UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
|
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2015
OR
|
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-50744
NUVASIVE, INC.
(Exact name of registrant as specified in its charter)
|
Delaware |
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33-0768598 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
7475 Lusk Boulevard
San Diego, CA 92121
(Address of principal executive offices)
(858) 909-1800
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
x |
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Accelerated filer |
¨ |
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Non-accelerated filer |
¨ |
(Do not check if a smaller reporting company) |
Smaller reporting company |
¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of October 23, 2015, there were 49,097,008 shares of the registrant’s common stock (par value $0.001 per share) outstanding.
Quarterly Report on Form 10-Q
September 30, 2015
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Item 1. |
3 |
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3 |
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4 |
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5 |
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6 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
28 |
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Item 3. |
36 |
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Item 4. |
36 |
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Item 1. |
37 |
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Item 1A. |
37 |
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Item 2. |
38 |
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Item 3. |
38 |
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Item 4. |
38 |
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Item 5. |
38 |
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Item 6. |
39 |
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40 |
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2
CONSOLIDATED BALANCE SHEETS
(in thousands, except par values and share amounts)
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September 30, 2015 |
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December 31, 2014 |
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ASSETS |
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(Unaudited) |
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Current assets: |
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Cash and cash equivalents |
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$ |
141,328 |
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$ |
142,387 |
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Short-term marketable securities |
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196,037 |
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220,329 |
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Accounts receivable, net of allowances of $5,849 and $5,844, respectively |
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115,579 |
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118,959 |
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Inventory, net |
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164,867 |
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154,638 |
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Deferred and prepaid taxes |
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73,420 |
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59,233 |
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Prepaid expenses and other current assets |
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7,279 |
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10,325 |
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Total current assets |
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698,510 |
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705,871 |
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Property and equipment, net |
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140,474 |
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128,565 |
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Long-term marketable securities |
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113,793 |
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43,042 |
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Intangible assets, net |
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86,190 |
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96,555 |
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Goodwill |
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154,324 |
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154,443 |
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Deferred tax assets, non-current |
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49,614 |
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65,330 |
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Restricted cash and investments |
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5,615 |
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123,233 |
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Other assets |
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23,444 |
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26,420 |
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Total assets |
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$ |
1,271,964 |
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$ |
1,343,459 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable and accrued liabilities |
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$ |
63,545 |
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$ |
133,324 |
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Accrued payroll and related expenses |
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32,767 |
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38,032 |
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Litigation liabilities |
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937 |
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30,000 |
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Deferred and income tax liabilities |
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2,066 |
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13,543 |
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Total current liabilities |
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99,315 |
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214,899 |
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Senior convertible notes |
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372,485 |
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360,746 |
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Deferred and income tax liabilities, non-current |
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8,177 |
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12,526 |
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Non-current litigation liabilities |
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87,553 |
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93,700 |
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Other long-term liabilities |
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12,742 |
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13,230 |
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Commitments and contingencies |
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Stockholders’ equity: |
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Preferred stock, $0.001 par value; 5,000,000 shares authorized, none outstanding |
|
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— |
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— |
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Common stock, $0.001 par value; 120,000,000 shares authorized at September 30, 2015 and December 31, 2014, 52,099,475 and 47,691,744 issued and outstanding at September 30, 2015 and December 31, 2014, respectively |
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52 |
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48 |
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Additional paid-in capital |
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973,481 |
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847,145 |
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Accumulated other comprehensive loss |
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(11,323 |
) |
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(9,670 |
) |
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Accumulated deficit |
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(132,150 |
) |
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(186,938 |
) |
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Treasury stock at cost; 3,015,033 shares and 233,369 shares at September 30, 2015 and December 31, 2014, respectively |
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(146,077 |
) |
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(10,537 |
) |
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Total NuVasive, Inc. stockholders’ equity |
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683,983 |
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640,048 |
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Non-controlling interests |
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7,709 |
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8,310 |
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Total equity |
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$ |
691,692 |
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$ |
648,358 |
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Total liabilities and equity |
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$ |
1,271,964 |
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$ |
1,343,459 |
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See accompanying Notes to Unaudited Consolidated Financial Statements.
