PR Newswire | Oct 29, 2020 04:02PM EDT

10/29 15:02 CDT

NuVasive Announces Third Quarter 2020 Financial Results SAN DIEGO, Oct. 29, 2020

SAN DIEGO, Oct. 29, 2020 /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, 2020.

Third Quarter 2020 Highlights

* Net sales increased 1.5% to $295.3 million, or 1.2% on a constant currency basis; * GAAP operating margin of 9.2%; Non-GAAP operating margin of 15.8%; and * GAAP diluted earnings per share of $0.11; Non-GAAP diluted earnings per share of $0.55.

"In the third quarter, NuVasive experienced faster-than-anticipated recovery from the impact of COVID-19 with net sales increasing year over year driven by high-single digit growth in our International business and further stability of the US spine market," said J. Christopher Barry, chief executive officer of NuVasive. "The Company remains focused in the fourth quarter on executing against its innovation roadmap, including the launch of our re-designed cervical portfolio, the furthering of our Advanced Materials Science implant portfolio with multiple new implants and executing on key Pulse milestones."

A full reconciliation of GAAP to non-GAAP financial measures can be found in the tables of this news release. NuVasive announced in April 2020 that it had withdrawn its annual financial guidance due to the uncertainty related to COVID-19, and is not reinstituting its annual financial guidance for the remainder of the year.

Third Quarter 2020 ResultsNuVasive reported third quarter 2020 total net sales of $295.3 million, a 1.5% increase compared to $290.8 million for the third quarter 2019. On a constant currency basis, third quarter 2020 total net sales increased 1.2% compared to the same period last year.

For the third quarter 2020, both GAAP and non-GAAP gross profit was $210.6 million and GAAP and non-GAAP gross margin was 71.3%. These results compared to GAAP and non-GAAP gross profit of $213.8 million and GAAP and non-GAAP gross margin of 73.5%, for the third quarter 2019.

The Company reported GAAP net income of $5.9 million, or diluted earnings per share of $0.11, for the third quarter 2020, compared to GAAP net income of $11.0 million, or diluted earnings per share of $0.21, for the third quarter 2019. On a non-GAAP basis, the Company reported net income of $28.3 million, or diluted earnings per share of $0.55, for the third quarter 2020, compared to non-GAAP net income of $30.9 million, or diluted earnings per share of $0.59, for the third quarter 2019.

The Company ended the quarter with $982.1 million in cash and cash equivalents, and short term investments.

Supplementary Financial InformationFor 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 GAAP to Non-GAAP InformationManagement uses certain non-GAAP financial measures such as non-GAAP diluted earnings per share, non-GAAP net income, non-GAAP operating expenses and non-GAAP operating 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, gains and losses from changes in fair value of derivatives 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, gains and losses from changes in fair value of derivatives 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, 2020

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited - in thousands, except per share data)

Gross Profit Operating Net Income Diluted Diluted Net Income to Profit EPS WASO^5 Adjusted EBITDA

Reported $ 210,649 $ 27,052 $ 5,872 $ 0.11 51,805 $ 5,872GAAP

% of revenue 71.3% 9.2%

Amortizationof 13,826 13,826intangibleassets

Litigationrelatedexpenses and 1,396 1,396 1,396settlements^1

Businesstransition 3,107 3,107 3,107costs^2

Europeanmedical 1,149 1,149 1,149deviceregulation^3

Non-cashinterestexpense on 12,683convertiblenotes

Net gain onstrategic (1,132) (1,132)investments

Tax effectof (8,575)adjustments^4

Interestexpense/ 20,852(income),net

Income tax 579expense

Depreciationand 35,959amortization

Non-cashstock-based 7,572compensation

Adjusted $ 210,649 $ 46,530 $ 28,326 $ 0.55 51,805 $ 75,354Non-GAAP

% of revenue 71.3% 15.8% 25.5%

1 Represents expenses associated with certain ongoing litigation matters, including infringement of the Company's intellectual property.

Costs related to acquisition, integration and business transition activities2 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.

Represents costs specific to updating our quality system, product labeling,3 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.

Adjusted non-GAAP diluted WASO excludes the impact of all dilutive5 securities, including convertible notes for which the Company is economically hedged through its anti-dilutive bond hedge arrangements.

