Friday, November 6, 2015

News: NuVasive Reports Third Quarter 2015 Financial Results

SAN DIEGO, CA -- (Marketwired) -- 10/27/15 --
Third Quarter 2015 Highlights:
  • Revenue increased 5.6% to $200.5 million, or 7.8% on a constant currency basis;
  • Non-GAAP operating profit margin increased 460 basis points to 16.3%; GAAP operating profit margin of 14.0%;
  • Adjusted EBITDA margin increased 540 basis points to 26.7%;
  • Non-GAAP net income of $18.1 million; GAAP net income of $13.0 million;
  • Non-GAAP diluted earnings per share of $0.35; GAAP diluted earnings per share of $0.24; and
  • Company reiterates 2015 revenue outlook and increases non-GAAP operating profit margin, adjusted EBITDA and EPS guidance
NuVasive, Inc. (NASDAQ: NUVA), a leading medical device company focused on transforming spine surgery with minimally disruptive, procedurally-integrated solutions, announced today financial results for the quarter endedSeptember 30, 2015.
"We are pleased to report another strong quarter in which we achieved revenue growth of nearly 8% on a constant currency basis in line with our mid to high single-digit growth goal and profitability that once again significantly outperformed our expectations," said Gregory T. Lucier, Chairman and Chief Executive Officer of NuVasive. "By remaining focused on our margin expansion initiatives across the Company, we delivered incredibly strong year-over-year growth in non-GAAP operating profit margin and adjusted EBITDA margin, improving 460 and 540 basis points, respectively, while non-GAAP EPS increased nearly three and a half times compared to the same quarter last year.
"Our performance for the quarter was driven by continued strength in the United States and robust growth in certain international geographies where NuVasive is leading with our competitive XLIF® technology and differentiated offerings. We remain confident that our unrelenting focus on innovation and technology, increased operational efficiencies, international scalability and our commitment to increased self-manufacturing position NuVasive to be the leader in transforming spine and improving patient outcomes," said Mr. Lucier.
A full reconciliation of non-GAAP to GAAP measures can be found in the tables of this news release.
Third Quarter 2015 Results
NuVasive reported third quarter 2015 total revenue of $200.5 million, a 5.6% increase compared to $189.9 million for the third quarter 2014. On a constant currency basis, third quarter 2015 total revenue increased 7.8% compared to the same period last year.
GAAP gross profit for the third quarter 2015 was $151.4 million and gross margin was 75.5% compared to a gross profit of $142.2 million and a gross margin of 74.9% for the third quarter 2014. Total GAAP operating expenses for the third quarter 2015 were $123.3 million compared to $125.9 million in the third quarter 2014.
The Company reported a GAAP net income of $13.0 million, or $0.24 per share, for the third quarter 2015 compared to a GAAP net loss of $(1.8) million, or $(0.04) per share, for the third quarter 2014.
On a non-GAAP basis, the Company reported net income of $18.1 million, or $0.35 per share, for the third quarter 2015 compared to net income of $3.9 million, or $0.08 per share, for the third quarter 2014.
Cash, cash equivalents and short and long-term marketable securities were approximately $451.2 million at September 30, 2015.
Annual Guidance for 2015
The Company provided the following updated projections to its full year 2015 guidance:
  • Revenue of approximately $810.0 million, which includes an approximate $13.0 million of currency headwinds, or approximately 6.2% growth compared to revenue of $762.4 million for 2014; on a constant currency basis revenue is expected to grow approximately 7.9%;
  • GAAP diluted earnings per share of approximately $1.24 compared to GAAP loss per diluted share of $(0.36) for 2014; versus a prior expectation of $1.18 for 2015;
  • Non-GAAP diluted earnings per share of approximately $1.25, an increase of approximately 86.6% compared to non-GAAP diluted earnings of $0.67 for 2014; versus a prior expectation of $1.17 for 2015;
  • Non-GAAP operating profit margin of approximately 15.2%, an increase of approximately 380 basis points compared to 11.4% for 2014; versus a prior expectation of 15.0% for 2015;
  • Adjusted EBITDA margin of approximately 25.4%, an increase of approximately 350 basis points compared to 21.9% for 2014; versus a prior expectation of 25.2% for 2015;
  • GAAP effective tax expense rate of approximately 43.0%; versus a prior expectation of approximately 45.0% for 2015; and
  • Non-GAAP effective tax expense rate of approximately 43.0%; versus a prior expectation of approximately 45.0% for 2015.
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 
       
