NuVasive Reports Second Quarter 2010 Financial Results

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SAN DIEGO, CA, Jul 27, 2010 (MARKETWIRE via COMTEX) —

NuVasive, Inc. (NASDAQ: NUVA)

--  Total revenue of $119.6 million, up 35.2% over second quarter 2009
--  GAAP earnings of $6.7 million, or $0.17 per share; Non-GAAP earnings
    of $17.0 million, or $0.42 per share
--  Non-GAAP operating margin of 15.8%, up from 11.3% for first quarter
    2010; GAAP operating margin of 6.9%

NuVasive, Inc. (NASDAQ: NUVA), a medical device company focused on developing products for minimally disruptive surgical treatments for the spine, announced today financial results for the quarter ended June 30, 2010.

NuVasive reported second quarter revenue of $119.6 million, a 35.2% increase over the $88.5 million for the second quarter 2009 and a 9.6% increase over the $109.1 million for the first quarter 2010.

Gross profit for the second quarter 2010 was $98.6 million and gross margin was 82.4%, compared to a gross profit of $74.2 million and a gross margin of 83.9% for the second quarter 2009. For the first quarter 2010, gross profit was $89.6 million and gross margin was 82.2%.

Total GAAP operating expenses for the second quarter 2010 were $90.3 million compared to $69.8 million in the second quarter 2009 and $86.7 million in the first quarter 2010.

On a GAAP basis, the Company reported net income of $6.7 million, or $0.17 per share, for the second quarter 2010.

On a Non-GAAP basis, the Company reported net income of $17.0 million, or $0.42 per share, for the second quarter 2010. The Non-GAAP earnings per share calculations for the second quarter exclude on a pre-tax basis (i) intellectual property litigation costs of $1.1 million; (ii) acquisition related costs of $0.6 million; (iii) stock-based compensation of $7.5 million; and (iv) amortization of intangible assets of $1.4 million.

Earnings per share reflect a change in the expected full year effective tax rate equating to an impact of $0.04 on a GAAP basis and $0.13 on a Non-GAAP basis for the second quarter 2010.

Cash, cash equivalents and short and long-term marketable securities were $213.2 million at June 30, 2010. Operating cash flow was $16.3 million for the second quarter 2010.

Alex Lukianov, Chairman and Chief Executive Officer, said, “We had a very solid quarter, achieving revenue growth of over 35% and showing significant increases in profitability. Our Non-GAAP operating margins significantly increased to approximately 16%, putting us soundly on track for meeting our 2010 profitability targets. Our strong momentum driven by continued adoption of the XLIF(R) technology and increased traction from our biologics and international areas gives us the confidence to increase guidance. We are keenly focused on being the most creative spine technology company in the world and achieving exceptional results through speed of innovation, Absolute Responsiveness(R), and superior clinical outcomes as we drive towards $1 billion in revenue with increasing profitability.”

Updated Full Year 2010 Financial Guidance:

--  Revenue of $485 million to $500 million; up from previous guidance of
    $480 million to $500 million
--  GAAP EPS, net of tax and "If-converted" method, of $1.77 to $1.91; up
    from previous guidance of $1.58 to $1.70
--  Non-GAAP EPS, net of tax and "If-converted" method, of $1.50 to $1.64;
    up from previous guidance of $1.13 to $1.25
--  Effective tax rate of ~15%; lowered from previous guidance of ~35% --
    excludes reversal of remaining valuation allowance
--  Non-GAAP Operating Margin of ~17% remains unchanged
                     Reconciliation of Non-GAAP Operating Margin %
                                                                 Guidance
                                                                  FY 10
                                                               -----------
                                        Gross Margin % [A]       ~ 82.5%
                     Non-GAAP Research and Development [B]        ~ 8.5%
                         Non-cash stock-based compensation         ~ 1%
                                                               -----------
                            Total research and development        ~ 9.5%
          Non-GAAP Sales, Marketing and Administrative [C]     ~ 56% - 58%
                         Non-cash stock-based compensation         ~ 5%
                 Intellectual property litigation expenses         ~ 1%
                         Reversal of leasehold termination          -
                                  Acquistion related items     as incurred
                                                               -----------
                 Total sales, marketing and administrative     ~ 62% - 64%
                         Amortization of intangible assets         ~ 1%
                                                               -----------
                       Non-GAAP Operating Income % [A-B-C]        ~ 17%
                                                               -----------
              2010 Tax Adjustments & WASO Guidance (millions)
                                          Q1 - Q3       Q4         FY10
                                        ----------  ----------  ----------
Effective Tax Rate (ETR)*                     ~ 15%       ~ 15%       ~ 15%
Reversal of remaining valution
 allowance                                             ~($47.0)    ~($47.0)
Weighted avereage shares - Diluted            41.0      ~ 46.0      ~ 46.0
 * ETR to be used on a pre-tax income prior to reversal of remaining
 valuation allowance