3
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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(unaudited) |
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2015 |
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2014 |
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2015 |
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2014 |
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Revenue |
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$ |
200,538 |
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$ |
189,918 |
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$ |
595,831 |
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$ |
558,090 |
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Cost of goods sold (excluding below amortization of intangible assets) |
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49,167 |
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47,719 |
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143,246 |
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135,849 |
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Gross profit |
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151,371 |
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142,199 |
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452,585 |
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422,241 |
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Operating expenses: |
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Sales, marketing and administrative |
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111,384 |
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113,746 |
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342,797 |
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348,820 |
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Research and development |
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9,199 |
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9,068 |
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27,245 |
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28,590 |
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Amortization of intangible assets |
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3,067 |
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3,071 |
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9,037 |
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10,541 |
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Impairment of intangible assets |
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— |
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— |
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— |
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10,708 |
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Litigation liability (gain) loss |
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(500 |
) |
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— |
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(42,507 |
) |
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30,000 |
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Business transition costs |
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110 |
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— |
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6,474 |
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— |
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Total operating expenses |
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123,260 |
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125,885 |
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343,046 |
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428,659 |
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Interest and other expense, net: |
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Interest income |
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362 |
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241 |
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1,125 |
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|
691 |
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Interest expense |
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(7,307 |
) |
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(6,965 |
) |
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(21,675 |
) |
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(20,809 |
) |
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Other income (expense), net |
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|
387 |
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(2,489 |
) |
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|
530 |
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(2,318 |
) |
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Total interest and other expense, net |
|
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(6,558 |
) |
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(9,213 |
) |
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(20,020 |
) |
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(22,436 |
) |
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Income (loss) before income taxes |
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21,553 |
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7,101 |
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89,519 |
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(28,854 |
) |
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Income tax (expense) benefit |
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(8,803 |
) |
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(9,088 |
) |
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(35,332 |
) |
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4,065 |
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Consolidated net income (loss) |
|
$ |
12,750 |
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$ |
(1,987 |
) |
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$ |
54,187 |
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$ |
(24,789 |
) |
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Add back net loss attributable to non-controlling interests |
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$ |
(210 |
) |
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$ |
(157 |
) |
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$ |
(601 |
) |
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$ |
(595 |
) |
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Net income (loss) attributable to NuVasive, Inc. |
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$ |
12,960 |
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$ |
(1,830 |
) |
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$ |
54,788 |
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$ |
(24,194 |
) |
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Net income (loss) per share attributable to NuVasive, Inc.: |
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Basic |
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$ |
0.26 |
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$ |
(0.04 |
) |
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$ |
1.13 |
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$ |
(0.52 |
) |
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Diluted |
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$ |
0.24 |
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$ |
(0.04 |
) |
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$ |
1.05 |
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$ |
(0.52 |
) |
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Weighted average shares outstanding: |
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Basic |
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48,993 |
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46,990 |
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|
48,513 |
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|
46,546 |
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Diluted |
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53,199 |
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46,990 |
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|
52,202 |
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|
|
46,546 |
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See accompanying Notes to Unaudited Consolidated Financial Statements.
