PR Newswire | Aug 4, 2020 04:03PM EDT

08/04 15:03 CDT

NuVasive Announces Second Quarter 2020 Financial Results SAN DIEGO, Aug. 4, 2020

SAN DIEGO, Aug. 4, 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 June 30, 2020.

Second Quarter 2020 Highlights

* Net sales decreased -30.3% to $203.6 million, or -30.2% on a constant currency basis; * GAAP operating margin of -18.3%; Non-GAAP operating margin of -9.8%; and * GAAP diluted net loss per share of -$0.98; Non-GAAP diluted net loss per share of -$0.40.

"NuVasive's second quarter performance was consistent with the preliminary results reported last month, highlighted by significantly better-than-expected net sales as a result of the upward monthly volume trend experienced in June," said J. Christopher Barry, chief executive officer of NuVasive. "While the Company continues to navigate the impact of the COVID-19 pandemic, execution on our long-term business strategy remains a top priority as we continue advancing key research and development projects, increasing the adoption of less invasive surgical procedures in spine and strengthening our capabilities to take share globally."

A full reconciliation of GAAP to non-GAAP financial measures can be found in the tables of this news release. Additionally, NuVasive is not reinstituting its annual financial guidance as visibility for spine surgery volumes for the remainder of the year continues to be limited and the Company is unable to predict when or how quickly elective surgery volumes will recover.

Second Quarter 2020 ResultsNuVasive reported second quarter 2020 total net sales of $203.6 million, a -30.3% decrease compared to $292.1 million for the second quarter 2019. On a constant currency basis, second quarter 2020 total net sales decreased -30.2% compared to the same period last year.

For the second quarter 2020, both GAAP and non-GAAP gross profit was $123.1 million and GAAP and non-GAAP gross margin was 60.5%. These results compared to GAAP and non-GAAP gross profit of $214.5 million and GAAP and non-GAAP gross margin of 73.4%, for the second quarter 2019.

The Company reported a GAAP net loss of -$50.0 million, or diluted net loss per share of -$0.98, for the second quarter 2020 compared to GAAP net income of $15.0 million, or diluted earnings per share of $0.29, for the second quarter 2019. On a non-GAAP basis, the Company reported a net loss of -$20.4 million, or diluted net loss per share of -$0.40, for the second quarter 2020 compared to non-GAAP net income of $32.8 million, or diluted earnings per share of $0.63, for the second quarter 2019.

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 June 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 (Loss) EPS WASO^7 Adjusted EBITDA

Reported GAAP $ 123,107 $ (37,303) $ (50,015) $ (0.98) 51,224 $ (50,015)

% of revenue 60.5% (18.3%)

Amortization of intangible assets 12,675 12,675

Litigation related expenses and settlements^1 1,187 1,187 1,187

Business transition costs^2 874 874 874

Purchase of in-process research and development^3 1,011 1,011 1,011

European medical device regulation^4 1,683 1,683 1,683

Non-cash interest expense on convertible notes 9,615

Net loss recognized on change in fair value of derivatives^5 12,301 12,301

Tax effect of adjustments^6 (9,697)

Interest expense/(income), net 16,220

Income tax benefit (15,170)

Depreciation and amortization 35,166

Non-cash stock-based compensation 5,037

Adjusted Non-GAAP $ 123,107 $ (19,873) $ (20,366) $ (0.40) 51,224 $ 8,294

% of revenue 60.5% (9.8%) 4.1%

^ 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 activities^ 2 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 all dilutive securities,^ 7 including convertible notes for which the Company is economically hedged through its anti-dilutive bond hedge arrangements, as the Company recognized a non-GAAP net loss.

For the Six Months Ended June 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 (Loss) Profit Income EPS WASO^7 Adjusted EBITDA

Reported GAAP $ 311,123 $ (8,984) $ (44,717) $ (0.87) 51,531 $ (44,717)

% of revenue 67.1% (1.9%)

Amortization of intangible assets 25,324 25,324

Litigation related expenses and settlements^1 4,290 4,290 4,290

Business transition costs^2 (566) (566) (566)

Purchase of in-process research and development^3 1,011 1,011 1,011

European medical device regulation^4 2,930 2,930 2,930

Non-cash interest expense on convertible notes 15,339

Net loss on strategic investments 1,411 1,411

Net loss recognized on change in fair value of derivatives^5 12,301 12,301

Tax effect of adjustments^6 (12,259)

Interest expense/(income), net 27,006

Income tax benefit (10,343)

Depreciation and amortization 70,138

Non-cash stock-based compensation 2,179

Adjusted Non-GAAP $ 311,123 $ 24,005 $ 5,064 $ 0.10 52,148 $ 65,640

% of revenue 67.1% 5.2% 14.2%

^ 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 activities^ 2 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 convertible^ 7 notes for which the Company is economically hedged through its anti-dilutive bond hedge arrangements.

