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NuVasive Announces Third Quarter 2019 Financial Results

SAN DIEGO, Oct. 30, 2019 /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, 2019.

Third Quarter 2019 Highlights

  • Revenue increased 7.2% to $290.8 million, or 7.5% on a constant currency basis;
  • GAAP operating profit margin of 10.5%; Non-GAAP operating profit margin of 15.7%;
  • GAAP diluted earnings per share of $0.21; Non-GAAP diluted earnings per share of $0.59; and
  • Company raises full-year 2019 financial guidance.

"In the third quarter 2019, NuVasive grew at multiples of market, with revenue increasing 7.2% driven by nearly double-digit organic growth within U.S. Hardware," said J. Christopher Barry, chief executive officer of NuVasive. "In addition to strong topline results, our margin expansion demonstrates the ability to improve profitability with continued commitment to driving operational excellence. Based on the Company's performance year to date, we are raising full-year 2019 financial guidance to reflect continued growth and confidence in the business."

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

Third Quarter 2019 Results
NuVasive reported third quarter 2019 total revenue of $290.8 million, a 7.2% increase compared to $271.3 million for the third quarter 2018. On a constant currency basis, third quarter 2019 total revenue increased 7.5% compared to the same period last year.

For the third quarter 2019, both GAAP and non-GAAP gross profit was $213.8 million and GAAP and non-GAAP gross margin was 73.5%. These results compared to GAAP and non-GAAP gross profit of $197.1 million and $197.4 million, respectively, and GAAP and non-GAAP gross margin of 72.7% and 72.8%, respectively, for the third quarter 2018.

The Company reported GAAP net income of $11.0 million, or diluted earnings per share of $0.21, for the third quarter 2019 compared to a GAAP net income of $15.9 million, or diluted earnings per share of $0.30, for the third quarter 2018. On a non-GAAP basis, the Company reported net income of $30.9 million, or diluted earnings per share of $0.59, for the third quarter 2019 compared to net income of $29.5 million, or diluted earnings per share of $0.56, for the third quarter 2018.

Annual Financial Guidance for 2019
The Company raised its full-year 2019 financial guidance as a result of strong financial performance to date.


2019 Guidance Range 1


Prior


Current


 GAAP 

 Non-GAAP 


 GAAP 

 Non-GAAP 

Revenue

 $1.14B - $1.16B 


 $1.14B - $1.16B 


 ~$1.16B 


 ~$1.16B 

  % Growth - Reported

3.4% - 5.4%


3.4% - 5.4%


5.1% - 5.8%


5.1% - 5.8%

% Growth - Constant Currency 2



3.8% - 5.8%




5.6% - 6.3%

Operating margin

9.1% - 9.5%


15.3% - 15.7%


9.4% - 9.8%


15.5% - 15.9%

Earnings per share

 $0.93 - $1.03 


 $2.25 - $2.35 


 $0.95 - $1.00 


 $2.35- $2.40 

EBITDA margin

21.2% - 21.5%


25.5% - 25.9%


20.6% - 21.0%


25.0% - 25.4%

Tax Rate

~24%


~23%


~26%


~23%



     1

Prior guidance reflects the range provided July 30, 2019. Current guidance reflects the range provided October 30, 2019.

     2

Constant currency is a measure that adjusts US GAAP revenue for the impact of currency over the same period in the prior year.

 

  • The Company updates full-year 2019 revenue to approximately $1.16 billion, compared with prior guidance of $1.14 billion to $1.16 billion, which now includes approximately $6 million in year-over-year currency headwinds compared with prior guidance of $5 million. This reflects reported growth in the range of 5.1% to 5.8%, compared with prior guidance of 3.4% to 5.4%. Revenue growth on a constant currency basis is in the range of 5.6% to 6.3%, compared with prior guidance of 3.8% to 5.8%;
  • Non-GAAP operating profit margin of 15.5% to 15.9%, compared with prior guidance of 15.3% to 15.7%;
  • Non-GAAP diluted earnings per share in a range of $2.35 to $2.40, compared with prior guidance of $2.25 to $2.35;
  • Adjusted EBITDA margin of 25.0% to 25.4%, compared with prior guidance of 25.5% to 25.9%; and
  • Non-GAAP effective tax expense rate of approximately 23%.