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
|
|
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
|
||||||||||
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(unaudited) |
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2015 |
|
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2014 |
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2015 |
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2014 |
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||||
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Consolidated net income (loss) |
|
$ |
12,750 |
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|
$ |
(1,987 |
) |
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$ |
54,187 |
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$ |
(24,789 |
) |
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Other comprehensive income (loss): |
|
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|
|
|
|
|
|
|
|
|
|
|
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Unrealized gain (loss) on marketable securities, net of tax |
|
|
57 |
|
|
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(29 |
) |
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|
201 |
|
|
|
(103 |
) |
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Translation adjustments, net of tax |
|
|
(410 |
) |
|
|
(2,579 |
) |
|
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(1,854 |
) |
|
|
(566 |
) |
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Other comprehensive (loss) |
|
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(353 |
) |
|
|
(2,608 |
) |
|
|
(1,653 |
) |
|
|
(669 |
) |
|
Total consolidated comprehensive income (loss) |
|
|
12,397 |
|
|
|
(4,595 |
) |
|
|
52,534 |
|
|
|
(25,458 |
) |
|
Net loss attributable to non-controlling interests |
|
|
210 |
|
|
|
157 |
|
|
|
601 |
|
|
|
595 |
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Comprehensive income (loss) attributable to NuVasive, Inc. |
|
$ |
12,607 |
|
|
$ |
(4,438 |
) |
|
$ |
53,135 |
|
|
$ |
(24,863 |
) |
See accompanying Notes to Unaudited Consolidated Financial Statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
Nine Months Ended September 30, |
|
|||||
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(unaudited) |
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2015 |
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2014 |
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||
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Operating activities: |
|
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|
|
|
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|
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Consolidated net income (loss) |
|
$ |
54,187 |
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$ |
(24,789 |
) |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
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Depreciation and amortization |
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49,006 |
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|
46,521 |
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Amortization of non-cash interest |
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13,255 |
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|
12,244 |
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Stock-based compensation |
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|
20,570 |
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|
|
24,779 |
|
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Impairment of intangible assets |
|
|
— |
|
|
|
10,708 |
|
|
Deferred income taxes |
|
|
37,047 |
|
|
|
— |
|
|
Reserves on current assets |
|
|
7,232 |
|
|
|
4,062 |
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Other non-cash adjustments |
|
|
13,127 |
|
|
|
11,317 |
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Changes in operating assets and liabilities, net of effects from acquisitions: |
|
|
|
|
|
|
|
|
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Accounts receivable |
|
|
2,163 |
|
|
|
(5,519 |
) |
|
Inventory |
|
|
(19,768 |
) |
|
|
(27,190 |
) |
|
Prepaid expenses and other current assets |
|
|
2,512 |
|
|
|
(1,837 |
) |
|
Accounts payable and accrued liabilities |
|
|
8,828 |
|
|
|
11,485 |
|
|
Income taxes |
|
|
(52,739 |
) |
|
|
(7,898 |
) |
|
Accrued royalties |
|
|
(46,999 |
) |
|
|
12,450 |
|
|
Litigation liability |
|
|
(35,333 |
) |
|
|
30,000 |
|
|
Accrued payroll and related expenses |
|
|
(5,080 |
) |
|
|
151 |
|
|
Net cash provided by operating activities |
|
|
48,008 |
|
|
|
96,484 |
|
|
Investing activities: |
|
|
|
|
|
|
|
|
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Acquisitions and other investments |
|
|
(1,357 |
) |
|
|
(59 |
) |
|
Purchases of intangible assets |
|
|
(28,589 |
) |
|
|
— |
|
|
Purchases of property and equipment |
|
|
(59,905 |
) |
|
|
(45,692 |
) |
|
Proceeds from sales of property and equipment |
|
|
40 |
|
|
|
— |
|
|
Purchases of marketable securities |
|
|
(320,177 |
) |
|
|
(177,850 |
) |
|
Proceeds from sales of marketable securities |
|
|
272,666 |
|
|
|
142,051 |
|
|
Purchases of restricted investments |
|
|
(62,625 |
) |
|
|
— |
|
|
Proceeds from sales of restricted investments |
|
|
180,694 |
|
|
|
— |
|
|
Net cash used in investing activities |
|
|
(19,253 |
) |
|
|
(81,550 |
) |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
Incremental tax benefits related to stock-based compensation awards |
|
|
15,185 |
|
|
|
— |
|
|
Proceeds from the issuance of common stock |
|
|
9,040 |
|
|
|
15,341 |
|
|
Payment of contingent consideration |
|
|
(514 |
) |
|
|
(498 |
) |
|
Purchase of treasury stock |
|
|
(52,532 |
) |
|
|
(664 |
) |
|
Other financing activities |
|
|
(131 |
) |
|
|
(668 |
) |
|
Net cash (used in) provided by financing activities |
|
|
(28,952 |
) |
|
|
13,511 |
|
|
Effect of exchange rate changes on cash |
|
|
(862 |
) |
|
|
(613 |
) |
|
(Decrease) increase in cash and cash equivalents |
|
|
(1,059 |
) |
|
|
27,832 |
|
|
Cash and cash equivalents at beginning of period |
|
|
142,387 |
|
|
|
102,825 |
|
|
Cash and cash equivalents at end of period |
|
$ |
141,328 |
|
|
$ |
130,657 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements.