       2015 Guidance  
  2014
Actuals
  Prior 1   Current 2 
GAAP earnings (loss) per share $(0.36) $1.18  $1.24 
Impact of change from basic to diluted share count  0.02   -   - 
Impact of treasury method on convertible notes 3  -   0.03   0.03 
Adjusted GAAP earnings (loss) per share, adjusted to diluted share count $(0.34) $1.21  $1.27 
 Amortization of intangible assets  0.16   0.14   0.14 
 Leasehold related charges  0.13   0.03   0.04 
 Litigation liability  0.36   (0.49)  (0.49)
 Intangible asset impairment  0.13   -   - 
 CEO transition related costs  -   0.04   0.04 
 One-time and acquisition related items 4  0.05   0.05   0.06 
 Non-cash interest expense on convertible notes  0.18   0.19   0.19 
Non-GAAP earnings per share $0.67  $1.17  $1.25 
  
GAAP Weighted shares outstanding - basic  46,715   48,593   48,593 
GAAP Weighted shares outstanding - diluted  46,715   52,607   52,607 
Non-GAAP Weighted shares outstanding - diluted 3  49,676   51,431   51,431 
             
1 Effective tax expense rate of ~45% applied to GAAP earnings and ~40% applied to Non-GAAP adjustments
2 Effective tax expense rate of ~43% applied to GAAP earnings and ~40% applied to Non-GAAP adjustments
3 Excludes the impact of share dilution of the convertible bond for which the Company has a hedge in place but is considered anti-dilutive under US GAAP in weighted average shares outstanding
4 Acquisition related items include expenses associated with M&A related activity and as incurred
 
Reconciliation of Non-GAAP Operating Margin %
 
    2015 Guidance
(in thousands, except %) 2014
Actuals
 Prior Current
Non-GAAP Gross Margin % [A] 76.1% 76.7% 76.3%
GAAP Gross Margin [D] 76.1% 76.7% 76.3%
 
Non-GAAP Sales, Marketing & Administrative Expense [B] 59.9% 56.9% 56.6%
Leasehold related charges 1.4% 0.4% 0.4%
CEO transition related costs 0.0% 0.4% 0.4%
One-time and acquisition related items 1 0.3% 0.5% 0.7%
GAAP Sales, Marketing & Administrative Expense [E] 61.6% 58.2% 58.1%
 
Non-GAAP Research & Development Expense [C] 4.8% 4.8% 4.5%
One-time and acquisition related items 1 0.2% 0.0% 0.0%
GAAP Research & Development Expense [F] 5.0% 4.8% 4.5%
 
Litigation liability [G] 3.9% (5.2%) (5.2%)
Intangible asset impairment [H] 1.4% 0.0% 0.0%
Amortization of intangible assets [I] 1.8% 1.5% 1.5%
       
Non-GAAP Operating Margin % [A-B-C] 11.4% 15.0% 15.2%
       
GAAP Operating Margin % [D-E-F-G-H-I] 2.4% 17.4% 17.4%
       
1 Acquisition related items include expenses associated with M&A related activity and as incurred
 
Reconciliation of EBITDA %
     
    2015 Guidance
(in thousands, except %) 2014
Actuals
 Prior Current
Net Income / (Loss) (2.2%) 7.7% 8.2%
 Interest (income) / expense, net 3.5% 3.6% 3.5%
 Provision for income taxes 0.8% 6.1% 5.8%
 Depreciation and amortization 1 8.1% 7.8% 8.0%
EBITDA 10.2% 25.2% 25.6%
 Non-cash stock based compensation 4.4% 3.9% 3.6%
 Leasehold related charges 1.4% 0.4% 0.4%
 Litigation liability 3.9% (5.2%) (5.2%)
 Intangible asset impairment 1.4% 0.0% 0.0%
 CEO transition related costs 2 0.0% 0.4% 0.4%
 One-time and acquisition related items 3 0.5% 0.5% 0.7%
Adjusted EBITDA 21.9% 25.2% 25.4%
       
