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NuVasive Reports Fourth Quarter and Full Year 2010 Financial Results

^{Published on 2011-02-23 13:55:33 - Market Wire}
 

SAN DIEGO, CA--(Marketwire - February 23, 2011) - NuVasive, Inc. (NASDAQ: [ NUVA ])

 -- Full year 2010 total revenue of $478.2 million; up 29.1% from the full year 2009 -- Fourth quarter 2010 total revenue of $129.3 million; up 20.9% from fourth quarter 2009 and up 7.5% from third quarter 2010 -- GAAP earnings of $61.9 million, or $1.39 per share, for the fourth quarter 2010 and $78.3 million, or $1.85 per share, for the full year 2010 -- Non-GAAP earnings of $19.3 million, or $0.46 per share, for the fourth quarter 2010 and $63.0 million, or $1.52 per share, for the full year 2010 -- Operating cash flow of $65.8 million for the full year 2010; up from $46.4 million for the full year 2009 

NuVasive, Inc. (NASDAQ: [ NUVA ]), a medical device company focused on developing minimally disruptive surgical products and procedures for the spine, announced today financial results for the quarter and for the full year ended December 31, 2010.

NuVasive reported fourth quarter 2010 revenue of $129.3 million, a 20.9% increase over the $106.9 million for the fourth quarter 2009 and a 7.5% increase over the $120.3 million for the third quarter 2010. Full year 2010 revenue was $478.2 million, a 29.1% increase over the $370.3 million reported for the full year 2009.

Gross profit for the fourth quarter 2010 was $106.2 million and gross margin was 82.1%, compared to a gross profit of $88.9 million and a gross margin of 83.2% for the fourth quarter 2009. For the third quarter 2010, gross profit was $98.7 million and gross margin was 82.1%. Gross profit for the full year 2010 was $393.1 million and gross margin was 82.2%, compared to a gross profit of $309.2 million and gross margin of 83.5% for the full year 2009.

Total operating expenses for the fourth quarter 2010 were $94.9 million compared to $84.7 million in the fourth quarter 2009 and $89.1 million in the third quarter 2010. Full year 2010 operating expenses were $361.0 million compared to $297.9 million reported for the full year 2009. The higher operating expenses in 2010 resulted primarily from additional costs associated with higher revenue, infrastructure expansion, and research and development.

On a GAAP basis, the Company reported net income of $61.9 million, or $1.39 per share, for the fourth quarter 2010, and net income of $78.3 million, or $1.85 per share for the full year 2010.

On a Non-GAAP basis, the Company reported net income of $19.3 million, or $0.46 per share, for the fourth quarter 2010, and net income of $63.0 million, or $1.52 per share, for the full year 2010. The Non-GAAP earnings per share calculations for the fourth quarter and full year exclude, respectively, (i) non-cash stock-based compensation of $6.9 million and $28.2 million; (ii) certain intellectual property litigation expenses of $1.5 million and $5.1 million; (iii) amortization of intangible assets of $1.4 million and $5.4 million; (iv) acquisition related items of $1.4 million and $3.0 million; and (v) the reversal of an income tax valuation allowance of $53.4 million and $53.4 million.

Cash, cash equivalents and short and long-term marketable securities were $229.7 million at December 31, 2010.

Alex Lukianov, Chairman and Chief Executive Officer, said, "We achieved revenue growth of nearly 30%, a record non-GAAP operating margin well over 15% and more than $65 million in operating cash flow in 2010, despite challenging spine market dynamics. We made great strides in building the body of scientific evidence in support of our unique XLIF technology to demonstrate superior clinical outcomes together with long term follow up. As our focus shifts from achieving $500 million in revenue toward the achievement of our next milestone, the evolution of NuVasive into a $1 billion revenue company, we are laser focused on maintaining the startup mentality that is the very source of NuVasive's success as a prolific new product innovator. With speed as our competitive edge, we will rely on creativity and resourcefulness and our culture of accountability to bring more game changing innovation to our surgeon customers and deliver exceptional results to our share holders."

