On October 30, 2019 NuVasive, Inc. (NASDAQ: NUVA), the leader in spine technology innovation, focused on transforming spine surgery with minimally disruptive, procedurally integrated solutions, reported financial results for the quarter ended September 30, 2019 (Press release, NuVasive, OCT 30, 2019, View Source [SID1234550073]).
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Third Quarter 2019 Highlights
Revenue increased 7.2% to $290.8 million, or 7.5% on a constant currency basis;
GAAP operating profit margin of 10.5%; Non-GAAP operating profit margin of 15.7%;
GAAP diluted earnings per share of $0.21; Non-GAAP diluted earnings per share of $0.59; and
Company raises full-year 2019 financial guidance.
"In the third quarter 2019, NuVasive grew at multiples of market, with revenue increasing 7.2% driven by nearly double-digit organic growth within U.S. Hardware," said J. Christopher Barry, chief executive officer of NuVasive. "In addition to strong topline results, our margin expansion demonstrates the ability to improve profitability with continued commitment to driving operational excellence. Based on the Company’s performance year to date, we are raising full-year 2019 financial guidance to reflect continued growth and confidence in the business."
A full reconciliation of GAAP to non-GAAP financial measures can be found in the tables of this news release.
Third Quarter 2019 Results
NuVasive reported third quarter 2019 total revenue of $290.8 million, a 7.2% increase compared to $271.3 million for the third quarter 2018. On a constant currency basis, third quarter 2019 total revenue increased 7.5% compared to the same period last year.
For the third quarter 2019, both GAAP and non-GAAP gross profit was $213.8 million and GAAP and non-GAAP gross margin was 73.5%. These results compared to GAAP and non-GAAP gross profit of $197.1 million and $197.4 million, respectively, and GAAP and non-GAAP gross margin of 72.7% and 72.8%, respectively, for the third quarter 2018.
The Company reported GAAP net income of $11.0 million, or diluted earnings per share of $0.21, for the third quarter 2019 compared to a GAAP net income of $15.9 million, or diluted earnings per share of $0.30, for the third quarter 2018. On a non-GAAP basis, the Company reported net income of $30.9 million, or diluted earnings per share of $0.59, for the third quarter 2019 compared to net income of $29.5 million, or diluted earnings per share of $0.56, for the third quarter 2018.
Annual Financial Guidance for 2019
The Company raised its full-year 2019 financial guidance as a result of strong financial performance to date.
Prior guidance reflects the range provided July 30, 2019. Current guidance reflects the range provided October 30, 2019.
Constant currency is a measure that adjusts US GAAP revenue for the impact of currency over the same period in the prior year.
The Company updates full-year 2019 revenue to approximately $1.16 billion, compared with prior guidance of $1.14 billion to $1.16 billion, which now includes approximately $6 million in year-over-year currency headwinds compared with prior guidance of $5 million. This reflects reported growth in the range of 5.1% to 5.8%, compared with prior guidance of 3.4% to 5.4%. Revenue growth on a constant currency basis is in the range of 5.6% to 6.3%, compared with prior guidance of 3.8% to 5.8%;
Non-GAAP operating profit margin of 15.5% to 15.9%, compared with prior guidance of 15.3% to 15.7%;
Non-GAAP diluted earnings per share in a range of $2.35 to $2.40, compared with prior guidance of $2.25 to $2.35;
Adjusted EBITDA margin of 25.0% to 25.4%, compared with prior guidance of 25.5% to 25.9%; and
Non-GAAP effective tax expense rate of approximately 23%.
Organizational Structure
NuVasive announced today a new organizational structure, effective January 1, 2020, to further build upon its success and advance the Company’s five-year strategic plan.
"We are implementing organizational structure changes to bring together the commercial, product and technology teams under one function and to establish a new global operations function focused on supply chain and logistics," continued Barry. "This is a natural progression aligned with our recently announced five-year strategy and our purpose to transform surgery, advance care and change lives."
The new organizational structure combines customer-facing and innovation activities under a single function led by the Company’s president, Matt Link. A new global operations function, including supply chain, distribution, manufacturing, quality assurance and real estate & facilities, will be led by Dale Wolf, NuVasive’s current head of manufacturing.
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 Full Year EPS Guidance
Items may not foot due to rounding.
Prior guidance reflects the range provided July 30, 2019. Current guidance reflects the range provided October 30, 2019.