Organizational Structure
NuVasive announced today a new organizational structure, effective January 1, 2020, to further build upon its success and advance the Company's five-year strategic plan.

"We are implementing organizational structure changes to bring together the commercial, product and technology teams under one function and to establish a new global operations function focused on supply chain and logistics," continued Barry. "This is a natural progression aligned with our recently announced five-year strategy and our purpose to transform surgery, advance care and change lives."

The new organizational structure combines customer-facing and innovation activities under a single function led by the Company's president, Matt Link. A new global operations function, including supply chain, distribution, manufacturing, quality assurance and real estate & facilities, will be led by Dale Wolf, NuVasive's current head of manufacturing.

Supplementary Financial Information
For additional financial detail, please visit the Investor Relations section of the Company's website at www.nuvasive.com to access Supplementary Financial Information.   

Reconciliation of Full Year EPS Guidance





2019 Guidance Range  1, 2


2018 Actuals 1



Prior 3


Current 4

GAAP net income per share

$0.24



 $0.93 - 1.03 


 $0.95- 1.00 

Impact of change to diluted share count




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

$0.24



 $0.93 - 1.03 


 $0.95 - 1.00 








Business transition costs 5

0.22



0.11


0.10

Non-cash purchase accounting adjustments on acquisitions 6

0.02




Non-cash interest expense on convertible notes

0.32



0.34


0.34

Litigation related expenses and settlements 7

0.65



0.18


0.19

Non-recurring consulting fees 8

0.12




Net loss on strategic investments

0.07




0.09

Amortization of intangible assets

0.97



0.96


0.97

Purchase of in-process research and development 9

0.17




European medical device regulation 10

0.01



0.11


0.09

Tax effect of adjustments 11

(0.56)



(0.38)


(0.38)

Non-GAAP earnings per share

$2.23



 $2.25 - 2.35 


 $2.35 - 2.40 








GAAP Weighted shares outstanding - basic

51,382



51,954


51,959

GAAP Weighted shares outstanding - diluted

52,355



52,898


52,948

Non-GAAP Weighted shares outstanding - diluted 12

52,178



52,586


52,578



     1

Items may not foot due to rounding.

     2

Prior guidance reflects the range provided July 30, 2019. Current guidance reflects the range provided October 30, 2019.

     3

Effective tax expense rate of ~24% applied to GAAP earnings and ~23% applied to Non-GAAP earnings.

     4

Effective tax expense rate of ~26% applied to GAAP earnings and ~23% applied to Non-GAAP earnings.

     5

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.

     6

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.

     7

Represents the loss recorded in connection with the settlement of 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.

     8

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

     9

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

     10

Costs related to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with European medical device regulation.

     11

The impact on results from taxes include tax affecting 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 rate of ~43% benefit on a GAAP basis and ~18% on a non-GAAP basis in 2018.

     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.

 

Reconciliation of Non-GAAP Operating Margin %












2019 Guidance Range 1, 2

(in thousands, except %)


2018 Actuals 1


Prior


Current

Non-GAAP Gross Margin % [A]


71.9%


72.5% - 73.0%


72.8% - 73.2%

Non-cash purchase accounting adjustments on acquisitions 3


(0.1%)


0.0%


0.0%

GAAP Gross Margin [B]


71.8%


72.5% - 73.0%


72.8% - 73.2%








Non-GAAP Sales, Marketing & Administrative Expense [C]


51.1%


50.8% - 51.7%


50.9% - 51.7%

Non-recurring consulting fees 4


0.6%


0.0%


0.0%

Litigation related expenses 5


0.6%


0.8%


0.8%

GAAP Sales, Marketing & Administrative Expense [D]


52.3%


51.6% - 52.5%


51.7% - 52.5%








GAAP and Non-GAAP Research & Development Expense [E]


5.6%


6.0%


6.0%








Litigation related settlements [F] 6


2.5%


0.0%


0.0%

Amortization of intangible assets [G]


4.6%


4.4%


4.4%

Purchase of in-process research and development [H] 7


0.8%


0.0%


0.0%

European medical device regulation [I] 8


0.0%


0.5%


0.4%

Business transition costs [J] 9


1.0%


0.5%


0.5%








Non-GAAP Operating Margin % [A - C - E]


15.1%


15.3% - 15.7%


15.5% - 15.9%








GAAP Operating Margin % [B - D - E - F - G - H - I - J]


4.9%


9.1% - 9.5%


9.4% - 9.8%



     1

Items may not foot due to rounding.