1 Included in leasehold related charges are accelerated depreciation as a result of early leasehold terminations, which thereby were excluded from the depreciation line
2 Included in CEO related transition costs are $1.2m of stock based compensation charges, which thereby were excluded from the non-cash stock based compensation line
3 Acquisition related items include expenses associated with M&A related activity and as incurred
Reconciliation of Non-GAAP Information
Management uses certain non-GAAP financial measures such as non-GAAP earnings per share, non-GAAP net income, non-GAAP operating expenses and non-GAAP operating margin, which exclude amortization of intangible assets, leasehold related charges, one-time restructuring and acquisition related items, CEO transition related costs, certain litigation charges and non-cash interest expense on convertible notes. Management also uses certain non-GAAP measures which are intended to exclude the impact of foreign exchange currency fluctuations. The measure constant currency is the use of an exchange rate that eliminates fluctuations when calculating financial performance numbers.
The Company also uses measures such as free cash flow, which represents cash flow from operations less cash used in the acquisition and disposition of capital. Additionally, the Company uses an adjusted EBITDA measure which represents earnings before interest, taxes, depreciation and amortization and excludes the impact of stock-based compensation, leasehold related charges, CEO transition related costs, certain litigation liabilities, acquisition related items and other significant one-time items. 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 further and more consistently analyze the period-to-period financial performance of its core business operations. Management believes that providing investors with these non-GAAP measures gives them additional 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 2015 Results
GAAP Earnings per Share to Non-GAAP Earnings per Share
          
(in thousands, except per share data) Pre-Tax
Adjustments
  Net of Tax  Earnings Per Share 
GAAP net income     12,960  $0.26 
GAAP impact of change from basic to diluted share count         (0.02)
GAAP net income, adjusted to diluted share count         0.24 
  
 Impact of treasury method on convertible notes 1         0.01 
 Amortization of intangible assets 3,067   1,840   0.04 
 Leasehold related charges (5)  (3)  (0.00)
 Litigation liability (500)  (300)  (0.01)
 CEO transition related costs 93   56   0.00 
 One-time and acquisition related items 2 1,862   1,117   0.02 
 Non-cash interest expense on convertible notes 3,984   2,390   0.05 
  
Non-GAAP earnings    $18,061   0.35 
  
  
GAAP weighted shares outstanding - basic         48,993 
GAAP weighted shares outstanding - diluted         53,199 
Non-GAAP weighted shares outstanding - diluted 1         51,434 
            
1 Excludes the impact of share dilution of the convertible bond for which the Company has a hedge in place but is considered anti-dilutive under U.S. GAAP in weighted average shares outstanding (916k shares)
2 Acquisition related items include expenses associated with M&A related activity and as incurred non-recurring items
 
Reconciliation of Year To Date 2015 Results
GAAP Earnings per Share to Non-GAAP Earnings per Share
 
  
(in thousands, except per share data) Pre-Tax
Adjustments
  Net of Tax  Earnings Per Share 
GAAP net income     54,788  $1.13 
GAAP impact of change from basic to diluted share count         (0.08)
GAAP net income, adjusted to diluted share count         1.05 
            
 Impact of treasury method on convertible notes 1         0.02 
 Amortization of intangible assets 9,037   5,422   0.11 
 Leasehold related charges 3,035   1,821   0.04 
 Litigation liability (42,507)  (25,504)  (0.50)
 CEO transition related costs 3,563   2,138   0.04 
 One-time and acquisition related items 2 5,247   3,148   0.06 
 Non-cash interest expense on convertible notes 11,738   7,043   0.14 
  
Non-GAAP earnings    $48,856  $0.96 
  
  
GAAP weighted shares outstanding - basic         48,513 
GAAP weighted shares outstanding - diluted         52,202 
Non-GAAP weighted shares outstanding - diluted 1         51,003 
            
1  Excludes the impact of share dilution of the convertible bond for which the Company has a hedge in place but is considered anti-dilutive under U.S. GAAP in weighted average shares outstanding (916k shares)
2 Acquisition related items include expenses associated with M&A related activity and as incurred non-recurring items
 
Reconciliation of Third Quarter and Nine Months 2015 Results
GAAP net income to Adjusted EBITDA
         
   Three months ended   Nine months ended 
(in thousands, except per share data)  September 30, 2015   September 30, 2015 
  
