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NuVasive Reports Third Quarter 2011 Financial Results


October 27, 2011 - SAN DIEGO, CA

NuVasive, Inc. (NASDAQ: NUVA)

  • Total revenue of $132.9 million, up 10.5% over third quarter 2010
  • GAAP loss of $67.6 million, or $1.69 per share
  • Non-GAAP earnings of $10.6 million, or $0.26 per share
  • Non-GAAP operating margin of 16.8%

NuVasive, Inc. (NASDAQ: NUVA), a medical device company focused on developing minimally disruptive surgical products and procedures for the spine, announced today financial results for the quarter ended September 30, 2011.

NuVasive reported third quarter 2011 revenue of $132.9 million, a 10.5% increase over the $120.3 million for the third quarter 2010 and in line with the $133.0 million reported for the second quarter 2011.

Gross profit for the third quarter 2011 was $106.9 million and gross margin was 80.4%, compared to a gross profit of $98.7 million and a gross margin of 82.1% for the third quarter 2010. For the second quarter 2011, gross profit was $107.5 million and gross margin was 80.8%.

Total operating expenses for the third quarter 2011 were $198.3 million compared to $89.1 million in the third quarter 2010 and $96.0 million in the second quarter 2011. The higher operating expenses in the third quarter 2011 compared to the prior year resulted primarily from a charge related to a litigation liability and additional costs associated with higher revenue and infrastructure expansion.

On a GAAP basis, the Company reported a net loss of $67.6 million, or $1.69 per share, for the third quarter 2011.

On a Non-GAAP basis, the Company reported net income of $10.6 million, or $0.26 per share, for the third quarter 2011. The Non-GAAP earnings per share calculations for the third quarter exclude (i) non-cash stock-based compensation of $8.1 million; (ii) certain intellectual property litigation expenses of $103.7 million; (iii) amortization of intangible assets of $1.5 million; (iv) acquisition related items of $441 thousand; (vi) non-cash interest expense on convertible notes of $3.0 million; (vii) a positive impact from certain transactions associated with convertible notes activity of $1.7 million; and (viii) certain discrete tax items of $6.3 million.

Cash, cash equivalents and short and long-term marketable securities were $418.9 million at September 30, 2011.

Alex Lukianov, Chairman and Chief Executive Officer, said, "Our financial performance in the third quarter of 2011 attests to exceptional execution by the NuVasive team. In the face of an extremely challenging spine market, we delivered industry leading growth and executed a strategic transaction that will enhance the penetration of XLIF and NeuroVision for years to come. Our Impulse Monitoring acquisition increases our Intra-Operative Monitoring platform, allowing us to offer surgeons and hospitals complete procedural solutions in all areas of spine. With Speed of Innovation driving our market share taking strategy, we will continue to remain laser focused on pushing toward our next milestone of being a $1 billion company with increasing profitability to serve the needs of spine surgery patients."

Revised 2011 Full Year Financial Guidance

  • Revenue of $538 million to $540 million, compared to previous guidance of $530 million to $540 million
  • GAAP loss per share of $1.43 to $1.42, compared to previous guidance for GAAP earnings per share of $0.33 to $0.36
  • Non-GAAP EPS of $1.01 to $1.02, compared to previous guidance for $1.09 to $1.12
  • Non-GAAP Operating Margin of ~ 15.5%, compared to previous guidance of ~ 17.5%
  • GAAP effective tax benefit rate of ~ 27%, compared to previous guidance for a GAAP effective tax expense rate of ~ 50%




Reconciliation of Full Year EPS Guidance

2010 2011 2011
Pre-Tax Pre-Tax Net of Tax (1)
---------- -------------------- --------------------
High High
Actual Low Range Range Low Range Range
---------- --------- --------- --------- ---------
GAAP earnings (loss)
per share guidance $ 0.64 $ (1.94) $ (1.93) $ (1.43) $ (1.42)
Impact of change
from basic to
diluted share
count (2) - 0.09 0.09 0.07 0.07
---------- --------- --------- --------- ---------
GAAP earnings (loss)
per share guidance
adjusted to diluted
share count $ 0.64 $ (1.85) $ (1.84) $ (1.36) $ (1.35)
Non-cash stock
based compensation 0.70 0.75 0.75 0.47 0.47
Certain
intellectual
property
litigation
expenses (3) 0.13 2.53 2.53 1.56 1.56
Amortization of
intangible assets 0.13 0.15 0.15 0.09 0.09
Acquisition related
items 0.07 0.05 0.05 0.03 0.03
Non-cash interest
expense on
convertible notes - 0.14 0.14 0.09 0.09
Certain
transactions
associated with
convertible notes
activity - (0.04) (0.04) (0.02) (0.02)
Certain discrete
tax items - 0.15 0.15 0.15 0.15
---------- --------- --------- --------- ---------
Non-GAAP earnings per
share guidance $ 1.68 $ 1.88 $ 1.89 $ 1.01 $ 1.02
========== ========= ========= ========= =========

