NuVasive Announces First Quarter 2017 Financial Results

2017 Guidance ¹

(in Million's; except %'s and EPS)

 GAAP 

 Non-GAAP 

Revenue

$  1,065

$          1,065

  % Growth - Reported

10.7%

10.7%

% Growth - Constant Currency ²

11.7%

Operating margin

12.3%

17.1%

Earnings per share

$    1.13

$            2.00

EBITDA

23.6%

26.7%

Tax Rate

~34%

~35%

¹

Current guidance reflects guidance provided April 25, 2017.

²

Constant currency is a measure that adjusts US GAAP revenue for the
impact of currency over the same period in the prior year.

Reconciliation of Full Year EPS Guidance

2017 Guidance

2016 Actuals

Prior ^{1, 2}

Current ^{1, 3}

GAAP net income per share

$  0.69

$    1.16

$         1.13

Impact of change to diluted share count

0.02

0.07

0.07

GAAP net income per share, adjusted to diluted Non-GAAP share count

$  0.71

$    1.23

$         1.20

Litigation liability gain

(0.83)

-

-

Business transition costs ⁴

0.35

0.05

0.04

Non-cash interest expense on convertible notes

0.38

0.33

0.33

Non-cash purchase accounting adjustments on acquisitions ⁵

0.28

-

-

Loss on repurchase of convertible notes

0.37

-

-

Amortization of intangible assets ⁶

0.78

0.83

0.89

Tax effect of adjustments ⁷

(0.38)

(0.44)

(0.46)

Non-GAAP earnings per share

$  1.66

$    2.00

$         2.00

GAAP Weighted shares outstanding - basic

50,077

50,967

50,967

GAAP Weighted shares outstanding - diluted

54,102

56,269

56,269

Non-GAAP Weighted shares outstanding - diluted

51,981

53,069

53,069

¹

Prior guidance provided February 9, 2017.  Current guidance reflects guidance provided April 25, 2017.

²

Effective tax expense rate of ~35% applied to GAAP earnings and ~35% applied to Non-GAAP earnings.

³

Effective tax expense rate of ~34% applied to GAAP earnings and ~35% applied to Non-GAAP earnings.

⁴

Costs related to acquisition, integration and business transition activities which include severance, relocation,
consulting, leasehold exit costs, third party merger and acquisitions costs and other costs directly associated with such
activities.

⁵

Represents costs associated with non-cash purchase accounting adjustments, such as acquired inventory fair market
value adjustments, which are amortized over the period in which underlying products are sold.

⁶

Excludes the amortization associated with non-controlling interest.

⁷

The impact on results from taxes include tax effecting the adjustments above at the statutory rate as well as taking into
account discrete items and including those discrete items in the annual effective tax rate calculation. The Company also
includes those adjustments that would have benefited the tax rate in lieu of the above adjustments as part of the
Company's tax filings. The impact of the changes to the tax rate results in an annual estimated rate of ~35% on a non-
GAAP basis. 

Reconciliation of Non-GAAP Operating Margin %

2017 Guidance

(in thousands, except %)

2016
Actuals

Prior ¹

Current ¹

Non-GAAP Gross Margin %[A]

76.6%

76.1%

76.1%

Non-cash purchase accounting adjustments on acquisitions ²

0.0%

0.0%

GAAP Gross Margin [B]

75.0%

76.1%

76.1%

GAAP & Non-GAAP Sales, Marketing & Administrative Expense [C]

55.5%

54.0%

54.0%

Non-GAAP Research & Development Expense [D]

5.0%

5.0%

5.0%

In-process research & development

0.0%

0.0%

0.0%

GAAP Research & Development Expense [E]

5.0%

5.0%

5.0%

Litigation liability [F]

(4.5%)

0.0%

0.0%

Amortization of intangible assets [G] ³

4.4%

4.3%

4.6%

Business transition costs [H] ⁴

1.9%

0.3%

0.2%

Non-GAAP Operating Margin % [A - C - D]

16.1%

17.1%

17.1%

GAAP Operating Margin % [B - C - E - F - G - H]

12.8%

12.6%

12.3%

¹

Prior guidance provided February 9, 2017.  Current guidance reflects guidance provided April 25, 2017.

²

Represents costs associated with non-cash purchase accounting adjustments, such as acquired inventory fair
market value adjustments, which are amortized over the period in which underlying products are sold.

³

Excludes the amortization associated with non-controlling interest.

⁴

Costs related to acquisition, integration and business transition activities which include severance,
relocation, consulting, leasehold exit costs, third party merger and acquisitions costs and other costs directly
associated with such activities.