For the Three Months Ended June 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 GAAP $ 214,526 $ 30,197 $ 14,962 $ 0.29 52,460 $ 14,962

% of revenue 73.4% 10.3%

Amortization of intangible assets 12,277 12,277

Litigation related expenses and settlements^1 2,031 2,031 2,031

Business transition costs^2 1,646 1,646 1,646

European medical device regulation^3 1,400 1,400 1,400

Non-cash interest expense on convertible notes 4,374

Tax effect of adjustments^4 (3,881)

Interest expense/(income), net 9,323

Income tax expense 5,921

Depreciation and amortization 33,560

Non-cash stock-based compensation 6,901

Adjusted Non-GAAP $ 214,526 $ 47,551 $ 32,809 $ 0.63 52,460 $ 75,744

% of revenue 73.4% 16.3% 25.9%

^ 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 activities^ 2 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 their^ 4 statutory tax rate. As of July 30, 2019, the Company estimated an annual tax rate of ~24% on a GAAP basis and ~23% on a non-GAAP basis.

Adjusted non-GAAP diluted WASO excludes the impact of dilutive convertible^ 5 notes for which the Company is economically hedged through its anti-dilutive bond hedge arrangements.

For the Six Months Ended June 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 GAAP $ 414,808 $ 50,370 $ 24,348 $ 0.46 52,471 $ 24,348

% of revenue 73.2% 8.9%

Amortization of intangible assets 25,902 25,902

Litigation related expenses and settlements^1 5,077 5,077 5,077

Business transition costs^2 5,479 5,479 5,479

European medical device regulation^3 1,732 1,732 1,732

Non-cash interest expense on convertible notes 8,693

Tax effect of adjustments^4 (10,814)

Interest expense/(income), net 18,427

Income tax expense 7,238

Depreciation and amortization 67,614

Non-cash stock-based compensation 12,618

Adjusted Non-GAAP $ 414,808 $ 88,560 $ 60,417 $ 1.15 52,471 $ 142,533

% of revenue 73.2% 15.6% 25.1%

^ 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 activities^ 2 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 their^ 4 statutory tax rate. As of July 30, 2019, the Company estimated an annual tax rate of ~24% on a GAAP basis and ~23% on a non-GAAP basis.

Adjusted non-GAAP diluted WASO excludes the impact of dilutive convertible^ 5 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 second 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 September 4, 2020. In addition, a telephone replay of the call will be available until August 11, 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: 13704316.

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 second quarter 2020. The Company's results for the second 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 June 30, Six Months Ended June 30,

(unaudited) 2020 2019 2020 2019

Net sales

Products $ 183,664 $ 261,381 $ 418,351 $ 505,204

Services 19,948 30,724 45,142 61,677

Total net sales 203,612 292,105 463,493 566,881

Cost of sales (excluding below amortization of intangible assets)

Products 64,373 57,613 116,018 112,099

Services 16,132 19,966 36,352 39,974

Total cost of sales 80,505 77,579 152,370 152,073

Gross profit 123,107 214,526 311,123 414,808

Operating expenses:

Selling, general and administrative 126,444 152,853 256,675 297,929

Research and development 19,406 17,553 37,663 35,128

Amortization of intangible assets 12,675 12,277 25,324 25,902

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

Business transition costs 874 1,646 (566) 5,479

Total operating expenses 160,410 184,329 320,107 364,438

Interest and other expense, net:

Interest income 304 327 1,035 736

Interest expense (16,524) (9,650) (28,041) (19,163)

Other (expense) income, net (11,662) 9 (19,070) (357)

Total interest and other expense, net (27,882) (9,314) (46,076) (18,784)

(Loss) income before income taxes (65,185) 20,883 (55,060) 31,586

Income tax benefit (expense) 15,170 (5,921) 10,343 (7,238)

Consolidated net (loss) income $ (50,015) $ 14,962 $ (44,717) $ 24,348

Net (loss) income per share:

Basic $ (0.98) $ 0.29 $ (0.87) $ 0.47

Diluted $ (0.98) $ 0.29 $ (0.87) $ 0.46

Weighted average shares outstanding:

Basic 51,224 51,967 51,531 51,822

Diluted 51,224 52,460 51,531 52,471

NuVasive, Inc.