For the Nine Months Ended September 30, 2020

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited - in thousands, except per share data)

Gross Profit Operating Net (Loss) Diluted Diluted Net (Loss) to Profit Income EPS WASO^7 Adjusted EBITDA

Reported $ 521,772 $ 18,068 $ (38,845) $ (0.76) 51,440 $ (38,845)GAAP

% of revenue 68.8% 2.4%

Amortizationof 39,150 39,150intangibleassets

Litigationrelatedexpenses and 5,686 5,686 5,686settlements^1

Businesstransition 2,541 2,541 2,541costs^2

Purchase ofin-processresearch and 1,011 1,011 1,011development^3

Europeanmedical 4,079 4,079 4,079deviceregulation^4

Non-cashinterestexpense on 28,022convertiblenotes

Net loss onstrategic 278 278investments

Net lossrecognizedon change infair value 12,301 12,301ofderivatives^5

Tax effectof (20,834)adjustments^6

Interestexpense/ 47,858(income),net

Income tax (9,764)benefit

Depreciationand 106,097amortization

Non-cashstock-based 9,751compensation

Adjusted $ 521,772 $ 70,535 $ 33,389 $ 0.64 52,033 $ 140,993Non-GAAP

% of revenue 68.8% 9.3% 18.6%

1 Represents expenses associated with certain ongoing litigation matters, including infringement of the Company's intellectual property.

Costs related to acquisition, integration and business transition activities2 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 Purchase of an in-process research and development asset which had no future alternative use.

Represents costs specific to updating our quality system, product labeling,4 asset write-offs and product remanufacturing to comply with European medical device regulation.

5 Represents the net change in fair value of the Company's derivative asset and liability associated with the 2023 Notes.

6 Represents the impact from tax affecting the adjustments above at their statutory tax rate.

Adjusted non-GAAP diluted WASO excludes the impact of dilutive convertible7 notes for which the Company is economically hedged through its anti-dilutive bond hedge arrangements.

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 Net Income Diluted Diluted Net Income to Profit EPS WASO^5 Adjusted EBITDA

Reported $ 213,807 $ 30,514 $ 11,010 $ 0.21 53,056 $ 11,010GAAP

% of revenue 73.5% 10.5%

Amortizationof 12,596 12,596intangibleassets

Litigationrelatedexpenses and 1,899 1,899 1,899settlements^1

Businesstransition (333) (333) (333)costs^2

Europeanmedical 953 953 953deviceregulation^3

Non-cashinterestexpense on 4,432convertiblenotes

Net loss onstrategic 4,767 4,767investments

Tax effectof (4,455)adjustments^4

Interestexpense/ 9,034(income),net

Income tax 4,774expense

Depreciationand 33,631amortization

Non-cashstock-based 7,829compensation

Adjusted $ 213,807 $ 45,629 $ 30,869 $ 0.59 52,590 $ 73,564Non-GAAP

% of revenue 73.5% 15.7% 25.3%

1 Represents expenses associated with certain ongoing litigation matters, including infringement of the Company's intellectual property.

Costs related to acquisition, integration and business transition activities2 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.

Represents costs specific to updating our quality system, product labeling,3 asset write-offs and product remanufacturing to comply with European medical device regulation.

Represents the impact from tax affecting the adjustments above at their4 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.

Adjusted non-GAAP diluted WASO excludes the impact of dilutive convertible5 notes 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 Net Income Diluted Diluted Net Income to Profit EPS WASO^5 Adjusted EBITDA

Reported $ 628,615 $ 80,884 $ 35,358 $ 0.67 52,667 $ 35,358GAAP

% of revenue 73.3% 9.4%

Amortizationof 38,498 38,498intangibleassets

Litigationrelatedexpenses and 6,976 6,976 6,976settlements^1

Businesstransition 5,146 5,146 5,146costs^2

Europeanmedical 2,685 2,685 2,685deviceregulation^3

Non-cashinterestexpense on 13,125convertiblenotes

Net loss onstrategic 4,767 4,767investments

Tax effectof (15,269)adjustments^4

Interestexpense/ 27,461(income),net

Income tax 12,012expense

Depreciationand 101,245amortization

Non-cashstock-based 20,447compensation

Adjusted $ 628,615 $ 134,189 $ 91,286 $ 1.74 52,512 $ 216,097Non-GAAP

% of revenue 73.3% 15.6% 25.2%

1 Represents expenses associated with certain ongoing litigation matters, including infringement of the Company's intellectual property.