     2

Prior guidance reflects the range provided July 30, 2019. Current guidance reflects the range provided October 30, 2019.

     3

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.

     4

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

     5

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.

     6

Represents the loss recorded in connection with the settlement of the Madsen Medical, Inc. litigation matter.

     7

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

     8

Costs related to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with European medical device regulation.

     9

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.

 

Reconciliation of EBITDA Margin %










2019 Guidance Range 1, 5

(in thousands, except %)

2018 Actuals 1, 2


Prior 3


Current4

Net Income

1.1%


4.3% - 4.7%


4.2% - 4.6%

Interest income / expense, net 

3.4%


3.3%


3.2%

Income tax benefit / (expense)

(0.3%)


1.5%


1.5%

Depreciation and amortization

11.8%


11.9%


11.7%

EBITDA Margin

16.0%


21.2% - 21.5%


20.6% - 21.0%

Non-cash stock based compensation

2.3%


2.5%


2.3%

Business transition costs 6

1.0%


0.5%


0.4%

Non-cash purchase accounting adjustments on acquisitions 7

0.1%


0.0%


0.0%

Litigation related expenses and settlements 8

3.1%


0.8%


0.9%

Non-recurring consulting fees 9

0.6%


0.0%


0.0%

In-process research and development 10

0.8%


0.0%


0.0%

European medical device regulation 11

0.0%


0.5%


0.4%

Net loss on strategic investments

0.3%


0.0%


0.4%

Adjusted EBITDA Margin

24.3%


25.5% - 25.9%


25.0% - 25.4%



     1

Items may not foot due to rounding.

     2

Effective tax expense rate of ~43% benefit applied to GAAP earnings and ~18% applied to Non-GAAP earnings.

     3

Effective tax expense rate of ~24% applied to GAAP earnings and ~23% applied to Non-GAAP earnings.

     4

Effective tax expense rate of ~26% applied to GAAP earnings and ~23% applied to Non-GAAP earnings.

     5

Prior guidance reflects the range provided July 30, 2019. Current guidance reflects the range provided October 30, 2019.

     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

Represents the loss recorded in connection with the settlement of 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.

     9

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

     10

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

     11

Charges represent the costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with European medical device regulation.

Reconciliation of GAAP to 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 profit margin, which exclude amortization of intangible assets, business transition costs, purchased in-process research and development, one-time restructuring and related items in connection with acquisitions, investments and divestitures, non-recurring consulting fees, certain litigation expenses and settlements, certain European medical device regulation costs, gains and losses from strategic investments, and non-cash interest expense (excluding debt issuance cost). Management also uses certain non-GAAP measures which are intended to exclude the impact of foreign exchange currency fluctuations. The measure constant currency utilizes 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, business transition costs, purchased in-process research and development, one-time restructuring and related items in connection with acquisitions, investments and divestitures, non-recurring consulting fees, certain litigation expenses and settlements, certain European medical device regulation costs, gains and losses on strategic investments, 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.

For the Three Months Ended September 30, 2019

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited - in thousands, except per share data)









Gross Profit

Operating
Profit

Net Income 

Diluted
EPS

Diluted
WASO 5

Net Income to
Adjusted EBITDA

Reported GAAP

$      213,807

$    30,514

$      11,010

$   0.21

53,056

$                  11,010

% of revenue

73.5%

10.5%





Amortization of intangible assets


12,596

12,596




Litigation related expenses and settlements 1


1,899

1,899



1,899

Business transition costs 2


(333)

(333)



(333)

European medical device regulation 3


953

953



953

Non-cash interest expense on convertible notes



4,432




Net loss on strategic investments



4,767



4,767

Tax effect of adjustments 4



(4,455)




Interest expense/(income), net






9,034

Income tax expense






4,774

Depreciation and amortization






33,631

Non-cash stock based compensation






7,829

Adjusted Non-GAAP

$      213,807

$    45,629

$      30,869

$   0.59

52,590

$                  73,564

% of revenue

73.5%

15.7%




25.3%



     1

Represents 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.