2011 Full Year Financial Guidance

 -- Revenue of $525 million to $535 million -- GAAP EPS of $0.39 to $0.42 -- Non-GAAP EPS of $1.07 to $1.10 -- Non-GAAP Operating Margin of ~16.5% 2011 Guidance Reconciliation of Non-GAAP Operating Margin % FY 10 FY 11 Actual Estimate ------ -------------------- Gross Margin % [A] 82.2% ~ 81% Non-GAAP Research and Development [B] 8.0% ~ 8% Non-cash stock-based compensation 0.7% ~ 1% Acquisition related items* 0.4% as incurred ------ -------------------- GAAP research and development 9.1% ~ 9% Non-GAAP Sales, Marketing and Administrative [C] 58.8% ~ 56.5% Non-cash stock-based compensation 5.2% ~ 5% Certain intellectual property litigation expenses 1.1% ~ 1% Acquisition related items* 0.2% ~ 0.5% & as incurred ------ -------------------- GAAP sales, marketing and administrative 65.3% ~ 63% Amortization of intangible assets 1.1% ~ 1.5% ------ -------------------- Non-GAAP Operating Margin % [A-B-C] 15.4% ~ 16.5% ------ -------------------- * Acquisition related items include ~0.5% of revenue for expenses associated with prior M&A activity and as incurred Reconciliation of Full Year EPS Guidance 2010 Pre-Tax 2011 Pre-Tax 2011 Net of Tax* ------ -------------- -------------- Low High Low High Actual Range Range Range Range ------ ------ ------ ------ ------ GAAP earnings per share** $ 0.64 $ 0.77 $ 0.82 $ 0.39 $ 0.42 Non-cash stock-based compensation 0.70 0.79 0.79 0.47 0.47 Certain intellectual property litigation expenses 0.13 0.13 0.13 0.08 0.08 Amortization of intangible assets 0.13 0.18 0.18 0.11 0.11 Acquisition related items 0.07 0.04 0.04 0.02 0.02 ------ ------ ------ ------ ------ Non-GAAP earnings per share $ 1.68 $ 1.91 $ 1.96 $ 1.07 $ 1.10 ====== ====== ====== ====== ====== Weighted average shares - Diluted*** 40,373 42,000 42,000 42,000 42,000 ====== ====== ====== ====== ====== * Effective Tax Rate of ~49% applied to GAAP earnings and ~40% applied to Non-GAAP adjustments ** GAAP earnings per share calculated on consolidated net income *** 2010 weighted average shares outstanding shown as pre "if-converted" method 

Reconciliation of Non-GAAP Information

Management uses certain Non-GAAP financial measures such as Non-GAAP earnings per share, which exclude non-cash stock-based compensation, certain intellectual property litigation expenses, amortization of intangible assets, acquisition related items, and the reversal of an income tax valuation allowance. Management does not consider these costs in evaluating the continuing operations of the Company. Therefore, 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 analyze further, and more consistently, the period-to-period financial performance of its core business operations. Management believes that providing investors with these Non-GAAP measures gives them additional important 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.

 Reconciliation of Fourth Quarter 2010 Results Earnings Per Share -------------------- Pre "If Post "If (in thousands, except Pre-Tax Converted" Converted" per share data) adjustments Net of Tax Method Method ---------- ---------- --------- --------- GAAP net income * $ 61,932 $ 1.53 $ 1.39 Non-cash stock-based compensation 6,921 6,641 0.16 0.15 Certain intellectual property litigation expenses 1,549 1,486 0.04 0.03 Amortization of intangible assets 1,360 1,305 0.03 0.03 Acquisition related items 1,440 1,382 0.03 0.03 Reversal of remaining income tax valuation allowance (53,425) (1.32) (1.17) ---------- --------- --------- Non-GAAP earnings $ 19,321 $ 0.48 $ 0.46 ========== ========= ========= Weighted average shares - Diluted 40,347 45,488 ========= ========= * "if-converted" method assumes add back of $1.5M net of tax ($1.7M pretax) of interest and debt issuance costs to GAAP net income Reconciliation of Full Year 2010 Results Earnings Per Share -------------------- Pre "If Post "If (in thousands, except Pre-Tax Converted" Converted" per share data) adjustments Net of Tax Method Method ---------- ---------- --------- --------- GAAP net income * $ 78,285 $ 1.94 $ 1.85 Non-cash stock-based compensation 28,225 25,815 0.64 0.57 Certain intellectual property litigation expenses 5,123 4,685 0.12 0.10 Amortization of intangible assets 5,407 4,945 0.12 0.11 Acquisition related items 2,982 2,727 0.07 0.06 Reversal of remaining income tax valuation allowance (53,425) (1.32) (1.17) ---------- --------- --------- Non-GAAP earnings $ 63,032 $ 1.56 $ 1.52 ========== ========= ========= Weighted average shares - Diluted 40,373 45,514 ========= ========= * "if-converted" method assumes add back of $6.0M net of tax ($6.7M pretax) of interest and debt issuance costs to GAAP net income 

Conference Call

NuVasive will hold a conference call today at 5:30 p.m. ET / 2:30 p.m. PT to discuss the results. 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 corporate website at [ www.nuvasive.com ].

