NuVasive Announces Second Quarter 2020 Financial Results

Rhea-AI Summary

NuVasive, Inc. (NASDAQ: NUVA) reported a 30.3% decline in net sales for Q2 2020, totaling $203.6 million, compared to $292.1 million in Q2 2019. The company experienced a GAAP net loss of $50.0 million, or $0.98 per share, markedly worse than the net income of $15.0 million reported in the previous year. Non-GAAP results showed a net loss of $20.4 million, or $0.40 per share. Despite a positive sales trend in June, the company refrained from providing annual financial guidance due to ongoing uncertainty regarding elective surgery volumes amid the COVID-19 pandemic.

Positive

• Improved monthly sales trend observed in June
• Focus on advancing R&D projects and less invasive surgical procedures

Negative

• 30.3% decline in net sales from Q2 2019
• GAAP operating margin of -18.3%
• Inability to predict recovery of elective surgery volumes
• GAAP net loss of $50.0 million compared to net income of $15.0 million in Q2 2019

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 Results
NuVasive 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 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, 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 (Loss)	Net (Loss)	Diluted EPS	Diluted WASO7	Net (Loss) to 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 settlements1		1,187	1,187			1,187
	Business transition costs2		874	874			874
	Purchase of in-process research and development3		1,011	1,011			1,011
	European medical device regulation4		1,683	1,683			1,683
	Non-cash interest expense on convertible notes			9,615
	Net loss recognized on change in fair value of derivatives5			12,301			12,301
	Tax effect of adjustments6			(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.
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	Purchase of an in-process research and development asset which had no future alternative use.
4	Represents costs specific to updating our quality system, product labeling, 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.
7	Adjusted non-GAAP diluted WASO excludes the impact of all dilutive securities, 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 (Loss) Profit	Net (Loss) Income	Diluted EPS	Diluted WASO7	Net (Loss) to 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 settlements1		4,290	4,290			4,290
	Business transition costs2		(566)	(566)			(566)
	Purchase of in-process research and development3		1,011	1,011			1,011
	European medical device regulation4		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 derivatives5			12,301			12,301
	Tax effect of adjustments6			(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.
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	Purchase of an in-process research and development asset which had no future alternative use.
4	Represents costs specific to updating our quality system, product labeling, 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.
7	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 June 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 WASO5	Net Income to 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 settlements1		2,031	2,031			2,031
	Business transition costs2		1,646	1,646			1,646
	European medical device regulation3		1,400	1,400			1,400
	Non-cash interest expense on convertible notes			4,374
	Tax effect of adjustments4			(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.
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 July 30, 2019, the Company estimated an annual tax rate of ~24% 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 Six Months Ended June 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 WASO5	Net Income to 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 settlements1		5,077	5,077			5,077
	Business transition costs2		5,479	5,479			5,479
	European medical device regulation3		1,732	1,732			1,732
	Non-cash interest expense on convertible notes			8,693
	Tax effect of adjustments4			(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.
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 July 30, 2019, the Company estimated an annual tax rate of ~24% 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 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 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 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 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 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, 2020 and December 31, 2019, 57,779,397 and 57,524,658 issued and outstanding at June 30, 2020 and December 31, 2019, respectively		62		62
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, 2020 and December 31, 2019, respectively		(666,911)		(587,766)
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 operating activities:
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

 

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SOURCE NuVasive, Inc.

FAQ

What are NuVasive's Q2 2020 net sales figures?

NuVasive reported net sales of $203.6 million for Q2 2020, a decline of 30.3% compared to the same quarter in 2019.

What was NuVasive's net loss for Q2 2020?

For Q2 2020, NuVasive reported a GAAP net loss of $50.0 million, equating to a loss of $0.98 per share.

Did NuVasive provide financial guidance for the remainder of 2020?

No, NuVasive did not reinstitute its annual financial guidance due to limited visibility for spine surgery volumes.

How did NuVasive's gross margin change in Q2 2020 compared to Q2 2019?

NuVasive's gross margin decreased from 73.4% in Q2 2019 to 60.5% in Q2 2020.

What is the stock symbol for NuVasive?

NuVasive's stock symbol is NUVA.