Weighted shares
outstanding - basic
(4) 40,600 40,600 40,600 40,600
========= ========= ========= =========
Weighted shares
outstanding -
diluted (4) 40,373 42,600 42,600 42,600 42,600
========== ========= ========= ========= =========

(1) Effective tax benefit rate of ~ 27% applied to GAAP earnings and ~ 38%
applied to Non-GAAP adjustments
(2)GAAP loss for 2011 utilizes the "basic" weighted shares outstanding when
calculating earnings per share. However, Non-GAAP earnings are positive
requiring the use of the "diluted" weighted share count when calculating
earnings per share. This line represents the impact of the change from
"basic" to "diluted" weighted shares on GAAP earnings per share
calculation to reconcile down to Non-GAAP earnings per share computed
using the diluted weighted shares outstanding.
(3)Includes a charge for the litigation liability of $101.2 million
(4)Weighted shares outstanding shown as pre "if-converted" method


2011 Full Year EPS Guidance Bridge

Net of Tax
Low High
--------- ---------
Prior GAAP earnings per share guidance $ 0.33 $ 0.36
Impact of change from diluted to basic share count
(1) 0.01 0.01
--------- ---------
GAAP earnings per share adjusted to basic share count $ 0.34 $ 0.37
Repurchase of $118.7 million of 2013 convertible
notes 0.01 0.01
Litigation liability (1.56) (1.56)
Medtronic ongoing royalty (0.06) (0.06)
Certain transactions associated with convertible
notes activity 0.04 0.04
Certain discrete tax items (0.16) (0.16)
Acquisition of Impulse Monitoring - -
Change in underlying business revenue and expenses (0.05) (0.08)
Impact of change in tax rate (2) 0.01 0.02
--------- ---------
Revised GAAP loss per share guidance $ (1.43) $ (1.42)
========= =========

Low High
--------- ---------
Prior Non-GAAP earnings per share guidance $ 1.09 $ 1.12
Repurchase of $118.7 million of 2013 convertible
notes 0.02 0.02
Medtronic ongoing royalty (0.06) (0.06)
Acquisition of Impulse Monitoring (0.01) (0.01)
Change in underlying business revenue and expenses (0.07) (0.10)
Impact of change in tax rate (3) 0.04 0.05
--------- ---------
Revised Non-GAAP earnings per share guidance $ 1.01 $ 1.02
========= =========

(1)Prior GAAP earnings per share guidance assumed GAAP earnings which
resulted in the use of "diluted" weighted shares outstanding for the
earnings per share calculation. Based upon the litigation liability
recognized in the third quarter, the full year will now be in a GAAP loss
position, requiring the use of "basic" weighted shares outstanding in the
loss per share calculation. This line recognizes the impact of the change
from using "diluted" to "basic" weighted shares outstanding on the prior
guidance.
(2)New effective GAAP tax benefit rate of ~ 27%, down from
previous guidance of ~ 50%.
(3)New effective Non-GAAP tax rate of ~ 38% for Non-GAAP adjustments, down
from previous guidance of ~ 40%.




2011 Guidance Reconciliation of Non-GAAP Operating Margin %

FY 11
Estimate
---------------------
FY 10
Actual Prior Revised
------- ----------- --------
Gross Margin % [A] 82.2% ~ 81% ~ 79.5%

Non-GAAP Research and Development [B] 8.0% ~ 7% ~ 7%
Non-cash stock-based compensation 0.7% ~ 1% ~ 0.5%
~ 0.1% &
as
Acquisition related items* 0.4% as incurred incurred
------- ----------- --------
GAAP research and development 9.1% ~ 8% ~ 7.6%

Non-GAAP Sales, Marketing and Administrative
[C] 58.8% ~ 56.5% ~ 57%
Non-cash stock-based compensation 5.2% ~ 5% ~ 5.5%
Certain intellectual property litigation
expenses 1.1% ~ 1% ~ 1.2%
~ 0.3% &
~ 0.5% & as as
Acquisition related items* 0.2% incurred incurred
------- ----------- --------
GAAP sales, marketing and administrative 65.3% ~ 63% ~ 64%

Litigation liability - - ~ 18.7%
Amortization of intangible assets 1.1% ~ 1.5% ~ 1.3%

------- ----------- --------
Non-GAAP Operating Margin % [A-B-C] 15.4% ~ 17.5% ~ 15.5%
======= =========== ========

* Acquisition related items include ~ 0.4% of revenue for expenses
associated with prior M&A activity and as incurred

