NuVasive Announces Third Quarter 2020 Financial Results

Rhea-AI Summary

NuVasive, Inc. (NASDAQ: NUVA) reported a 1.5% increase in net sales to $295.3 million for Q3 2020, with a GAAP operating margin of 9.2% and non-GAAP operating margin of 15.8%. GAAP diluted EPS was $0.11, while non-GAAP diluted EPS stood at $0.55. The company noted a faster recovery from COVID-19 impacts, highlighted by growth in the international market. However, NuVasive opted not to reinstate annual financial guidance amid ongoing uncertainties.

Positive

• Net sales increased by 1.5% to $295.3 million.
• International business experienced high-single digit growth.
• Non-GAAP diluted EPS of $0.55, down only slightly from $0.59 year-over-year.

Negative

• GAAP net income decreased from $11.0 million in Q3 2019 to $5.9 million in Q3 2020.
• GAAP diluted EPS dropped from $0.21 to $0.11 compared to the same quarter in the previous year.
• Gross margin declined from 73.5% to 71.3% year over year.

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 NuVasive announced in April 2020 that it had withdrawn its annual financial guidance due to the uncertainty related to COVID-19, and is not reinstituting its annual financial guidance for the remainder of the year.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 Results
NuVasive 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 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 September 30, 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 WASO5	Net Income to Adjusted EBITDA
Reported GAAP	$   210,649	$   27,052	$   5,872	$   0.11	51,805	$   5,872
% of revenue	71.3%	9.2%
Amortization of intangible assets		13,826	13,826
Litigation related expenses and settlements1		1,396	1,396			1,396
Business transition costs2		3,107	3,107			3,107
European medical device regulation3		1,149	1,149			1,149
Non-cash interest expense on convertible notes			12,683
Net gain on strategic investments			(1,132)			(1,132)
Tax effect of adjustments4			(8,575)
Interest expense/(income), net						20,852
Income tax expense						579
Depreciation and amortization						35,959
Non-cash stock-based compensation						7,572
Adjusted Non-GAAP	$   210,649	$   46,530	$   28,326	$   0.55	51,805	$   75,354
% 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.
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.
5	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.

 

