NuVasive Announces First Quarter 2020 Financial Results

NuVasive Announces First Quarter 2020 Financial Results

PR Newswire

SAN DIEGO, May 6, 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 March 31, 2020.

First Quarter 2020 Highlights

  • Revenue decreased -5.4% to $259.9 million, or -5.1% on a constant currency basis;
  • GAAP operating margin of 10.9%; Non-GAAP operating margin of 16.9%; and
  • GAAP diluted earnings per share of $0.10; Non-GAAP diluted earnings per share of $0.48.

"First and foremost, I want to recognize the healthcare professionals who are battling COVID-19 on the front lines and whose work is truly heroic during this global healthcare crisis," said J. Christopher Barry, chief executive officer of NuVasive. "Additionally, I am proud of the resiliency demonstrated by NuVasive employees, as the Company remains committed to supporting our surgeon partners and their patients during this time.

"NuVasive's first quarter performance was consistent with the preliminary revenue results provided in the business update shared last month," Barry continued. "The Company began the quarter positioned to build upon the financial momentum delivered last year, but faced a decline in elective procedure volumes due to the COVID-19 pandemic. However, with a strong cash position, dedicated team and innovative technology in our pipeline, we are confident in the long-term trajectory of the business and our purpose to transform surgery, advance care and change lives."

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

First Quarter 2020 Results
NuVasive reported first quarter 2020 total revenue of $259.9 million, a -5.4% decrease compared to $274.8 million for the first quarter 2019. On a constant currency basis, first quarter 2020 total revenue decreased -5.1% compared to the same period last year.

For the first quarter 2020, both GAAP and non-GAAP gross profit was $188.0 million and GAAP and non-GAAP gross margin was 72.3%. These results compared to GAAP and non-GAAP gross profit of $200.3 million and GAAP and non-GAAP gross margin of 72.9%, for the first quarter 2019.

The Company reported GAAP net income of $5.3 million, or diluted earnings per share of $0.10, for the first quarter 2020 compared to GAAP net income of $9.4 million, or diluted earnings per share of $0.18, for the first quarter 2019. On a non-GAAP basis, the Company reported net income of $25.4 million, or diluted earnings per share of $0.48, for the first quarter 2020 compared to non-GAAP net income of $27.6 million, or diluted earnings per share of $0.53, for the first quarter 2019.

Expense Control Measures and 2020 Financial Guidance
On April 14, 2020, NuVasive provided a business update related to COVID-19, including the following temporary actions to reduce operating expenses:

  • Implementing compensation reductions for its board of directors and executive officers;
  • Controlling discretionary spend across the organization; and
  • Adjusting manufacturing capacity based on certain government directives and demand, while ensuring sufficient inventory levels to support current procedure volumes.

Additionally, on April 14, 2020, NuVasive withdrew its annual financial guidance for 2020. The COVID-19 pandemic has had a significant negative impact on elective procedure volumes. As visibility for spine surgery volumes for the remainder of the year is limited, and the Company is not able to predict when or how quickly elective surgery volumes will recover, the Company is not providing further financial guidance for 2020 at this time.

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 GAAP to Non-GAAP Information
Management 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, 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 March 31, 2020

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

$      188,016

$    28,319

$         5,298

$   0.10

53,727

$                       5,298

% of revenue

72.3%

10.9%





Amortization of intangible assets


12,649

12,649




Litigation related expenses and settlements1


3,103

3,103



3,103

Business transition costs2


(1,440)

(1,440)



(1,440)

European medical device regulation3


1,247

1,247



1,247

Non-cash interest expense on convertible notes



5,724




Net loss on strategic investments



1,411



1,411

Tax effect of adjustments4



(2,562)




Interest expense/(income), net






10,786

Income tax expense






4,827

Depreciation and amortization






34,972

Non-cash stock based compensation






(2,858)

Adjusted Non-GAAP

$      188,016

$    43,878

$       25,430

$   0.48

52,532

$                     57,346

% of revenue

72.3%

16.9%




22.1%



1

Represents expenses associated with certain ongoing litigation 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 May 6, 2020, the Company estimated an annual tax rate of ~27% on a GAAP basis and ~23% on a non-GAAP basis.

5

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

 

For the Three Months Ended March 31, 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

$      200,282

$    20,173

$         9,386

$   0.18

52,480

$                       9,386

% of revenue

72.9%

7.3%





Amortization of intangible assets


13,625

13,625




Litigation related expenses and settlements1


3,046

3,046



3,046

Business transition costs2


3,833

3,833



3,833

European medical device regulation3


332

332



332

Non-cash interest expense on convertible notes



4,319




Tax effect of adjustments4



(6,933)




Interest expense/(income), net






9,104

Income tax expense






1,317

Depreciation and amortization






34,054

Non-cash stock based compensation






5,717

Adjusted Non-GAAP

$      200,282

$    41,009

$       27,608

$   0.53

52,480

$                     66,789

% of revenue

72.9%

14.9%




24.3%



1

Represents expenses associated with certain ongoing litigation 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 May 1, 2019, the Company estimated an annual tax rate of ~22% on a GAAP basis and ~23% on a non-GAAP basis.