Reconciliation of Non-GAAP Information

Management uses certain Non-GAAP financial measures such as Non-GAAP earnings per share, which exclude intellectual property litigation expenses, acquisition related items, non-cash stock-based compensation, and the amortization of intangible assets. 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 Second Quarter 2010 Results
                                               pre-tax
                                               adjust-  $ (net
(in thousands, except per share data)           ments    of tax)  per share
                                              --------- --------- ---------
GAAP net income                                         $   6,723 $    0.17
  Intellectual property litigation expenses       1,104     1,076      0.03
  Acquisition related items                         558       544      0.01
  Non-cash stock-based compensation               7,549     7,361      0.18
  Amortization of intangible assets               1,355     1,322      0.03
                                                        --------- ---------
Non-GAAP earnings                                       $  17,026 $    0.42
                                                        ========= =========
Weighted average shares - Diluted                                    40,694
                                                                  =========
               Reconciliation of Full Year 2010 Guidance
                  (Net of Tax, "If Converted" method)
                                                      Range for Year Ending
                                                        December 31, 2010
                                                      --------------------
(in thousands, except per share amounts)                 Low       High
GAAP earnings per share                               $    1.77  $    1.91
  Intellectual property litigation expenses                0.09       0.09
  Non-cash stock-based compensation                        0.55       0.55
  Amortization of intangible assets                        0.11       0.11
  Reversal of remaining valuation allowance               (1.02)     (1.02)
                                                      ---------  ---------
Non-GAAP earnings per share                           $    1.50  $    1.64
                                                      =========  =========
Weighted shares outstanding - Diluted                    46,000     46,000
                                                      =========  =========

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 1-877-407-4018 for domestic callers and 1-201-689-8471 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 August 27, 2010. In addition, a telephonic replay of the call will be available until August 10, 2010. The replay dial-in numbers are 1-877-660-6853 for domestic callers and 1-201-612-7415 for international callers. Please use account number 3055 and conference ID number 350903.

About NuVasive

NuVasive is a medical device company focused on the design, development, and marketing of products for the surgical treatment of spine disorders. The Company’s product portfolio is focused primarily on the $5.1 billion U.S. spine implant market. Additionally, the Company has expanded into the $1.7 billion global biologics market, the $1.7 billion international market, and is developing products for the emerging motion preservation market.

NuVasive’s principal product offering is based on its Maximum Access Surgery, or MAS(R) platform. The MAS platform combines four categories of products that collectively minimize soft tissue disruption during spine surgery with maximum visualization and safe, easy reproducibility for the surgeon: NeuroVision(R), a proprietary software-driven nerve avoidance system; MaXcess(R), a unique split-blade retractor system; a wide variety of specialized implants; and several biologic fusion enhancers. MAS significantly reduces surgery time and returns patients to activities of daily living much faster than conventional approaches. Having redefined spine surgery with the MAS platform’s lateral approach, known as eXtreme Lateral Interbody Fusion, or XLIF(R), NuVasive has built an entire spine franchise. With over 55 products today spanning lumbar, thoracic and cervical applications, the Company will continue to expand and evolve its offering predicated on its R&D focus and dedication to outstanding service levels supported by a culture of Absolute Responsiveness(R).