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 Profit	Net (Loss) Income	Diluted EPS	Diluted WASO7	Net (Loss) to Adjusted EBITDA
Reported GAAP	$   521,772	$   18,068	$   (38,845)	$   (0.76)	51,440	$   (38,845)
% of revenue	68.8%	2.4%
Amortization of intangible assets		39,150	39,150
Litigation related expenses and settlements1		5,686	5,686			5,686
Business transition costs2		2,541	2,541			2,541
Purchase of in-process research and development3		1,011	1,011			1,011
European medical device regulation4		4,079	4,079			4,079
Non-cash interest expense on convertible notes			28,022
Net loss on strategic investments			278			278
Net loss recognized on change in fair value of derivatives5			12,301			12,301
Tax effect of adjustments6			(20,834)
Interest expense/(income), net						47,858
Income tax benefit						(9,764)
Depreciation and amortization						106,097
Non-cash stock-based compensation						9,751
Adjusted Non-GAAP	$   521,772	$   70,535	$   33,389	$   0.64	52,033	$   140,993
% 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.
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 September 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	$   213,807	$   30,514	$   11,010	$   0.21	53,056	$   11,010
% of revenue	73.5%	10.5%
Amortization of intangible assets		12,596	12,596
Litigation related expenses and settlements1		1,899	1,899			1,899
Business transition costs2		(333)	(333)			(333)
European medical device regulation3		953	953			953
Non-cash interest expense on convertible notes			4,432
Net loss on strategic investments			4,767			4,767
Tax effect of adjustments4			(4,455)
Interest expense/(income), net						9,034
Income tax expense						4,774
Depreciation and amortization						33,631
Non-cash stock-based compensation						7,829
Adjusted Non-GAAP	$   213,807	$   45,629	$   30,869	$   0.59	52,590	$   73,564
% 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.
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 October 30, 2019, the Company estimated an annual tax rate of ~26% 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 Nine Months Ended September 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	$   628,615	$   80,884	$   35,358	$   0.67	52,667	$   35,358
% of revenue	73.3%	9.4%
Amortization of intangible assets		38,498	38,498
Litigation related expenses and settlements1		6,976	6,976			6,976
Business transition costs2		5,146	5,146			5,146
European medical device regulation3		2,685	2,685			2,685
Non-cash interest expense on convertible notes			13,125
Net loss on strategic investments			4,767			4,767
Tax effect of adjustments4			(15,269)
Interest expense/(income), net						27,461
Income tax expense						12,012
Depreciation and amortization						101,245
Non-cash stock-based compensation						20,447
Adjusted Non-GAAP	$   628,615	$   134,189	$   91,286	$   1.74	52,512	$   216,097
% 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.
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 October 30, 2019, the Company estimated an annual tax rate of ~26% 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 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 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 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 sales		295,282		290,835		758,775		857,716
Cost of sales (excluding below amortization of intangible assets):
Products		66,049		57,164		182,067		169,263
Services		18,584		19,864		54,936		59,838
Total cost of sales		84,633		77,028		237,003		229,101
Gross profit		210,649		213,807		521,772		628,615
Operating expenses:
Selling, general and administrative		146,260		152,887		402,935		450,816
Research and development		20,404		18,143		58,067		53,271
Amortization of intangible assets		13,826		12,596		39,150		38,498
Purchase of in-process research and development		—		—		1,011		—
Business transition costs		3,107		(333)		2,541		5,146
Total operating expenses		183,597		183,293		503,704		547,731
Interest and other expense, net:
Interest income		271		620		1,306		1,356
Interest expense		(21,123)		(9,654)		(49,164)		(28,817)
Other income (expense), net		251		(5,696)		(18,819)		(6,053)
Total interest and other expense, net		(20,601)		(14,730)		(66,677)		(33,514)
Income (loss) before income taxes		6,451		15,784		(48,609)		47,370
Income tax (expense) benefit		(579)		(4,774)		9,764		(12,012)
Consolidated net income (loss)		$   5,872		$   11,010		$   (38,845)		$   35,358
Net income (loss) per share:
Basic		$   0.11		$   0.21		$   (0.76)		$   0.68
Diluted		$   0.11		$   0.21		$   (0.76)		$   0.67
Weighted average shares outstanding:
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 of $20,924 and $17,019, respectively		205,255		211,532
Inventory, net		305,634		312,419
Prepaid income taxes		13,322		10,434
Prepaid expenses and other current assets		15,576		16,917
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 convertible notes		10,318		—
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 shares authorized at September 30, 2020 and December 31, 2019, respectively; 57,813,261 and 57,524,658 issued and outstanding at September 30, 2020 and December 31, 2019, respectively		62		62
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 shares and 5,379,536 shares at September 30, 2020 and December 31, 2019, respectively		(667,565)		(587,766)
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 to net 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 development		1,011		—
Net loss on strategic investments		278		4,767
Net loss recognized on change in fair value of derivatives		12,301		—
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, net of issuance costs		873,890		—
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 activities		735,713		(7,981)
Effect of exchange rate changes on cash		829		(1,014)
Increase in cash, cash equivalents and restricted cash		561,510		45,559
Cash, cash equivalents and restricted cash at beginning of period		214,528		120,235
Cash, cash equivalents and restricted cash at end of period		$   776,038		$   165,794

 

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SOURCE NuVasive, Inc.

FAQ

What were NuVasive's financial results for Q3 2020?

NuVasive reported net sales of $295.3 million for Q3 2020, a 1.5% increase year-over-year, with a GAAP diluted EPS of $0.11.

What is the outlook for NuVasive after Q3 2020?

NuVasive has not reinstated its annual financial guidance due to ongoing uncertainties from COVID-19.

How did NuVasive's GAAP net income change in Q3 2020?

GAAP net income decreased to $5.9 million in Q3 2020, down from $11.0 million in Q3 2019.