 2017 Guidance 

(in thousands, except %)

2016
Actuals

Prior ¹

Current ¹

Net Income / (Loss)

3.9%

6.1%

6.0%

Interest (income) / expense, net ²

6.1%

3.5%

3.5%

Provision for income taxes

3.0%

3.1%

3.0%

Depreciation and amortization ³

10.5%

10.8%

11.1%

EBITDA

23.5%

23.6%

23.6%

Non-cash stock based compensation

2.8%

2.9%

3.0%

Business transition costs ⁴

1.9%

0.3%

0.2%

Non-cash purchase accounting adjustments on acquisitions ⁵

1.5%

0.0%

0.0%

In-process research & development

0.0%

0.0%

0.0%

Litigation liability gain

(4.5%)

0.0%

0.0%

Adjusted EBITDA

25.2%

26.7%

26.7%

¹

Prior guidance provided February 9, 2017.  Current guidance reflects guidance provided April 25, 2017.

²

Interest (income) / expense, net for the quarter and year ended December 31, 2016 includes loss on
extinguishment of debt for $1.6 million and $19.1 million, respectively.

³

Excludes the amortization associated with non-controlling interest.

⁴

Costs related to acquisition, integration and business transition activities which include severance, relocation,
consulting, leasehold exit costs, third party merger and acquisitions costs and other costs directly associated
with such activities.

⁵

Represents costs associated with non-cash purchase accounting adjustments, such as acquired inventory fair
market value adjustments, which are amortized over the period in which underlying products are sold.

Reconciliation of First Quarter 2017 Results

GAAP Net Income to Adjusted EBITDA

Three months ended

(in thousands, except per share data)

March 31, 2017

GAAP net income

$                     12,768

Interest expense/(income), net

9,662

Provision for income taxes

1,490

Depreciation and amortization ¹

29,158

EBITDA

$                     53,078

Business transition costs²

55

Non-cash stock based compensation

7,017

Adjusted EBITDA

$                     60,150

As a percentage of revenue

24.1%

¹

Excludes the amortization associated with non-controlling interest.

²

Reconciliation of First Quarter 2017 Results

GAAP Net Income per Share to Non-GAAP Earnings per Share

Adjustments

Diluted Earnings Per
Share

(in thousands, except per share data)

GAAP net income

$    12,768

$                     0.22

Business transition costs ¹

55

Non-cash interest expense on convertible notes

4,599

Amortization of intangible assets ²

11,738

Tax effect of adjustments ³

(9,123)

Adjustments to GAAP net income

7,269

0.14

Non-GAAP earnings

$    20,037

$                     0.38

GAAP weighted shares outstanding - diluted

57,786

Non-GAAP weighted shares outstanding - diluted  ⁴

52,683

¹

Costs related to acquisition, integration and business transition activities which include severance, relocation, consulting, leasehold exit costs,
third party merger and acquisitions costs and other costs directly associated with such activities.

²

Excludes the amortization associated with non-controlling interest.

³

The impact on results from taxes include tax effecting the adjustments above at the statutory rate as well as taking into account discrete items and
including those discrete items in the annual effective tax rate calculation. The Company also includes those adjustments that would have benefited
the tax rate in lieu of the above adjustments as part of the Company's tax filings. The impact of the changes to the tax rate results in an annual
estimated rate of ~35% on a non-GAAP basis.

⁴

Represents the exclusion of diluted shares associated with the Company's convertible debt and warrant which are economically hedged by the
Company's bond hedge arrangements on both the 2017 and 2021 convertible notes.

NuVasive, Inc. 

Consolidated Statements of Operations 

(in thousands, except per share data)

Three Months Ended March 31,

(unaudited)

2017

2016

Revenue

$ 249,864

$ 215,104

Cost of goods sold (excluding below amortization of intangible assets)

61,613

54,226

Gross profit

188,251

160,878

Operating expenses:

Sales, marketing and administrative

140,502

124,838

Research and development

12,414

10,629

Amortization of intangible assets

12,061

7,871

Business transition costs

55

5,307

Total operating expenses

165,032

148,645

Interest and other expense, net:

Interest income

137

328

Interest expense

(9,799)

(8,472)

Loss on repurchases of convertible notes

—

(17,444)

Other income, net

258

50

Total interest and other expense, net

(9,404)

(25,538)

Income (loss) before income taxes

13,815

(13,305)

Income tax (expense) benefit

(1,490)

9,480

Consolidated net income (loss)

$   12,325

$   (3,825)

Add back net loss attributable to non-controlling interest

$      (443)

$      (457)

Net income (loss) attributable to NuVasive, Inc.