GAAP net income $12,960  $54,788 
 Interest (income) / expense, net  6,946   20,550 
 Provision for income taxes  8,803   35,332 
 Depreciation and amortization  16,375   49,005 
EBITDA $45,084  $159,675 
 Non-cash stock based compensation 1  7,076   19,337 
 Leasehold related charges  (5)  3,035 
 Litigation liability  (500)  (42,507)
 CEO related transition costs  93   3,563 
 One-time and acquisition related items  1,862   5,247 
Adjusted EBITDA $53,610  $148,350 
As a percentage of revenue  26.7%  24.9%
         
1 Included in CEO related transition costs are $1.2m of stock based compensation charges, which thereby were excluded from the non-cash stock based compensation line in the nine months ended
Investor Conference Call
The Company will hold a conference call today at 4:30 p.m. ET / 1:30 p.m. PT to discuss the results of its third quarter 2015 financial performance. 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 website at www.nuvasive.com.
After the live webcast, the call will remain available on NuVasive's website through November 27, 2015. In addition, a telephone replay of the call will be available until November 3, 2015. 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: 13621771.
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. NuVasive has emerged from a small startup to become the #3 player in the $9 billion global spine market and remains focused on market share-taking strategies as the Company continues on its path to become the industry's leading spine company. NuVasive offers a comprehensive spine portfolio of more than 90 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 was designed to provide safer, 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.
NuVasive cautions you that statements included in this news release or made on the investor conference call referenced herein 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. In addition, this news release contains selected financial results from the third quarter 2015, as well as financial projections for 2015. The numbers for third quarter 2015 are prior to the completion of review and audit procedures by the Company's external auditors and are subject to adjustment. In addition, the Company's projections for 2015 represent its initial estimates, and are subject to the risk of being inaccurate because of the preliminary nature of the forecasts, the risk of further adjustment, or unanticipated difficulty in selling products or generating expected profitability. The potential risks and uncertainties that could cause actual growth and results to differ materially include, but are not limited to: the risk thatNuVasive'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 those other risks and uncertainties more fully described in the Company's news 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.govNuVasive 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.
Consolidated Statements of Operations
(in thousands, except per share data)
       
  Three Months Ended September 30,  Nine Months Ended September 30, 
(unaudited)  2015   2014   2015   2014 
Revenue $200,538  $189,918  $595,831  $558,090 
Cost of goods sold (excluding below amortization of intangible assets)  49,167   47,719   143,246   135,849 
Gross profit  151,371   142,199   452,585   422,241 
Operating expenses:                
 Sales, marketing and administrative  111,384   113,746   342,797   348,820 
 Research and development  9,199   9,068   27,245   28,590 
 Amortization of intangible assets  3,067   3,071   9,037   10,541 
 Impairment of intangible assets  -   -   -   10,708 
 Litigation liability (gain) loss  (500)  -   (42,507)  30,000 
 Business transition costs  110   -   6,474   - 
Total operating expenses  123,260   125,885   343,046   428,659 
 Interest and other expense, net:                
 Interest income  362   241   1,125   691 
 Interest expense  (7,307)  (6,965)  (21,675)  (20,809)
Other income (expense), net  387   (2,489)  530   (2,318)
Total interest and other expense, net  (6,558)  (9,213)  (20,020)  (22,436)
Income (loss) before income taxes  21,553   7,101   89,519   (28,854)
Income tax (expense) benefit  (8,803)  (9,088)  (35,332)  4,065 
Consolidated net income (loss) $12,750  $(1,987) $54,187  $(24,789)
Add back net loss attributable to non-controlling interests $(210) $(157) $(601) $(595)
Net income (loss) attributable to NuVasive, Inc. $12,960  $(1,830) $54,788  $(24,194)
  
Net income (loss) per share attributable to NuVasive, Inc.:                
 Basic $0.26  $(0.04) $1.13  $(0.52)
 Diluted $0.24  $(0.04) $1.05  $(0.52)
Weighted average shares outstanding:                
 Basic  48,993   46,990   48,513   46,546 
 Diluted  53,199   46,990   52,202   46,546 
                  
  
NuVasive, Inc.
Consolidated Balance Sheets
(in thousands, except par values and share amounts)
 