     2

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.

     3

Represents costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with European medical device regulation.

     4

Represents the impact from tax affecting the adjustments above at their statutory tax rate. As of October 30, 2019, the Company estimated an annual tax rate of ~26% on a GAAP basis and ~23% on a non-GAAP basis.

     5

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.

 

For the Nine Months Ended September 30, 2019

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited - in thousands, except per share data)









Gross Profit

Operating
Profit

Net Income

Diluted
EPS

Diluted
WASO 5

Net Income to
Adjusted EBITDA

Reported GAAP

$      628,615

$    80,884

$      35,358

$   0.67

52,667

$                  35,358

% of revenue

73.3%

9.4%





Amortization of intangible assets


38,498

38,498




Litigation related expenses and settlements 1


6,976

6,976



6,976

Business transition costs 2


5,146

5,146



5,146

European medical device regulation 3


2,685

2,685



2,685

Non-cash interest expense on convertible notes



13,125




Net loss on strategic investments



4,767



4,767

Tax effect of adjustments 4



(15,269)




Interest expense/(income), net






27,461

Income tax expense






12,012

Depreciation and amortization






101,245

Non-cash stock based compensation






20,447

Adjusted Non-GAAP

$      628,615

$  134,189

$      91,286

$   1.74

52,512

$                216,097

% of revenue

73.3%

15.6%




25.2%



     1

Represents 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.

     2

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.

     3

Represents costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with European medical device regulation.

     4

Represents the impact from tax affecting the adjustments above at their statutory tax rate. As of October 30, 2019, the Company estimated an annual tax rate of ~26% on a GAAP basis and ~23% on a non-GAAP basis.

     5

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.

 

For the Three Months Ended September 30, 2018

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited - in thousands, except per share data)









Gross Profit

Operating
Profit

Net Income

Diluted
EPS

Diluted
WASO 6

Net Income to
Adjusted EBITDA

Reported GAAP

$      197,141

$    17,971

$      15,923

$   0.30

53,189

$                  15,923

% of revenue

72.7%

6.6%





Non-cash purchase accounting adjustments on acquisitions 1

270

270

270



270

Amortization of intangible assets


12,349

12,349




Litigation related expenses and settlements 2


1,333

1,333



1,333

Business transition costs 3


1,443

1,443



1,443

Purchase of in-process research and development 4


8,913

8,913



8,913

Non-cash interest expense on convertible notes



4,208




Net gain on strategic investments



(5,137)



(5,137)

Tax effect of adjustments 5



(9,798)




Interest expense/(income), net






8,905

Income tax benefit






(2,618)

Depreciation and amortization






32,258

Non-cash stock based compensation






11,068

Adjusted Non-GAAP

$      197,411

$    42,279

$      29,504

$   0.56

52,539

$                  72,358

% of revenue

72.8%

15.6%




26.7%



     1

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.

     2

Represents 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

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.

     4

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

     5

Represents the impact from tax affecting the adjustments above at their statutory tax rate. As of October 30, 2018, the Company estimated an annual tax rate of ~18% on a GAAP basis and ~21% on a non-GAAP basis.

     6

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.

   

For the Nine Months Ended September 30, 2018

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited - in thousands, except per share data)









Gross Profit

Operating
Profit

Net Income

Diluted EPS

Diluted
WASO 7

Net Income to
Adjusted EBITDA

Reported GAAP

$      588,357

$    28,312

$           322

$   0.01

52,296

$                       322

% of revenue

72.3%

3.5%





Non-cash purchase accounting adjustments on acquisitions 1

1,080

1,080

1,080



1,080

Non-recurring consulting fees 2


6,084

6,084



6,084

Amortization of intangible assets


37,402

37,402




Litigation related expenses and settlements 3


31,302

31,302



31,302

Business transition costs 4


7,694

7,694



7,694

Purchase of in-process research and development 5


8,913

8,913



8,913

Non-cash interest expense on convertible notes



12,460




Net loss on strategic investments



3,867



3,867

Tax effect of adjustments 6



(28,682)




Interest expense/(income), net






28,078

Income tax benefit






(7,931)

Depreciation and amortization






96,409

Non-cash stock based compensation






22,062

Adjusted Non-GAAP

$      589,437

$  120,787

$      80,442

$   1.54

52,079

$                197,880

% of revenue

72.5%

14.8%




24.3%



     1

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.