6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Basis of Presentation
Description of Business
NuVasive, Inc. (the “Company” or “NuVasive”) was incorporated in Delaware on July 21, 1997, and began commercializing its products in 2001. The Company is focused on developing minimally-disruptive surgical products and procedurally-integrated solutions for the spine. NuVasive’s principal product offering includes a minimally-disruptive surgical platform called Maximum Access Surgery, or MAS®. The MAS platform combines three categories of solutions that collectively minimize soft tissue disruption during spine fusion surgery, provide maximum visualization and are designed to enable safe and reproducible outcomes for the surgeon and the patient. The platform includes proprietary software-driven nerve detection and avoidance systems, NVM5® and NVJJB®, and Intra-Operative Monitoring (“IOM”) services and support; MaXcess®, an integrated split-blade retractor system; and a wide variety of specialized implants and biologics. Many of the Company’s products, including the individual components of NuVasive’s MAS platform, can also be used in open or traditional spine surgery. The Company’s spine surgery product line offerings, which include thoracolumbar product offerings, cervical product offerings, IOM services, and disposables, are primarily used to enable access to the spine and to perform restorative and fusion procedures in a minimally-disruptive fashion. The Company also recently launched integrated global alignment (“iGA™”), in which products and computer assisted technology under its MAS platform help achieve more precise spinal alignment. The Company’s biologic product line offerings used to aid the spinal fusion process or bone healing process include Osteocel® Plus and Osteocel Pro allograft (donated human tissue) which are cellular matrix products containing viable mesenchymal stem cells (“MSCs”), as well as other allograft offerings, FormaGraft®, a collagen synthetic product, and AttraX®, a synthetic bone graft material. The Company continues to focus significant research and development efforts to expand its MAS product platform and advance the applications of its unique technology into procedurally-integrated surgical solutions. The Company has dedicated and continues to dedicate significant resources toward training spine surgeons around the world; both those who are new to its MAS product platform as well as previously MAS-trained surgeons attending advanced courses.
The Company’s primary business model is to loan its MAS systems to surgeons and hospitals who use those systems to perform individual procedures, with the hospitals purchasing implants, biologics and disposables in each such case. In addition, for larger customers, the Company’s proprietary nerve monitoring systems, MaXcess and surgical instrument sets are placed with hospitals for an extended period at no up-front cost to them, facilitating the hospital’s purchase of disposables for those machines from the Company. The Company also offers a range of bone allograft in patented saline packaging, disposables and spine implants, which include its branded CoRoent® products and fixation devices such as rods, plates and screws. The Company’s implants, biologics and disposables are currently sold and shipped from its primary distribution and warehousing operations facility located in Memphis, Tennessee. The Company sells MAS instrument sets, MaXcess devices and its proprietary software-driven nerve monitoring systems, however this does not make up a material part of its business.
Basis of Presentation and Principles of Consolidation
The accompanying Unaudited Consolidated Financial Statements include the financial information of the Company and its majority-owned or controlled subsidiaries, collectively referred to as either NuVasive or the Company. The Company translates the financial statements of its foreign subsidiaries using end-of-period exchange rates for assets and liabilities and average exchange rates during each reporting period for results of operations. When there is a portion of equity in an acquired subsidiary not attributable, directly or indirectly, to the respective parent entity (entity having common control), the Company records the fair value of the non-controlling interests at the acquisition date and classifies the amounts attributable to non-controlling interests separately in equity in the Company’s Consolidated Financial Statements. Any subsequent changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary are accounted for as equity transactions. All significant intercompany balances and transactions have been eliminated in consolidation.