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 and the risk of further adjustment, or unanticipated difficulty in selling products or generating expected profitability; the uncertain process of seeking regulatory approval or clearance for NuVasive’s products or devices, including risks that such process could be significantly delayed; the possibility that the FDA may require significant changes to NuVasive’s products or clinical studies; the risk that products may not perform as intended and may therefore not achieve commercial success; the risk that competitors may develop superior products or may have a greater market position enabling more successful commercialization; the risk that additional clinical data may call into question the benefits of NuVasive’s products to patients, hospitals and surgeons; 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 Statement of Operations
                 (in thousands, except per share data)
                                 Three Months Ended     Six Months Ended
                                      June 30,              June 30,
                                --------------------  --------------------
                                  2010       2009       2010       2009
                                ---------  ---------  ---------  ---------
Revenue                         $ 119,584  $  88,481  $ 228,671  $ 168,490
Cost of goods sold (excluding
 amortization of purchased
 technology)                       21,014     14,235     40,457     27,234
                                ---------  ---------  ---------  ---------
Gross profit                       98,570     74,246    188,214    141,256
Operating expenses:
  Sales, marketing and
   administrative                  77,726     60,274    152,387    120,801
  Research and development         11,205      8,178     21,904     16,764
  Amortization of intangible
   assets                           1,355      1,372      2,705      2,708
                                ---------  ---------  ---------  ---------
Total operating expenses           90,286     69,824    176,996    140,273
Interest and other income
 (expense), net:
  Interest income                     178        383        367      1,115
  Interest expense                 (1,668)    (2,060)    (3,337)    (3,830)
  Other income (expense), net         (30)        93         87        135
                                ---------  ---------  ---------  ---------
Total interest and other income
 (expense), net                    (1,520)    (1,584)    (2,883)    (2,580)
                                ---------  ---------  ---------  ---------
Income (loss) before income
 taxes                              6,764      2,838      8,335     (1,597)
Income tax expense                    574        526      1,439        623
                                ---------  ---------  ---------  ---------
Consolidated net income (loss)  $   6,190  $   2,312  $   6,896  $  (2,220)
                                =========  =========  =========  =========
Net loss attributable to
 noncontrolling interests       $    (533) $    (453) $    (915) $    (683)
                                =========  =========  =========  =========
Net income (loss) attributable
 to NuVasive, Inc.              $   6,723  $   2,765  $   7,811  $  (1,537)
                                =========  =========  =========  =========
Net income (loss) per share
 attributable to NuVasive, Inc.:
  Basic                         $    0.17  $    0.07  $    0.20  $   (0.04)
                                =========  =========  =========  =========
  Diluted                       $    0.17  $    0.07  $    0.19  $   (0.04)
                                =========  =========  =========  =========
Weighted average shares:
  Basic                            39,242     36,910     39,071     36,639
                                =========  =========  =========  =========
  Diluted                          40,694     38,301     40,383     36,639
                                =========  =========  =========  =========
Stock-based compensation is
 included in operating expenses
 in the following categories:
  Sales, marketing and
   administrative               $   6,672  $   5,243  $  12,352  $  10,484
  Research and development            877      1,074      1,631      2,515
                                ---------  ---------  ---------  ---------
                                $   7,549  $   6,317  $  13,983  $  12,999
                                =========  =========  =========  =========
                                 NuVasive, Inc.
                     Condensed Consolidated Balance Sheets
                                (in thousands)
                                                  June 30,    December 31,
                                                    2010          2009
                                                ------------  ------------
ASSETS                                            Unaudited
Current assets:
  Cash and cash equivalents                     $     67,513  $     65,413
  Short-term marketable securities                   111,666        99,279
  Accounts receivable, net                            68,230        58,462
  Inventory                                           93,106        90,191
  Prepaid expenses and other current assets            3,768         3,757
                                                ------------  ------------
Total current assets                                 344,283       317,102