     2

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

     3

Represents the loss recorded in connection with the settlement of 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.

     4

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.

     5

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

     6

Represents the impact from tax affecting the adjustments above at their statutory tax rate. As of October 30, 2018, the Company estimated an annual tax rate of ~18% on a GAAP basis and ~21% on a non-GAAP basis.

     7

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.

Investor Conference Call
NuVasive will hold a conference call today at 4:30 p.m. ET / 1:30 p.m. PT to discuss the results of its financial performance for the third quarter 2019. 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 29, 2019. In addition, a telephone replay of the call will be available until November 6, 2019. The replay dial-in numbers are 1-844-512-2921 for domestic callers and 1-412-317-6671 for international callers. Please use pin number: 13695343.

About NuVasive
NuVasive, Inc. (NASDAQ: NUVA) is the leader in spine technology innovation, focused on transforming spine surgery and beyond with minimally disruptive, procedurally integrated solutions designed to deliver reproducible and clinically proven surgical outcomes. The Company's portfolio includes access instruments, implantable hardware, biologics, software systems for surgical planning, navigation and imaging solutions, magnetically adjustable implant systems for spine and orthopedics, and intraoperative monitoring service offerings. With more than $1 billion in revenues, NuVasive has approximately 2,600 employees and operates in more than 50 countries serving surgeons, hospitals and patients. For more information, please visit www.nuvasive.com.

Forward-Looking Statements
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 2019, as well as projections for 2019 financial guidance and longer-term financial performance goals. The Company's results for the third quarter 2019 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 2019 financial guidance and longer-term financial performance goals represent 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 which contribute to the uncertain nature of these statements include, among others, risks associated with acceptance of the Company's surgical products and procedures by spine surgeons, development and acceptance of new products or product enhancements, clinical and statistical verification of the benefits achieved via the use of NuVasive's products (including the iGA® platform), the Company's ability to effectually manage inventory as it continues to release new products, its ability to recruit and retain management and key personnel, and the 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.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. 

Consolidated Statements of Operations 

(in thousands, except per share data)












Three Months Ended September 30,


Nine Months Ended September 30,

(unaudited)


2019


2018


2019


2018

Revenue









Product revenue


$ 260,173


$ 242,030


$ 765,377


$ 728,232

Service revenue


30,662


29,271


92,339


85,155

Total revenue


290,835


271,301


857,716


813,387

Cost of revenue (excluding below amortization of intangible assets)









Cost of products sold 


57,164


54,741


169,263


168,134

Cost of services


19,864


19,419


59,838


56,896

Total cost of revenue


77,028


74,160


229,101


225,030

Gross profit


213,807


197,141


628,615


588,357

Operating expenses:









Sales, marketing and administrative


152,887


141,211


450,816


433,635

Research and development


18,143


15,254


53,271


44,601

Amortization of intangible assets


12,596


12,349


38,498


37,402

Purchase of in-process research and development



8,913



8,913

Litigation liability loss





27,800

Business transition costs


(333)


1,443


5,146


7,694

Total operating expenses


183,293


179,170


547,731


560,045

Interest and other expense, net:









Interest income


620


130


1,356


380

Interest expense


(9,654)


(9,035)


(28,817)


(28,458)

Other (expense) income, net


(5,696)


4,239


(6,053)


(7,843)

Total interest and other expense, net


(14,730)


(4,666)


(33,514)


(35,921)

Income (loss) before income taxes


15,784


13,305


47,370


(7,609)

Income tax (expense) benefit


(4,774)


2,618


(12,012)


7,931

Consolidated net income


$   11,010


$   15,923


$   35,358


$        322










Net income per share:









Basic


$       0.21


$       0.31


$       0.68


$       0.01

Diluted


$       0.21


$       0.30


$       0.67


$       0.01

Weighted average shares outstanding:









Basic


52,057


51,439


51,901


51,341

Diluted


53,056


53,189


52,667


52,296

 

NuVasive, Inc. 