7
NUVASIVE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The accompanying Unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to these rules and regulations, the Company has condensed or omitted certain information and footnote disclosures it normally includes in its annual Consolidated Financial Statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for any other interim period or for the full year. These Unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K filed with the SEC. In the opinion of management, the Unaudited Consolidated Financial Statements include all adjustments that are of a normal and recurring nature that are necessary for the fair presentation of the Company’s financial position and of the results of operations and cash flows for the periods presented.
The Company has reclassified historically presented product offerings revenue to conform to the current year presentation. The reclassification had no impact on previously reported results of operations or financial position.
Change in Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recently Adopted Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update No. 2014-09, Revenue from Contracts with Customers, (“ASU 2014-09”), an updated standard on revenue recognition. ASU 2014-09 provides enhancements to the quality and consistency of how revenue is reported by companies while also improving comparability in the financial statements of companies reporting using International Financial Reporting Standards or GAAP. The main purpose of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which a company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively and improve guidance for multiple-element arrangements. In July 2015, the FASB voted to approve a one-year deferral of the effective date of ASU 2014-09, which will be effective for the Company in the first quarter of fiscal year 2018 and may be applied on a full retrospective or modified retrospective approach. The FASB permits early adoption of the new standard by one year (i.e., the original effective date). The Company is evaluating the impact of implementation and transition approach of this standard on its financial statements.
Business Transition Costs
The Company incurs costs related to integration and business transition activities which include severance, relocation, consulting, and other costs directly associated to such activities. During the nine months ended September 30, 2015, the Company incurred $6.5 million of such costs, which included a $3.4 million charge associated with the resignation of the Company’s former Chief Executive Officer and Chairman of the Board, which occurred in the first quarter 2015. The $3.4 million charge includes certain severance and compensation-related charges, net of certain forfeitures of previously recognized equity-based compensation.
8
NUVASIVE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company exited its New Jersey location and terminated the respective lease to reduce its footprint on the east coast of the United States as part of a company-wide efficiency effort in order to match its business needs without adversely impacting its ability to deliver surgeon education and local customer fulfillment. As a result of this undertaking, the Company recognized restructuring and associated impairment charges of $2.3 million during the nine months ended September 30, 2015 in addition to the $6.4 million recognized during 2014. The restructuring and impairment charges mainly consist of the future rental payments through 2017, net of estimated future sublease income, and elimination of related leasehold improvements and deferred rent liabilities. These charges are recorded in sales, marketing and administrative expense in the Consolidated Statements of Operations.
As of September 30, 2015, the total recorded liability associated with this early lease termination was $3.9 million and consists of future rental payments net of estimated sublease income through 2017. The current portion of the liability is recorded within accounts payable and accrued liabilities and the long-term portion is recorded within other long-term liabilities in the Consolidated Balance Sheets at September 30, 2015.
Litigation Liability Gain (Loss)
During the nine months ended September 30, 2015, the Company recorded a litigation liability gain of $42.5 million resulting primarily from the recognition of a $56.4 million gain stemming from a favorable appeal in Phase 1 of the Medtronic litigation and a gain of $2.8 million in litigation accrual change related to the settlement of the NeuroVision trademark litigation, partially offset by litigation losses of $13.8 million in connection with the OIG investigation and $2.8 million in a general litigation matter.
Settlement of the aforementioned NeuroVision trademark litigation totaling $27.2 million was funded out of restricted cash during the third quarter 2015, and at September 30, 2015 the Company no longer maintains short-term restricted funds related to that matter.
