAAP and non-GAAP gross margin of 73.5% for the third quarter 2017. Total GAAP and non-GAAP operating expenses were $179.2 million and $155.1 million, respectively, for the third quarter of 2018. These results compared to GAAP and non-GAAP operating expenses of $151.1 million and $138.4 million, respectively, for the third quarter 2017.

NuVasive reported GAAP net income of $15.9 million, or $0.30 per diluted share, for the third quarter 2018 compared to GAAP net income of $33.5 million, or $0.64 per diluted share, for the third quarter 2017. On a non-GAAP basis, NuVasive reported net income of $29.5 million, or $0.56 per diluted share, for the third quarter 2018 compared to net income of $26.6 million, or $0.51 per diluted share, for the third quarter 2017.

Annual Financial Guidance for 2018

The Company updated its full-year 2018 financial guidance by increasing its revenue guidance by $5 million to reflect a new range of $1,100 million to $1,110 million and reducing its non-GAAP operating margin guidance range to 15.0% – 15.5% as a result of accelerated investments in infrastructure and commercial sales force in anticipation of the overall spine market growth trending up to more historical averages.

2018 Guidance Range 1, 2

Prior

Current

(in million’s; except %’s and EPS)

GAAP

Non-GAAP

GAAP

Non-GAAP

Revenue

$1,095 – $1,105

$1,095 – $1,105

$1,105 – $1,110

$1,105 – $1,110

   % Growth – Reported

6.7% – 7.6%

6.7% – 7.6%

7.6% – 8.1%

7.6% – 8.1%

% Growth – Constant Currency 3

6.3% – 7.3%

7.4% – 7.9%

Operating margin

8.0% – 8.1%

16.7%

5.4% – 5.9%

15.0% – 15.5%

Earnings per share

$0.45 – $0.48

$2.37 – $2.40

$0.22 – $0.31

$2.15 – $2.23

EBITDA

18.3%

25.9%

16.1% – 16.6%

24.4% – 24.9%

Tax Rate

~33%

~21%

~18%

~21%

1

Prior guidance reflects the range provided July 31, 2018. Current guidance reflects the range provided October 30, 2018.

2

Amounts for 2017 have been recasted and presented based on our full retrospective method of adoption of ASC 606. Commencing with the fourth quarter of 2017, amounts also reflect expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Companys intellectual property.

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 in the range of $1,105 million to $1,110 million reflecting reported growth of 7.6% to 8.1%, and growth in the range of 5.7% to 6.2%, exclusive of the SafePassage acquisition;
  • Non-GAAP diluted earnings per share in a range of $2.15 to $2.23 compared with the prior expectation of $2.37 to $2.40;
  • Non-GAAP operating profit margin in the range of 15.0% to 15.5%, compared with the prior expectation of 16.7%;
  • Adjusted EBITDA margin in the range of 24.4% to 24.9%, compared with the prior expectation of 25.9%;
  • Non-GAAP effective tax expense rate of approximately 21%;
  • The Company expects currency to have a positive impact on revenue in 2018 of approximately $2 million compared with the prior expectation of $3 million; and
  • The Company expects to drive an adjusted EBITDA of approximately $269 million to $276 million, compared with the prior expectation 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 
Actuals 
1, 2

2018 Guidance Range 1, 3

Prior 4

Current  5

GAAP net income per share

$

1.48

$0.45 – $0.48

$0.22 – $0.31

Impact of change to diluted share count

0.08

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

$

1.56

$0.45 – $0.48

$0.22 – $0.31

Business transition costs 6

0.08

0.13

0.15

Non-cash purchase accounting adjustments on acquisitions 7

0.01

0.02

0.02

Non-cash interest expense on convertible notes

0.33

0.32

0.32

Litigation related expenses and settlements 8

0.09

0.60

0.63

Non-recurring consulting fees 9

0.13

0.12

Net loss on strategic investments

0.17

0.07

Amortization of intangible assets 10

0.89

0.95

0.95

Purchase of in-process research and development 11

0.17

Tax effect of adjustments 12

(1.08)

(0.40)

(0.50)

Non-GAAP earnings per share

$

1.89

$2.37 – $2.40

$2.15 – $2.23

GAAP Weighted shares outstanding – basic

50,874

51,397

51,396

GAAP Weighted shares outstanding – diluted

55,193

52,131

52,853

Non-GAAP Weighted shares outstanding – diluted 13

52,345

52,131

52,295

1

Items may not foot due to rounding.

2

Amounts for 2017 have been recasted and presented based on our full retrospective method of adoption of ASC 606.   Commencing with the fourth quarter of 2017, amounts also reflect expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Companys intellectual property.

3

Prior guidance reflects the range provided July 31, 2018. Current guidance reflects the range provided October 30, 2018.

4

Effective tax expense rate of ~33% applied to GAAP earnings and ~21% applied to Non-GAAP earnings.

5

Effective tax expense rate of ~18% 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

For 2017, amounts relate primarily to the Medtronic litigation matter.  For 2018, amounts relate primarily to the loss recorded in connection with the settlement of the Madsen Medical, Inc. litigation matter.  Commencing with the fourth quarter of 2017, amounts also reflect expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Companys intellectual property.

9

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

10

For 2017, amortization excludes the amortization attributable to non-controlling interest.  In January 2018, the Company completed the acquisition of the non-controlling interest.

11

Purchase of an in-process research and development asset which had no future alternative use.

12

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 Companys tax filings. The impact of the changes to the tax rate results in an annual estimated rate of ~18% on a GAAP basis and ~21% on a non-GAAP basis.

13

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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Drue De Angelis

Drue is Managing Partner for The De Angelis Group, Executive Search firm exclusively for the Ortho & Spine industry.

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