Consolidated Balance Sheets 

(in thousands, except par values and share amounts) 








September 30, 2019


December 31, 2018

ASSETS


(Unaudited)



Current assets:





Cash and cash equivalents


$                 163,399


$                117,840

Accounts receivable, net of allowances of $16,444 and $16,171, respectively


203,611


196,487

Inventory, net


308,893


273,244

Prepaid income taxes


20,328


16,905

Prepaid expenses and other current assets


14,610


13,733

Total current assets


710,841


618,209

Property and equipment, net


263,135


238,841

Intangible assets, net


214,492


252,048

Goodwill


560,744


561,366

Operating lease right-of-use assets


67,128


Deferred tax assets


4,023


5,263

Restricted cash and investments


2,395


2,395

Other assets


17,094


29,737

Total assets


$              1,839,852


$             1,707,859

LIABILITIES AND EQUITY





Current liabilities:





Accounts payable and accrued liabilities


$                 105,944


$                105,877

Contingent consideration liabilities


7,774


7,560

Accrued payroll and related expenses


66,044


59,960

Operating lease liabilities


5,792


Litigation liabilities


2,065


1,415

Income tax liabilities


5,496


4,648

Total current liabilities


193,115


179,460

Senior convertible notes


617,992


602,526

Deferred and income tax liabilities


13,491


4,964

Operating lease liabilities


72,713


Other long-term liabilities


65,927


86,384

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, 2019 and December 31, 2018, 57,420,854 and 56,648,077 issued and outstanding at September 30, 2019 and December 31, 2018, respectively


62


61

Additional paid-in capital


1,421,235


1,397,829

Accumulated other comprehensive loss


(11,332)


(8,628)

Retained earnings


52,599


17,241

Treasury stock at cost; 5,354,355 shares and 5,116,496 shares at September 30, 2019 and December 31, 2018, respectively


(585,950)


(571,978)

Total equity


876,614


834,525

Total liabilities and equity


$              1,839,852


$             1,707,859

 

NuVasive, Inc. 

Consolidated Statements of Cash Flows 

(in thousands) 








Nine Months Ended September 30,

(unaudited)


2019


2018

Operating activities:





Consolidated net income


$   35,358


$       322

Adjustments to reconcile net income to net cash provided by operating activities:





Depreciation and amortization


101,245


96,409

Purchase of in-process research and development



8,913

Amortization of non-cash interest


15,853


14,986

Stock-based compensation


20,447


22,062

Reserves on current assets


11,539


11,116

Net loss on strategic investments


4,767


3,867

Other non-cash adjustments


8,733


16,560

Deferred income taxes


9,810


(9,938)

Changes in operating assets and liabilities, net of effects from acquisitions:





Accounts receivable


(8,645)


8,622

Inventory


(45,571)


(33,491)

Prepaid expenses and other current assets


(2,499)


(1,047)

Accounts payable and accrued liabilities


7,378


21,400

Accrued payroll and related expenses


4,108


(9,566)

Litigation liability


650


166

Income taxes


(2,588)


108

Net cash provided by operating activities


160,585


150,489

Investing activities:





Acquisitions and investments


(4,100)


(52,555)

Purchases of intangible assets


(7,501)


(7,682)

Purchases of property and equipment


(94,430)


(78,405)

Net cash used in investing activities


(106,031)


(138,642)

Financing activities:





Proceeds from the issuance of common stock


3,888


5,563

Purchases of treasury stock


(13,343)


(2,817)

Payment of contingent consideration


(809)


(18,700)

Proceeds from revolving line of credit



100,000

Repayments on revolving line of credit



(95,000)

Other financing activities


2,283


(236)

Net cash used in financing activities


(7,981)


(11,190)

Effect of exchange rate changes on cash


(1,014)


(1,349)

Increase (decrease) in cash, cash equivalents and restricted cash


45,559


(692)

Cash, cash equivalents and restricted cash at beginning of period


120,235


78,198

Cash, cash equivalents and restricted cash at end of period


$ 165,794


$  77,506

 

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SOURCE NuVasive, Inc.