5

Adjusted non-GAAP diluted WASO excludes the impact of dilutive convertible notes 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 first 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 June 6, 2020. In addition, a telephone replay of the call will be available until May 13, 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: 13702256.

About NuVasive
NuVasive, 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 revenue, 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 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 first quarter 2020. The Company's results for the first 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 March 31,

(unaudited)


2020


2019

Revenue





Product revenue


$ 234,687


$ 243,823

Service revenue


25,194


30,953

Total revenue


259,881


274,776

Cost of revenue (excluding below amortization of intangible assets)





Cost of products sold 


51,645


54,486

Cost of services


20,220


20,008

Total cost of revenue


71,865


74,494

Gross profit


188,016


200,282

Operating expenses:





Sales, marketing and administrative


130,231


145,076

Research and development


18,257


17,575

Amortization of intangible assets


12,649


13,625

Business transition costs


(1,440)


3,833

Total operating expenses


159,697


180,109

Interest and other expense, net:





Interest income


731


409

Interest expense


(11,517)


(9,513)

Other (expense) income, net


(7,408)


(366)

Total interest and other expense, net


(18,194)


(9,470)

Income before income taxes


10,125


10,703

Income tax expense


(4,827)


(1,317)

Consolidated net income


$     5,298


$     9,386

Net income per share:





Basic


$       0.10


$       0.18

Diluted


$       0.10


$       0.18

Weighted average shares outstanding:





Basic


51,837


51,675

Diluted


53,727


52,480

 

NuVasive, Inc. 

Consolidated Balance Sheets 

(in thousands, except par values and share amounts) 








March 31, 2020


December 31, 2019

ASSETS


(Unaudited)



Current assets:





Cash and cash equivalents


$          511,976


$                213,034

Accounts receivable, net of allowances of $17,386 and $17,019, respectively


186,826


211,532

Inventory, net


324,675


312,419

Prepaid income taxes


17,628


10,434

Prepaid expenses and other current assets


17,294


16,917

Total current assets


1,058,399


764,336

Property and equipment, net


280,058


266,318

Intangible assets, net


191,136


201,092

Goodwill


559,299


561,064

Operating lease right-of-use assets


107,304


66,932

Deferred tax assets


9,354


9,162

Restricted cash and investments


1,494


1,494

Other assets


13,477


14,892

Total assets


$       2,220,521


$             1,885,290

LIABILITIES AND EQUITY





Current liabilities:





Accounts payable and accrued liabilities


$            91,241


$                  97,160

Contingent consideration liabilities


14,859


15,727

Accrued payroll and related expenses


40,173


86,458

Operating lease liabilities


7,031


5,567

Income tax liabilities


151


2,005

Senior convertible notes


628,681


Total current liabilities


782,136


206,917

Long-term senior convertible notes


361,633


623,298

Deferred and income tax liabilities


23,905


14,655

Operating lease liabilities


116,496


73,153

Other long-term liabilities


50,152


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 March 31, 2020 and December 31, 2019, 57,691,871 and 57,524,658 issued and outstanding at March 31, 2020 and December 31, 2019, respectively


62


62

Additional paid-in capital


1,478,294


1,429,854

Accumulated other comprehensive loss


(13,227)


(9,418)

Retained earnings


87,773


82,475

Treasury stock at cost; 6,524,218 shares and 5,379,536 shares at March 31, 2020 and December 31, 2019, respectively


(666,703)


(587,766)

Total equity


886,199


915,207

Total liabilities and equity


$       2,220,521


$             1,885,290

 

NuVasive, Inc. 

Consolidated Statements of Cash Flows 

(in thousands) 








Three Months Ended March 31,

(unaudited)


2020


2019

Operating activities:





Consolidated net income


$     5,298


$   9,386

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





Depreciation and amortization


34,972


34,054

Amortization of non-cash interest


7,143


5,210

Stock-based compensation


(2,858)


5,717

Reserves on current assets


5,232


3,785

Net loss on strategic investments


1,411


Other non-cash adjustments


5,403


3,172

Deferred income taxes


9,105


1,547

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





Accounts receivable


22,409


1,620

Inventory


(21,135)


(19,292)

Prepaid expenses and other current assets


(2,042)


(1,399)

Accounts payable and accrued liabilities


(5,271)


(2,249)

Accrued payroll and related expenses


(45,927)


(14,815)

Income taxes


(8,515)


(2,261)

Net cash provided by operating activities


5,225


24,475

Investing activities:





Purchases of intangible assets


(2,490)


(6,827)

Purchases of property and equipment


(28,116)


(33,929)

Net cash used in investing activities


(30,606)


(40,756)

Financing activities:





Purchases of treasury stock


(78,818)


(8,177)

Payment of contingent consideration


(346)


(1,435)

Proceeds from issuance of convertible debt, net of issuance costs


437,686


Proceeds from sale of warrants


47,070


Purchase of convertible note hedge


(78,300)


Other financing activities


(1,233)


1,556

Net cash provided by (used in) financing activities


326,059


(8,056)

Effect of exchange rate changes on cash


(1,736)


(112)

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


298,942


(24,449)

Cash, cash equivalents and restricted cash at beginning of period


214,528


120,235

Cash, cash equivalents and restricted cash at end of period


$ 513,470


$ 95,786

 

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SOURCE NuVasive, Inc.

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