  
  September 30,  December 31, 
  2015  2014 
ASSETS (Unaudited)     
Current assets:        
 Cash and cash equivalents $141,328  $142,387 
 Short-term marketable securities  196,037   220,329 
 Accounts receivable, net of allowances of $5,849 and $5,844, respectively  115,579   118,959 
 Inventory, net  164,867   154,638 
 Deferred and prepaid taxes  73,420   59,233 
 Prepaid expenses and other current assets  7,279   10,325 
Total current assets  698,510   705,871 
Property and equipment, net  140,474   128,565 
Long-term marketable securities  113,793   43,042 
Intangible assets, net  86,190   96,555 
Goodwill  154,324   154,443 
Deferred tax assets, non-current  49,614   65,330 
Restricted cash and investments  5,615   123,233 
Other assets  23,444   26,420 
Total assets $1,271,964  $1,343,459 
LIABILITIES AND EQUITY        
Current liabilities:        
 Accounts payable and accrued liabilities $63,545  $133,324 
 Accrued payroll and related expenses  32,767   38,032 
 Litigation liabilities  937   30,000 
 Deferred and income tax liabilities  2,066   13,543 
Total current liabilities  99,315   214,899 
Senior Convertible Notes  372,485   360,746 
Deferred and income tax liabilities, non-current  8,177   12,526 
Non-current litigation liabilities  87,553   93,700 
Other long-term liabilities  12,742   13,230 
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 September 30, 2015 and December 31, 2014, 52,099,475 and 47,691,744 issued and outstanding at September 30, 2015 and December 31, 2014, respectively  52   48 
 Additional paid-in capital  973,481   847,145 
 Accumulated other comprehensive loss  (11,323)  (9,670)
 Accumulated deficit  (132,150)  (186,938)
 Treasury stock at cost; 3,015,033 shares and 233,369 shares at September 30, 2015 and December 31, 2014, respectively  (146,077)  (10,537)
Total NuVasive, Inc. stockholders' equity  683,983   640,048 
Non-controlling interests  7,709   8,310 
Total equity $691,692  $648,358 
Total liabilities and equity $1,271,964  $1,343,459 
         
 
NuVasive, Inc.
Consolidated Statements of Cash Flows
(in thousands)
  
  Nine Months Ended September 30, 
(Unaudited)  2015   2014 
Operating activities:        
Consolidated net income (loss) $54,187  $(24,789)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
 Depreciation and amortization  49,006   46,521 
 Amortization of non-cash interest  13,255   12,244 
 Stock-based compensation  20,570   24,779 
 Impairment of intangible assets  -   10,708 
 Deferred income taxes  37,047   - 
 Reserves on current assets  7,232   4,062 
 Other non-cash adjustments  13,127   11,317 
Changes in operating assets and liabilities, net of effects from acquisitions:        
 Accounts receivable  2,163   (5,519)
 Inventory  (19,768)  (27,190)
 Prepaid expenses and other current assets  2,512   (1,837)
 Accounts payable and accrued liabilities  8,828   11,485 
 Income taxes  (52,739)  (7,898)
 Accrued royalties  (46,999)  12,450 
 Litigation liability  (35,333)  30,000 
 Accrued payroll and related expenses  (5,080)  151 
Net cash provided by operating activities  48,008   96,484 
Investing activities:        
Acquisitions and other investments  (1,357)  (59)
Purchases of intangible assets  (28,589)  - 
Purchases of property and equipment  (59,905)  (45,692)
Proceeds from sales of property and equipment  40   - 
Purchases of marketable securities  (320,177)  (177,850)
Proceeds from sales of marketable securities  272,666   142,051 
Purchases of restricted investments  (62,625)  - 
Proceeds from sales of restricted investments  180,694   - 
Net cash used in investing activities  (19,253)  (81,550)
Financing activities:        
Incremental tax benefits related to stock-based compensation awards  15,185   - 
Proceeds from the issuance of common stock  9,040   15,341 
Payment of contingent consideration  (514)  (498)
Purchase of treasury stock  (52,532)  (664)
Other financing activities  (131)  (668)
Net cash (used in) provided by financing activities  (28,952)  13,511 
Effect of exchange rate changes on cash  (862)  (613)
(Decrease) increase in cash and cash equivalents  (1,059)  27,832 
Cash and cash equivalents at beginning of period  142,387   102,825 
Cash and cash equivalents at end of period $141,328  $130,657 
  
Investor/Media Contact:
Stacy Roughan
NuVasive, Inc.
1-858-909-1812
Email contact
Source: NuVasive, Inc.

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