The March 2, 2015 Court of Appeals decision in the Company’s Medtronic litigation upheld the jury’s findings of liability as to all patents, but overturned the damage award against the Company as improper, and as a result the Company was no longer required to escrow funds related to Phase 1 of that litigation matter. During the third quarter 2015, the Company transferred all of the escrow funds related to this matter, of approximately $114.1 million, from its long-term restricted cash and investments account to its unrestricted investment accounts. The Company has no restricted funds related to this matter at September 30, 2015.
See Note 11 and Note 12 to the Unaudited Consolidated Financial Statements for further discussion.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income (loss) includes unrealized gains or losses on the Company’s marketable securities and foreign currency translation adjustments. The cumulative translation adjustments included in accumulated other comprehensive income (loss) were a net cumulative loss of $11.4 million and $9.5 million at September 30, 2015 and December 31, 2014, respectively.
9
NUVASIVE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Long-lived assets include surgical instruments, which are loaned to surgeons and hospitals who purchase implants, biologics and disposables for use in individual procedures, leasehold improvements, software, and intangible assets. The Company periodically re-evaluates the original assumptions and rationale utilized in the establishment of the carrying value and estimated lives of its long-lived assets. The criteria used for these evaluations include management’s estimate of the asset’s continuing ability to generate income from operations and positive cash flow in future periods as well as the strategic significance of the asset to the Company’s business objectives. If assets are considered to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets, which is determined by applicable market prices when available or other methods by utilizing unobservable inputs including discounted cash flow models. See Note 3 to the Unaudited Consolidated Financial Statements for further discussion.
Inventories
The Company’s inventory consists primarily of purchased finished goods which includes specialized implants and disposables, and is stated at the lower of cost or market determined by utilizing a standard cost method which approximates the weighted average cost. The Company reviews the components of its inventory on a periodic basis for excess, obsolete or impaired inventory, and records a reserve for such identified items. The inventory reserve was $29.9 million and $22.7 million at September 30, 2015 and December 31, 2014, respectively.
2. Net Income (Loss) Per Share
The Company computes basic net income (loss) per share using the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share assumes the conversion, exercise or issuance of all potential common stock equivalents, unless the effect of inclusion would be anti-dilutive. Common stock equivalents include the Company’s stock options, employee stock purchase plan (“ESPP”), restricted stock units (“RSUs”), including those with performance conditions, warrants, and the shares to be issued upon the conversion of the Senior Convertible Notes (see Note 6 to the Unaudited Consolidated Financial Statements).
The following table sets forth the computation of basic and diluted earnings or (loss) per share attributable to the Company:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
(in thousands, except per share data) |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to the Company |
|
$ |
12,960 |
|
|
$ |
(1,830 |
) |
|
$ |
54,788 |
|
|
$ |
(24,194 |
) |
|
Denominator for basic and diluted net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding for basic |
|
|
48,993 |
|
|
|
46,990 |
|
|
|
48,513 |
|
|
|
46,546 |
|
|
Dilutive potential common stock outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and ESPP |
|
|
895 |
|
|
|
— |
|
|
|
1,224 |
|
|
|
— |
|
|
RSUs |
|
|
1,129 |
|
|
|
— |
|
|
|
1,127 |
|
|
|
— |
|
|
Warrants |
|
|
417 |
|
|
|
— |
|
|
|
139 |
|
|
|
— |
|
|
Senior Convertible Notes |
|
|
1,765 |
|
|