After the live webcast, the call will remain available on NuVasive's website, [ www.nuvasive.com ], through March 25, 2011. In addition, a telephonic replay of the call will be available until March 9, 2011. The replay dial-in numbers are 1-877-870-5176 for domestic callers and 1-858-384-5517 for international callers. Please use replay pin number 365288.

About NuVasive

NuVasive is a medical device company focused on developing minimally disruptive surgical products and procedures for the spine. The Company is the 5th largest player in the $7.7 billion global spine market.

NuVasive's principal product offering is based on its Maximum Access Surgery, or MAS® platform. The MAS platform combines four categories of products that collectively minimize soft tissue disruption during spine surgery with maximum visualization and safe, easy reproducibility for the surgeon: a proprietary software-driven nerve avoidance system; MaXcess®, a unique split-blade retractor system; a wide variety of specialized implants; and several biologic fusion enhancers. MAS significantly reduces surgery time and returns patients to activities of daily living much faster than conventional approaches. Having redefined spine surgery with the MAS platform's lateral approach, known as eXtreme Lateral Interbody Fusion, or XLIF®, NuVasive has built an entire spine franchise. With over 65 products today spanning lumbar, thoracic and cervical applications, the Company will continue to expand and evolve its offering predicated on its R&D focus and dedication to outstanding service levels supported by a culture of Absolute Responsiveness®.