$   12,768

$   (3,368)

Net income (loss) per share attributable to NuVasive, Inc.:

Basic

$       0.25

$     (0.07)

Diluted

$       0.22

$     (0.07)

Weighted average shares outstanding:

Basic

50,566

49,617

Diluted

57,786

49,617

NuVasive, Inc. 

Consolidated Balance Sheets 

(in thousands, except par values and share amounts) 

March 31, 2017

December 31, 2016

ASSETS

(Unaudited)

Current assets:

Cash and cash equivalents

$          134,008

$                153,643

Accounts receivable, net of allowances of $8,086 and $8,912, respectively

172,103

171,595

Inventory, net

223,075

208,249

Prepaid income taxes

21,161

31,926

Prepaid expenses and other current assets

12,921

10,030

Total current assets

563,268

575,443

Property and equipment, net

203,677

181,524

Intangible assets, net

279,603

291,143

Goodwill

486,342

485,685

Deferred tax assets

5,977

5,810

Restricted cash and investments

7,547

7,405

Other assets

23,721

23,794

Total assets

$       1,570,135

$             1,570,804

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$            82,467

$                  77,585

Contingent consideration liabilities

48,576

49,742

Accrued payroll and related expenses

38,651

51,000

Income tax liabilities

2,130

2,469

Senior convertible notes

62,486

61,701

Total current liabilities

234,310

242,497

Long-term senior convertible notes

568,939

564,412

Deferred and income tax liabilities, non-current

20,529

18,607

Other long-term liabilities

47,629

44,764

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, 2017 and December 31, 2016, 55,623,735 and 55,184,660 issued and outstanding at March 31, 2017 and December 31, 2016, respectively

56

55

Additional paid-in capital

1,020,672

1,010,238

Accumulated other comprehensive loss

(8,774)

(10,631)

Accumulated deficit

(65,738)

(66,859)

Treasury stock at cost; 4,963,014 shares and 4,758,828 shares at March 31, 2017 and December 31, 2016, respectively

(252,633)

(237,867)

Total NuVasive, Inc. stockholders' equity

693,583

694,936

Non-controlling interest

5,145

5,588

Total equity

698,728

700,524

Total liabilities and equity

$       1,570,135

$             1,570,804

NuVasive, Inc. 

Consolidated Statements of Cash Flows 

(in thousands) 

Three Months Ended March 31,

(unaudited)

2017

2016

Operating activities:

Consolidated net income (loss)

$   12,325

$   (3,825)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

29,510

21,224

Loss on repurchases of convertible notes

—

17,444

Amortization of non-cash interest

5,369

5,112

Stock-based compensation

7,017

4,492

Reserves on current assets

(2,153)

4,162

Other non-cash adjustments

3,013

3,491

Deferred income taxes

1,645

(2,630)

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

Accounts receivable

924

6,939

Inventory

(13,630)

(9,449)

Prepaid expenses and other current assets

(2,756)

1,303

Accounts payable and accrued liabilities

593

10,021

Accrued payroll and related expenses

(12,531)

(9,219)

Income taxes

(1,298)

8,327

Net cash provided by operating activities

28,028

57,392

Investing activities:

Acquisition of Ellipse Technologies, net of cash acquired

—

(380,674)

Other acquisitions and investments

(2,500)

(8,079)

Purchases of intangible assets

(1,249)

(1,027)

Purchases of property and equipment

(34,545)

(18,279)

Purchases of marketable securities

—

(36,096)

Proceeds from sales of marketable securities

—

253,435

Net cash used in investing activities

(38,294)

(190,720)

Financing activities:

Proceeds from the issuance of common stock

410

444

Purchase of treasury stock

(10,356)

(12,599)

Proceeds from issuance of convertible debt, net of issuance costs

—

634,140

Proceeds from sale of warrants

—

44,850

Purchase of convertible note hedge

—

(111,150)

Repurchases of convertible notes

—

(343,835)

Proceeds from revolving line of credit

—

50,000

Repayments on revolving line of credit

—

(50,000)

Other financing activities

(181)

(1,442)

Net cash (used in) provided by financing activities

(10,127)

210,408

Effect of exchange rate changes on cash

758

686

(Decrease) increase in cash and cash equivalents

(19,635)

77,766

Cash and cash equivalents at beginning of period

153,643

192,339

Cash and cash equivalents at end of period

$ 134,008

$ 270,105