|
— |
|
|
|
1,199 |
|
|
|
— |
|
|
Weighted average common shares outstanding for diluted |
|
|
53,199 |
|
|
|
46,990 |
|
|
|
52,202 |
|
|
|
46,546 |
|
|
Basic net income (loss) per share attributable to the Company |
|
$ |
0.26 |
|
|
$ |
(0.04 |
) |
|
$ |
1.13 |
|
|
$ |
(0.52 |
) |
|
Diluted net income (loss) per share attributable to the Company |
|
$ |
0.24 |
|
|
$ |
(0.04 |
) |
|
$ |
1.05 |
|
|
$ |
(0.52 |
) |
10
NUVASIVE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following weighted outstanding common stock equivalents were not included in the calculation of net income (loss) per diluted share because their effects were anti-dilutive:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
(in thousands) |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
|
Stock options, ESPP, and RSUs |
|
|
13 |
|
|
|
8,777 |
|
|
|
53 |
|
|
|
8,999 |
|
|
Warrants |
|
|
— |
|
|
|
9,553 |
|
|
|
6,369 |
|
|
|
9,553 |
|
|
Senior Convertible Notes |
|
|
— |
|
|
|
9,553 |
|
|
|
— |
|
|
|
9,553 |
|
|
Total |
|
|
13 |
|
|
|
27,883 |
|
|
|
6,422 |
|
|
|
28,105 |
|
3. Financial Instruments and Fair Value Measurements
The Company invests its excess cash in certificates of deposit, corporate notes, commercial paper, U.S. government treasury securities and securities of government-sponsored entities. The Company classifies all such securities as available-for-sale as the sale of such securities may be required prior to maturity to implement management strategies. These securities are carried at fair value with the unrealized gains and losses reported as a component of other comprehensive income in equity until realized. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in other income or expense on the Consolidated Statements of Operations and a new accounting cost basis for the security is established in the period in which it occurs. The Company reviews its investments if there is an indicator of possible other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. As of September 30, 2015, the Company had no investments that were in a significant unrealized loss position and no impairment charges were recorded during the periods presented. Interest and dividends on securities classified as available-for-sale are also included in interest income on the Consolidated Statements of Operations. Realized gains and losses and interest income related to marketable securities were immaterial during all periods presented.
The Company maintains an investment policy that requires a diversified investment portfolio in terms of types, maturities, and credit exposure, and invests with institutions that have high credit quality. Annually, the Company reassesses the investment policy to ensure it is reflective of current markets and conditions. The Company does not currently hold financial instruments for speculative purposes.
11
NUVASIVE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The composition of marketable securities is as follows:
|
(in thousands, except years) |
|
Contractual Maturity (in years) |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
|
September 30, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified as current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate notes |
|
Less than 1 |
|
$ |
103,840 |
|
|
$ |
27 |
|
|
$ |
(10 |
) |
|
$ |
103,857 |
|
|
Securities of government-sponsored entities |
|
Less than 1 |
|
|
65,503 |
|
|
|
9 |
|
|
|
(3 |
) |
|
|
65,509 |
|
|
U.S. government treasury securities |
|
Less than 1 |
|
|
7,506 |
|
|
|
3 |
|
|
|
— |
|
|
|
7,509 |
|
|
Certificates of deposit |
|
Less than 1 |
|
|
3,671 |
|
|
|
— |
|
|
|
— |
|
|
|
3,671 |
|
|
Commercial paper |
|
Less than 1 |
|
|
15,491 |
|
|
|
— |
|
|
|
— |
|
|
|
15,491 |
|
|
Short-term marketable securities |
|
|
|
|
196,011 |
|
|
|
39 |
|
|
|
(13 |
) |
|
|
196,037 |
|
|
Classified as non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
1 to 2 |
|
|
8,106 |
|
|
|
— |
|
|
|
— |
|
|
|
8,106 |
|
|
Securities of government-sponsored entities |
|
1 to 2 |
|
|
46,624 |
|
|
|
38 |
|
|
|
(2 |
) |
|
|
46,660 |
|
|
U.S. government treasury securities |
|
1 to 2 |
|
|
11,042 |
|
|
|
4 |
|
|
|
(1 |
) |
|
|
11,045 |
|
|
Corporate notes |
|
1 to 2 |
|
|
47,948 |
|
|
|
48 |
|