NuVasive cautions you that statements included in this press release 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. The potential risks and uncertainties that could cause actual growth and results to differ materially include, but are not limited to: the risk that NuVasive's revenue or earnings projections may turn out to be inaccurate because of the preliminary nature of the forecasts and the risk of further adjustment, or unanticipated difficulty in selling products or generating expected profitability; the uncertain process of seeking regulatory approval or clearance for NuVasive's products or devices, including risks that such process could be significantly delayed; the possibility that the FDA may require significant changes to NuVasive's products or clinical studies; the risk that products may not perform as intended and may therefore not achieve commercial success; the risk that competitors may develop superior products or may have a greater market position enabling more successful commercialization; the risk that additional clinical data may call into question the benefits of NuVasive's products to patients, hospitals and surgeons; and other risks and uncertainties more fully described in NuVasive's press 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. Unaudited Condensed Consolidated Statement of Operations (in thousands, except per share data) Three Months Ended Year Ended December 31, December 31, -------------------- -------------------- 2010 2009 2010 2009 --------- --------- --------- --------- Revenue $ 129,304 $ 106,935 $ 478,237 $ 370,340 Cost of goods sold (excluding amortization of purchased technology) 23,102 18,002 85,139 61,110 --------- --------- --------- --------- Gross profit 106,202 88,933 393,098 309,230 Operating expenses: Sales, marketing and administrative 82,018 72,476 312,122 254,997 Research and development 11,490 10,943 43,479 37,581 Amortization of intangible assets 1,360 1,263 5,407 5,335 --------- --------- --------- --------- Total operating expenses 94,868 84,682 361,008 297,913 Interest and other (expense) income, net: Interest income 193 189 760 1,507 Interest expense (1,667) (1,676) (6,672) (7,116) Other (expense) income, net (345) 136 (264) 461 --------- --------- --------- --------- Total interest and other (expense) income, net (1,819) (1,351) (6,176) (5,148) --------- --------- --------- --------- Income before income taxes 9,515 2,900 25,914 6,169 Income tax (benefit) expense (52,018) 679 (50,619) 1,732 --------- --------- --------- --------- Consolidated net income $ 61,533 $ 2,221 $ 76,533 $ 4,437 ========= ========= ========= ========= Net loss attributable to noncontrolling interests $ (399) $ (60) $ (1,752) $ (1,371) ========= ========= ========= ========= Net income attributable to NuVasive, Inc. $ 61,932 $ 2,281 $ 78,285 $ 5,808 ========= ========= ========= ========= Net income per share attributable to NuVasive, Inc.: Basic $ 1.57 $ 0.06 $ 1.99 $ 0.16 ========= ========= ========= ========= Diluted $ 1.39 $ 0.06 $ 1.85 $ 0.15 ========= ========= ========= ========= Weighted average shares outstanding: Basic 39,486 38,645 39,251 37,426 ========= ========= ========= ========= Diluted 45,488 39,813 45,514 38,751 ========= ========= ========= ========= Stock-based compensation is included in operating expenses in the following categories: Sales, marketing and administrative $ 6,099 $ 4,800 $ 24,945 $ 19,549 Research and development 822 828 3,280 4,244 --------- --------- --------- --------- $ 6,921 $ 5,628 $ 28,225 $ 23,793 ========= ========= ========= ========= NuVasive, Inc. Unaudited Condensed Consolidated Balance Sheets (in thousands) December 31, -------------------- 2010 2009 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 92,597 $ 65,413 Short-term marketable securities 86,458 99,279 Accounts receivable, net 76,632 58,462 Inventory 107,577 90,191 Deferred tax assets 4,425 - Prepaid expenses and other current assets 4,082 3,757 --------- --------- Total current assets 371,771 317,102 Property and equipment, net 102,165 82,602 Long-term marketable securities 50,635 39,968 Intangible assets, net 107,121 103,338 Goodwill 103,070 101,938 Deferred tax assets, non-current 52,033 612 Other assets 15,234 7,260 --------- --------- Total assets $ 802,029 $ 652,820 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 58,995 $ 35,636 Accrued payroll and related expenses 17,266 19,111 Acquisition-related liabilities 32,715 - --------- --------- Total current liabilities 108,976 54,747 Senior convertible notes 230,000 230,000 Long-term acquisition related liabilities 326 30,694 Deferred tax liabilities 3,685 16,756 Other long-term liabilities 12,810 10,772 Commitments and contingencies Noncontrolling interests 11,877 13,629 Stockholders' equity: Common stock 40 39 Additional paid-in capital 545,114 485,757 Accumulated other comprehensive income 616 126 Accumulated deficit (111,415) (189,700) --------- --------- Total stockholders' equity 434,355 296,222 --------- --------- Total liabilities and stockholders' equity $ 802,029 $ 652,820 ========= ========= NuVasive, Inc. Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, ------------------------------- 2010 2009 2008 --------- --------- --------- Operating activities: Consolidated net income (loss) $ 76,533 $ 4,437 $ (27,528) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 36,737 29,841 23,105 Deferred income tax benefit (53,664) - - In-process research and development - - 20,876 Stock-based compensation 28,225 23,793 20,947 Leasehold abandonment (reversal) - (1,997) 4,403 Allowance for doubtful accounts and sales return reserve, net of write-offs (995) 2,211 1,026 Allowance for excess and obsolete inventory 1,607 2,297 (836) Other non-cash adjustments 6,299 3,359 179 Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable (16,411) (8,582) (25,152) Inventory (18,664) (23,133) (32,451) Prepaid expenses and other current assets (3,559) 760 274 Accounts payable and accrued liabilities 11,596 5,932 5,098 Accrued payroll and related expenses (1,877) 7,501 5,057 --------- --------- --------- Net cash provided by (used in) operating activities 65,827 46,419 (5,002) Investing activities: Cash paid for acquisitions and investments (973) (46,055) (41,256) Purchases of property and equipment (45,846) (32,878) (39,795) Purchases of marketable securities (203,415) (157,278) (159,186) Sales of marketable securities 204,439 108,308 95,926 Other assets - - (304) --------- --------- --------- Net cash used in investing activities (45,795) (127,903) (144,615) Financing activities: Payments of long-term liabilities - - (300) Issuance of convertible debt, net of costs - - 222,442 Purchase of convertible note hedges - - (45,758) Sale of warrants - - 31,786 Tax benefits related to stock-based compensation awards 186 1,902 - Issuance of common stock 14,831 12,556 11,850 Other assets (7,935) - - --------- --------- --------- Net cash provided by financing activities 7,082 14,458 220,020 Effect of exchange rate changes on cash 70 121 - --------- --------- --------- Increase (decrease) in cash and cash equivalents 27,184 (66,905) 70,403 Cash and cash equivalents at beginning of year 65,413 132,318 61,915 --------- --------- --------- Cash and cash equivalents at end of year $ 92,597 $ 65,413 $ 132,318 ========= ========= =========