Effective tax expense rate of ~24% applied to GAAP earnings and ~23% applied to Non-GAAP earnings.
Effective tax expense rate of ~26% applied to GAAP earnings and ~23% applied to Non-GAAP earnings.
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.
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.
Represents the loss recorded in connection with the settlement of the Madsen Medical, Inc. litigation matter, as well as expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Company’s intellectual property.
Non-recurring consulting fees associated with the implementation of our state tax-planning strategy.
Purchase of an in-process research and development asset which had no future alternative use.
Costs related to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with European medical device regulation.
The impact on results from taxes include tax affecting 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 rate of ~43% benefit on a GAAP basis and ~18% on a non-GAAP basis in 2018.
Adjusted non-GAAP diluted WASO excludes the impact of dilutive convertible notes and warrants for which the Company is economically hedged through its anti-dilutive bond hedge arrangements.
Reconciliation of Non-GAAP Operating Margin %
Items may not foot due to rounding.
Prior guidance reflects the range provided July 30, 2019. Current guidance reflects the range provided October 30, 2019.
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.
Non-recurring consulting fees associated with the implementation of our state tax-planning strategy.
Expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Company’s intellectual property.
Represents the loss recorded in connection with the settlement of the Madsen Medical, Inc. litigation matter.
Purchase of an in-process research and development asset which had no future alternative use.
Costs related to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with European medical device regulation.
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.
Reconciliation of EBITDA Margin %
Items may not foot due to rounding.
Effective tax expense rate of ~43% benefit applied to GAAP earnings and ~18% applied to Non-GAAP earnings.
Effective tax expense rate of ~24% applied to GAAP earnings and ~23% applied to Non-GAAP earnings.
Effective tax expense rate of ~26% applied to GAAP earnings and ~23% applied to Non-GAAP earnings.
Prior guidance reflects the range provided July 30, 2019. Current guidance reflects the range provided October 30, 2019.
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.
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.
Represents the loss recorded in connection with the settlement of the Madsen Medical, Inc. litigation matter, as well as expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Company’s intellectual property.
Non-recurring consulting fees associated with the implementation of our state tax-planning strategy.
Purchase of an in-process research and development asset which had no future alternative use.
Charges represent the costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with European medical device regulation.
Reconciliation of GAAP to Non-GAAP Information
Management uses certain non-GAAP financial measures such as non-GAAP earnings per share, non-GAAP net income, non-GAAP operating expenses and non-GAAP operating profit 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 September 30, 2019
Reconciliation of GAAP to Non-GAAP Financial Measures
Represents expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Company’s intellectual property.
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.
Represents costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with European medical device regulation.
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.
Adjusted non-GAAP diluted WASO excludes the impact of dilutive convertible notes and warrants 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
Represents expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Company’s intellectual property.
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.
Represents costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with European medical device regulation.
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.
Adjusted non-GAAP diluted WASO excludes the impact of dilutive convertible notes and warrants for which the Company is economically hedged through its anti-dilutive bond hedge arrangements.
For the Three Months Ended September 30, 2018
Reconciliation of GAAP to Non-GAAP Financial Measures
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.
Represents expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Company’s intellectual property.
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.
Purchase of an in-process research and development asset which had no future alternative use.
Represents the impact from tax affecting the adjustments above at their statutory tax rate. As of October 30, 2018, the Company estimated an annual tax rate of ~18% on a GAAP basis and ~21% on a non-GAAP basis.
Adjusted non-GAAP diluted WASO excludes the impact of dilutive convertible notes and warrants for which the Company is economically hedged through its anti-dilutive bond hedge arrangements.
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.
Non-recurring consulting fees associated with the implementation of our state tax-planning strategy.
Represents the loss recorded in connection with the settlement of the Madsen Medical, Inc. litigation matter, as well as expenses associated with ongoing litigation with a former Board member and his current employer related to various matters, including infringement of the Company’s intellectual property.
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.
Purchase of an in-process research and development asset which had no future alternative use.
Represents the impact from tax affecting the adjustments above at their statutory tax rate. As of October 30, 2018, the Company estimated an annual tax rate of ~18% on a GAAP basis and ~21% on a non-GAAP basis.
Adjusted non-GAAP diluted WASO excludes the impact of dilutive convertible notes and warrants 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 2019. 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, 2019. In addition, a telephone replay of the call will be available until November 6, 2019. 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: 13695343.