Reconciliation of Non-GAAP Information
Management uses certain Non-GAAP financial measures such as Non-GAAP earnings per share, which exclude non-cash stock-based compensation, certain intellectual property litigation expenses, amortization of intangible assets, acquisition related items, non-cash interest expense on convertible notes, a positive impact from certain transactions associated with convertible notes activity, and certain discrete tax items. 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 Third Quarter 2011 Results (Loss) Pre-Tax Earnings(in thousands, except per share data) Adjustments Net of Tax Per Share ----------- ---------- ----------GAAP net loss $ (67,552) $ (1.69)Impact of change from basic to diluted share count 0.04 ---------- ----------GAAP net loss, adjusted to diluted share count $ (67,552) $ (1.65) Non-cash stock-based compensation $ 8,118 5,066 0.12 Certain intellectual property litigation expenses 103,740 64,744 1.59 Amortization of intangible assets 1,504 939 0.02 Acquisition related items 441 275 0.01 Non-cash interest expense on new convertible notes 2,979 1,859 0.05 Certain transactions associated with convertible notes activity (1,666) (1,040) (0.03) Certain discrete tax items 6,316 6,316 0.15 ---------- ----------Non-GAAP earnings $ 10,607 $ 0.26 ========== ========== GAAP weighted shares outstanding - basic and diluted 39,892 ==========Non-GAAP weighted shares outstanding - diluted 40,831 ========== Reconciliation of Year To Date 2011 Results (Loss) Pre-Tax Earnings(in thousands, except per share data) Adjustments Net of Tax Per Share ----------- ---------- ----------GAAP net loss $ (59,813) $ (1.50)Impact of change from basic to diluted share count 0.03 ---------- ----------GAAP net loss, adjusted to diluted share count $ (59,813) $ (1.47) Non-cash stock-based compensation $ 23,789 14,749 0.36 Certain intellectual property litigation expenses 106,920 66,290 1.63 Amortization of intangible assets 4,241 2,629 0.06 Acquisition related items 2,337 1,449 0.04 Non-cash interest expense on new convertible notes 3,075 1,907 0.05 Certain transactions associated with convertible notes activity (1,666) (1,033) (0.03) Certain discrete tax items 6,316 6,316 0.16 ---------- ----------Non-GAAP earnings $ 32,494 $ 0.80 ========== ========== GAAP weighted shares outstanding - basic and diluted 39,766 ==========Non-GAAP weighted shares outstanding - diluted 40,738 ==========

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 1-877-407-9039 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 corporate website at www.nuvasive.com.

After the live webcast, the call will remain available on NuVasive's website, www.nuvasive.com, through November 26, 2011. In addition, a telephonic replay of the call will be available until November 10, 2011. 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 378602.

About NuVasive
NuVasive is a medical device company focused on developing minimally disruptive surgical products and procedures for the spine. The Company is the 5th largest player in the $7.7 billion global spine market.

NuVasive's principal product offering is based on its Maximum Access Surgery, or MAS® 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: a proprietary software-driven nerve avoidance system; MaXcess®, 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®, NuVasive has built an entire spine franchise. With over 65 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®.