Costs related to acquisition, integration and business transition activities2 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.

Represents costs specific to updating our quality system, product labeling,3 asset write-offs and product remanufacturing to comply with European medical device regulation.

Represents the impact from tax affecting the adjustments above at their4 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.

Adjusted non-GAAP diluted WASO excludes the impact of dilutive convertible5 notes for which the Company is economically hedged through its anti-dilutive bond hedge arrangements.

Investor Conference CallNuVasive 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 2020. 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, 2020. In addition, a telephone replay of the call will be available until November 5, 2020. 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: 13708396.

About NuVasiveNuVasive, Inc. (NASDAQ: NUVA) is the leader in spine technology innovation, with a mission to transform surgery, advance care and change lives. The Company's less invasive, procedurally integrated surgical solutions are designed to deliver reproducible and clinically proven outcomes. The Company's comprehensive procedural portfolio includes access, implants and fixation systems, biologics, software 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 net sales, NuVasive has approximately 2,800 employees and operates in more than 50 countries serving surgeons, hospitals and patients. For more information, please visit www.nuvasive.com.

Forward-Looking StatementsNuVasive 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 2020. The Company's results for the third quarter 2020 are prior to the completion of review and audit procedures by the Company's external auditors and are subject to adjustment. The potential risks and uncertainties which contribute to the uncertain nature of these statements include, among others, the impact of the COVID-19 pandemic on the Company's business and financial results; the Company's ability to maintain operations to support its customers and patients in the near-term and to capitalize on future growth opportunities; risks associated with acceptance of the Company's surgical products and procedures by spine surgeons and hospitals, development and acceptance of new products or product enhancements, clinical and statistical verification of the benefits achieved via the use of NuVasive's products, the Company's ability to adequately 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) 2020 2019 2020 2019

Net sales:

Products $ 267,571 $ 260,173 $ 685,922 $ 765,377

Services 27,711 30,662 72,853 92,339

Total net 295,282 290,835 758,775 857,716sales

Cost of sales(excludingbelowamortizationof intangibleassets):

Products 66,049 57,164 182,067 169,263

Services 18,584 19,864 54,936 59,838

Total cost of 84,633 77,028 237,003 229,101sales

Gross profit 210,649 213,807 521,772 628,615

Operatingexpenses:

Selling,general and 146,260 152,887 402,935 450,816administrative

Research and 20,404 18,143 58,067 53,271development

Amortizationof intangible 13,826 12,596 39,150 38,498assets

Purchase ofin-process - - 1,011 -research anddevelopment

Businesstransition 3,107 (333) 2,541 5,146costs

Totaloperating 183,597 183,293 503,704 547,731expenses

Interest andother expense,net:

Interest 271 620 1,306 1,356income

Interest (21,123) (9,654) (49,164) (28,817)expense

Other income 251 (5,696) (18,819) (6,053)(expense), net

Total interestand other (20,601) (14,730) (66,677) (33,514)expense, net

Income (loss)before income 6,451 15,784 (48,609) 47,370taxes

Income tax(expense) (579) (4,774) 9,764 (12,012)benefit

Consolidatednet income $ 5,872 $ 11,010 $ (38,845) $ 35,358(loss)

Net income(loss) pershare:

Basic $ 0.11 $ 0.21 $ (0.76) $ 0.68

Diluted $ 0.11 $ 0.21 $ (0.76) $ 0.67

Weightedaverage sharesoutstanding:

Basic 51,261 52,057 51,440 51,901

Diluted 51,805 53,056 51,440 52,667

NuVasive, Inc.