Consolidated Balance Sheets

(in thousands, except par values and share amounts)

June 30, 2020 December 31, 2019

ASSETS (Unaudited)

Current assets:

Cash and cash equivalents $ 796,773 $ 213,034

Short-term marketable securities 130,054 -

Accounts receivable, net of allowances of $20,057 and $17,019, respectively 182,135 211,532

Inventory, net 312,205 312,419

Prepaid income taxes 18,655 10,434

Prepaid expenses and other current assets 17,693 16,917

Total current assets 1,457,515 764,336

Property and equipment, net 279,162 266,318

Intangible assets, net 177,607 201,092

Goodwill 559,088 561,064

Operating lease right-of-use assets 105,863 66,932

Deferred tax assets 10,036 9,162

Restricted cash and investments 1,494 1,494

Convertible note hedge derivative 44,936 -

Other assets 14,268 14,892

Total assets $ 2,649,969 $ 1,885,290

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable and accrued liabilities $ 103,821 $ 97,160

Contingent consideration liabilities 5,683 15,727

Accrued payroll and related expenses 41,892 86,458

Operating lease liabilities 7,502 5,567

Income tax liabilities 394 2,005

Senior convertible notes 634,142 -

Total current liabilities 793,434 206,917

Long-term senior convertible notes 746,719 623,298

Embedded conversion derivative 44,936 -

Deferred and income tax liabilities 9,657 14,655

Operating lease liabilities 114,881 73,153

Other long-term liabilities 45,452 52,060

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 June 30, 2020andDecember 31, 2019, 57,779,397 and 57,524,658 issued and outstanding at June 30, 62 622020 andDecember 31, 2019, respectively

Additional paid-in capital 1,536,156 1,429,854

Accumulated other comprehensive loss (12,175) (9,418)

Retained earnings 37,758 82,475

Treasury stock at cost; 6,528,294 shares and 5,379,536 shares at June 30, 2020and (666,911) (587,766)December 31, 2019, respectively

Total equity 894,890 915,207

Total liabilities and equity $ 2,649,969 $ 1,885,290

NuVasive, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Six Months Ended June 30,

(unaudited) 2020 2019

Operating activities:

Consolidated net (loss) income $ (44,717) $ 24,348

Adjustments to reconcile net income to net cash provided by operatingactivities:

Depreciation and amortization 70,138 67,614

Amortization of non-cash interest 18,573 10,494

Stock-based compensation 2,235 12,618

Reserves on current assets 33,148 8,267

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

Net loss on strategic investments 1,411 -

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

Other non-cash adjustments 7,686 6,299

Deferred income taxes (5,712) 5,721

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

Accounts receivable 25,132 (11,602)

Inventory (32,997) (31,856)

Prepaid expenses and other current assets (2,727) (2,811)

Accounts payable and accrued liabilities 1,319 9,166

Accrued payroll and related expenses (44,388) (3,699)

Income taxes (9,306) (1,128)

Net cash provided by operating activities 33,107 93,431

Investing activities:

Acquisitions and investments - (4,100)

Purchases of intangible assets (2,490) (6,827)

Purchases of property and equipment (52,065) (65,385)

Purchases of marketable securities (130,096) -

Net cash used in investing activities (184,651) (76,312)

Financing activities:

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

Purchases of treasury stock (79,026) (11,702)

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

Proceeds from issuance of convertible debt, net of issuance costs 874,404 -

Proceeds from sale of warrants 93,915 -

Purchases of convertible note hedges (147,825) -

Other financing activities (2,307) 1,769

Net cash provided by (used in) financing activities 735,979 (6,854)

Effect of exchange rate changes on cash (696) 271

Increase in cash, cash equivalents and restricted cash 583,739 10,536

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

Cash, cash equivalents and restricted cash at end of period $ 798,267 $ 130,771

View original content to download multimedia: http://www.prnewswire.com/news-releases/nuvasive-announces-second-quarter-2020-financial-results-301105966.html

SOURCE NuVasive, Inc.