Property and equipment, net                           89,801        82,602
Long-term marketable securities                       34,046        39,968
Intangible assets, net                               100,833       103,338
Goodwill                                             101,938       101,938
Other assets                                          14,781         7,872
                                                ------------  ------------
Total assets                                    $    685,682  $    652,820
                                                ============  ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued liabilities      $     38,337  $     33,302
  Accrued payroll and related expenses                13,088        19,111
  Royalties payable                                    2,484         2,334
                                                ------------  ------------
Total current liabilities                             53,909        54,747
Senior convertible notes                             230,000       230,000
Long-term acquisition related liabilities             30,876        30,694
Other long-term liabilities                           27,810        27,528
Commitments and contingencies
Noncontrolling interests                              12,714        13,629
Stockholders' equity:
  Common stock                                            39            39
  Additional paid-in capital                         513,072       485,757
  Accumulated other comprehensive income (loss)         (849)          126
  Accumulated deficit                               (181,889)     (189,700)
                                                ------------  ------------
Total stockholders' equity                           330,373       296,222
                                                ------------  ------------
Total liabilities and stockholders' equity      $    685,682  $    652,820
                                                ============  ============
                              NuVasive, Inc.
        Unaudited Condensed Consolidated Statements of Cash Flows
                              (in thousands)
                                                        Six Months Ended
                                                            June 30,
                                                      --------------------
                                                        2010       2009
                                                      ---------  ---------
Operating activities:
 Consolidated net income (loss)                       $   6,896  $  (2,220)
 Adjustments to reconcile net income (loss) to net
  cash provided by operating activities:
   Depreciation and amortization                         17,065     12,811
   Stock-based compensation                              13,983     12,999
   Allowance for doubtful accounts and sales return
    reserve, net of write offs                           (1,007)     1,290
   Allowance for excess and obsolete inventory              906      2,038
   Other non-cash adjustments                             2,773          -
 Changes in operating assets and liabilities, net of
  effects from acquisitions:
   Accounts receivable                                   (8,514)     2,221
   Inventory                                             (4,258)   (19,939)
   Prepaid expenses and other current assets             (1,397)      (694)
   Accounts payable and accrued liabilities               4,588        332
   Accrued payroll and related expenses                  (5,574)    (1,272)
                                                      ---------  ---------
 Net cash provided by operating activities               25,461      7,566
Investing activities:
   Cash paid for acquisitions and investments                 -    (44,055)
   Purchases of property and equipment                  (22,059)   (12,440)
   Purchases of marketable securities                   (95,015)   (29,678)
   Sales of marketable securities                        88,028     76,270
                                                      ---------  ---------
 Net cash used in investing activities                  (29,046)    (9,903)
Financing activities:
   Issuance of common stock                              11,963      6,297
   Other assets                                          (7,481)         -
   Tax benefits related to stock based compensation
    awards                                                1,369          -
                                                      ---------  ---------
 Net cash provided by financing activities                5,851      6,297
   Effect of exchange rate changes on cash                 (166)        48
                                                      ---------  ---------
 Increase in cash and cash equivalents                    2,100      4,008
Cash and cash equivalents at beginning of period         65,413    132,318
                                                      ---------  ---------
Cash and cash equivalents at end of period            $  67,513  $ 136,326
                                                      =========  =========
Contact:
Michael J. Lambert
EVP & Chief Financial Officer
NuVasive, Inc.
858-909-1998
Email Contact

Investors:
Patrick F. Williams
Vice President, Finance & Investor Relations
NuVasive, Inc.
858-638-5511
Email Contact

Media:
Jason Rando
The Ruth Group
646-536-7025
Email Contact

SOURCE: NuVasive, Inc.

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