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 Statements of Operations (in thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, -------------------- -------------------- 2011 2010 2011 2010 --------- --------- --------- --------- Revenue $ 132,880 $ 120,262 $ 390,312 $ 348,933Cost of goods sold (excluding amortization of purchased technology) 26,015 21,580 75,049 62,037 --------- --------- --------- ---------Gross profit 106,865 98,682 315,263 286,896 Operating expenses: Sales, marketing and administrative 85,482 77,717 254,025 230,104 Research and development 10,092 10,085 31,119 31,989 Amortization of intangible assets 1,504 1,342 4,241 4,047 Litigation award 101,200 - 101,200 - --------- --------- --------- ---------Total operating expenses 198,278 89,144 390,585 266,140 Interest and other expense, net: Interest income 257 200 591 567 Interest expense (7,276) (1,668) (10,962) (5,005) Other income (expense), net 1,726 (6) 2,303 81 --------- --------- --------- ---------Total interest and other expense, net (5,293) (1,474) (8,068) (4,357) --------- --------- --------- --------- (Loss) income before income tax expense (96,706) 8,064 (83,390) 16,399Income tax (benefit) expense (29,031) (40) (22,715) 1,399 --------- --------- --------- ---------Consolidated net (loss) income $ (67,675) $ 8,104 $ (60,675) $ 15,000 ========= ========= ========= =========Net loss attributable to noncontrolling interests $ (123) $ (438) $ (862) $ (1,353) ========= ========= ========= =========Net (loss) income attributable to NuVasive, Inc. $ (67,552) $ 8,542 $ (59,813) $ 16,353 ========= ========= ========= ========= Net (loss) income per share attributable to NuVasive, Inc.: Basic $ (1.69) $ 0.22 $ (1.50) $ 0.42 ========= ========= ========= ========= Diluted $ (1.69) $ 0.21 $ (1.50) $ 0.40 ========= ========= ========= =========Weighted average shares outstanding: Basic 39,892 39,394 39,766 39,180 ========= ========= ========= ========= Diluted 39,892 40,396 39,766 40,389 ========= ========= ========= ========= Stock-based compensation is included in operating expenses in the following categories: Sales, marketing and administrative $ 7,497 $ 6,494 $ 21,956 $ 18,846 Research and development 621 827 1,833 2,458 --------- --------- --------- --------- $ 8,118 $ 7,321 $ 23,789 $ 21,304 ========= ========= ========= ========= NuVasive, Inc. Condensed Consolidated Balance Sheets (in thousands) September 30, December 31, 2011 2010 ------------- ------------- (Unaudited)ASSETSCurrent assets: Cash and cash equivalents $ 220,943 $ 92,597 Short-term marketable securities 151,363 86,458 Accounts receivable, net 78,637 76,632 Inventory 122,588 107,577 Deferred tax assets 4,425 4,425 Prepaid expenses and other current assets 5,100 4,082 ------------- -------------Total current assets 583,056 371,771Property and equipment, net 118,125 102,165Long-term marketable securities 46,593 50,635Intangible assets, net 100,044 107,121Goodwill 103,070 103,070Deferred tax assets, non-current 76,260 52,033Restricted cash and investments 68,463 5,529Other assets 19,187 9,705 ------------- -------------Total assets $ 1,114,798 $ 802,029 ============= =============LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable and accrued liabilities $ 52,191 $ 58,995 Accrued payroll and related expenses 17,872 17,266 Litigation liability 101,200 - Acquisition-related liabilities 33,628 32,715 ------------- -------------Total current liabilities 204,891 108,976Senior Convertible Notes 427,974 230,000Long-term acquisition-related liabilities - 326Deferred tax liabilities 3,685 3,685Other long-term liabilities 13,088 12,810Commitments and contingenciesNoncontrolling interests 11,015 11,877Stockholders' equity: Common stock 40 40 Additional paid-in capital 625,387 545,114 Accumulated other comprehensive income (54) 616 Accumulated deficit (171,228) (111,415) ------------- -------------Total stockholders' equity 454,145 434,355 ------------- -------------Total liabilities and stockholders' equity $ 1,114,798 $ 802,029 ============= ============= NuVasive, Inc. Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) Nine Months Ended September 30, ------------------------ 2011 2010 ----------- ----------- Operating activities: Consolidated net (loss) income $ (60,675) $ 15,000 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 24,847 27,404 Stock-based compensation 23,789 21,304 Allowance for excess and obsolete inventory 4,642 1,682 Allowance for doubtful accounts and sales return reserve, net of write-offs 1,261 (1,039) Accretion of contingent consideration 587 570 Amortization of debt issuance costs 2,588 1,120 Amortization of debt discount 3,076 - Gain recognized on change in fair value of derivatives (2,387) - Deferred income tax expense 6,238 - Other non-cash adjustments 3,545 2,924 Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable (3,152) (11,465) Inventory (19,933) (10,043) Prepaid expenses and other assets (1,061) (3,878) Accounts payable and accrued liabilities 504 6,502 Litigation liability 101,200 - Accrued payroll and related expenses 584 (5,973) Income taxes payable (32,237) (186) ----------- ----------- Net cash provided by operating activities 53,416 43,922Investing activities: Purchases of property and equipment (39,435) (36,622) Purchases of marketable securities (244,209) (150,045) Sales of marketable securities 124,205 142,313 Purchases of restricted investments (4,535) - Payment for specific rights in connection with supply agreement, net of refund received (5,000) - Other assets (1,100) (659) ----------- ----------- Net cash used in investing activities (170,074) (45,013)Financing activities: Proceeds from the sale of warrants 47,898 - Proceeds from the issuance of convertible debt, net of issuance costs 391,334 - Purchase of convertible note hedges (80,097) - Repurchase of 2013 Senior Convertible Notes (118,702) - Proceeds from the issuance of common stock 4,461 12,768 Other assets (349) (7,722) Tax benefits related to stock-based compensation awards 638 1,118 ----------- ----------- Net cash provided by financing activities 245,183 6,164 ----------- ----------- Effect of exchange rate changes on cash (179) 104 ----------- ----------- Increase in cash and cash equivalents 128,346 5,177Cash and cash equivalents at beginning of period 92,597 65,413 ----------- -----------Cash and cash equivalents at end of period $ 220,943 $ 70,590 =========== =========== 

Contact:
Michael J. Lambert
EVP & Chief Financial Officer
NuVasive, Inc.
858-909-3394
Email Contact

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

Media:
Nicholas S. Laudico
The Ruth Group
646-536-7030
Email Contact

MarketWire

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