Consolidated Balance Sheets

(in thousands, except par values and share amounts)

September 30, 2020 December 31, 2019

ASSETS (Unaudited)

Current assets:

Cash and cash equivalents $ 774,544 $ 213,034

Short-term marketable securities 207,605 -

Accounts receivable, net of allowances 205,255 211,532of $20,924 and $17,019, respectively

Inventory, net 305,634 312,419

Prepaid income taxes 13,322 10,434

Prepaid expenses and other current 15,576 16,917assets

Total current assets 1,521,936 764,336

Property and equipment, net 281,339 266,318

Intangible assets, net 165,499 201,092

Goodwill 558,985 561,064

Operating lease right-of-use assets 103,994 66,932

Deferred tax assets 9,291 9,162

Restricted cash and investments 1,494 1,494

Other assets 14,033 14,892

Total assets $ 2,656,571 $ 1,885,290

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable and accrued liabilities $ 112,392 $ 97,160

Contingent consideration liabilities 7,275 15,727

Accrued payroll and related expenses 53,005 86,458

Operating lease liabilities 7,513 5,567

Income tax liabilities 760 2,005

Senior convertible notes 639,682 -

Total current liabilities 820,627 206,917

Long-term senior convertible notes 756,167 623,298

Deferred and income tax liabilities 8,236 14,655

Operating lease liabilities 113,105 73,153

Other long-term liabilities 48,734 52,060

Commitments and contingencies

Redeemable equity component of senior 10,318 -convertible notes

Stockholders' equity:

Preferred stock, $0.001 par value;5,000,000 shares authorized, none - -outstanding

Common stock, $0.001 par value;150,000,000 and 120,000,000 sharesauthorized at September 30, 2020 andDecember 31, 2019, respectively; 62 6257,813,261 and 57,524,658 issued andoutstanding at September 30, 2020 andDecember 31, 2019, respectively

Additional paid-in capital 1,533,409 1,429,854

Accumulated other comprehensive loss (10,152) (9,418)

Retained earnings 43,630 82,475

Treasury stock at cost; 6,540,526 sharesand 5,379,536 shares at September 30, (667,565) (587,766)2020 and December 31, 2019, respectively

Total equity 899,384 915,207

Total liabilities and equity $ 2,656,571 $ 1,885,290

NuVasive, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Nine Months Ended September 30,

(unaudited) 2020 2019

Operating activities:

Consolidated net (loss) income $ (38,845) $ 35,358

Adjustments to reconcile net (loss) income tonet cash provided by operating activities:

Depreciation and amortization 106,097 101,245

Amortization of non-cash interest 33,714 15,853

Stock-based compensation 9,806 20,447

Reserves on current assets 44,927 11,539

Purchase of in-process research and 1,011 -development

Net loss on strategic investments 278 4,767

Net loss recognized on change in fair value of 12,301 -derivatives

Other non-cash adjustments 13,899 10,168

Deferred income taxes (6,257) 9,810

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

Accounts receivable 2,388 (8,645)

Inventory (37,523) (45,571)

Prepaid expenses and other current assets (1,620) (2,499)

Accounts payable and accrued liabilities 10,176 6,593

Accrued payroll and related expenses (33,529) 4,108

Income taxes (3,625) (2,588)

Net cash provided by operating activities 113,198 160,585

Investing activities:

Acquisitions and investments - (4,100)

Proceeds from other investments 1,132 -

Purchases of intangible assets (3,810) (7,501)

Purchases of property and equipment (77,857) (94,430)

Purchases of marketable securities (207,695) -

Net cash used in investing activities (288,230) (106,031)

Financing activities:

Proceeds from the issuance of common stock 3,871 3,888

Purchases of treasury stock (79,680) (13,343)

Payment of contingent consideration (7,053) (809)

Proceeds from issuance of convertible debt, 873,890 -net of issuance costs

Proceeds from sale of warrants 93,915 -

Purchases of convertible note hedges (147,825) -

Other financing activities (1,405) 2,283

Net cash provided by (used in) financing 735,713 (7,981)activities

Effect of exchange rate changes on cash 829 (1,014)

Increase in cash, cash equivalents and 561,510 45,559restricted cash

Cash, cash equivalents and restricted cash at 214,528 120,235beginning of period

Cash, cash equivalents and restricted cash at $ 776,038 $ 165,794end of period

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SOURCE NuVasive, Inc.