|
|
(14 |
) |
|
|
47,982 |
|
|
Long-term marketable securities |
|
|
|
|
113,720 |
|
|
|
90 |
|
|
|
(17 |
) |
|
|
113,793 |
|
|
Total marketable securities at September 30, 2015 |
|
|
|
$ |
309,731 |
|
|
$ |
129 |
|
|
$ |
(30 |
) |
|
$ |
309,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified as current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
Less than 1 |
|
$ |
282 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
282 |
|
|
Corporate notes |
|
Less than 1 |
|
|
129,037 |
|
|
|
8 |
|
|
|
(105 |
) |
|
|
128,940 |
|
|
Commercial paper |
|
Less than 1 |
|
|
11,290 |
|
|
|
— |
|
|
|
— |
|
|
|
11,290 |
|
|
U.S. government treasury securities |
|
Less than 1 |
|
|
1,500 |
|
|
|
1 |
|
|
|
— |
|
|
|
1,501 |
|
|
Securities of government-sponsored entities |
|
Less than 1 |
|
|
78,333 |
|
|
|
12 |
|
|
|
(29 |
) |
|
|
78,316 |
|
|
Short-term marketable securities |
|
|
|
|
220,442 |
|
|
|
21 |
|
|
|
(134 |
) |
|
|
220,329 |
|
|
Classified as non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate notes |
|
1 to 2 |
|
|
14,082 |
|
|
|
— |
|
|
|
(13 |
) |
|
|
14,069 |
|
|
Securities of government-sponsored entities |
|
1 to 2 |
|
|
28,996 |
|
|
|
— |
|
|
|
(23 |
) |
|
|
28,973 |
|
|
Long-term marketable securities |
|
|
|
|
43,078 |
|
|
|
— |
|
|
|
(36 |
) |
|
|
43,042 |
|
|
Classified as restricted investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government treasury securities |
|
Less than 2 |
|
|
51,331 |
|
|
|
13 |
|
|
|
(13 |
) |
|
|
51,331 |
|
|
Securities of government-sponsored entities |
|
Less than 2 |
|
|
42,862 |
|
|
|
2 |
|
|
|
(54 |
) |
|
|
42,810 |
|
|
Restricted investments |
|
|
|
|
94,193 |
|
|
|
15 |
|
|
|
(67 |
) |
|
|
94,141 |
|
|
Total marketable securities at December 31, 2014 |
|
|
|
$ |
357,713 |
|
|
$ |
36 |
|
|
$ |
(237 |
) |
|
$ |
357,512 |
|
12
NUVASIVE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Foreign Currency and Derivative Financial Instruments
The Company translates the financial statements of its foreign subsidiaries using end-of-period exchange rates for assets and liabilities and average exchange rates during each reporting period for results of operations.
Some of the Company’s reporting entities conduct a portion of their business in currencies other than the entity’s functional currency. These transactions give rise to receivables and payables that are denominated in currencies other than the entity’s functional currency. The value of these receivables and payables is subject to changes in currency exchange rates from the point at which the transactions are originated until the settlement in cash. Both realized and unrealized gains and losses in the value of these receivables and payables are included in the determination of net income (loss). Net foreign currency exchange gains (losses), which includes gains and losses from derivative instruments, were $0.4 million and $0.4 million, for the three and nine months ended September 30, 2015, respectively, and $(2.6) million and $(2.5) million for the three and nine months ended September 30, 2014, respectively, and are included in other income (expense) in the Consolidated Statements of Operations.
The Company maintains a foreign currency risk management strategy that uses derivative instruments to protect against fluctuations in earnings and cash flows that may rise from volatility in currency exchange rates. The Company uses foreign currency forward exchange contracts to hedge the currency exchange rate exposure from short-term intercompany receivables and payables denominated in a currency other than the reporting entity’s functional currency. Realized and unrealized gains or losses forward contracts are included in the determination of net income as the forward contracts are not designated for hedge accounting under ASC Topic 815, Derivatives and Hedging. The foreign currency forward contracts effectively lock in the exchange rate at which the specific intercompany receivables and payables will be settled, so that gains or losses on the forward contracts offset the gains or losses from changes in the value of the underlying receivables and payables. The forward contracts are generally settled monthly. As of September 30, 2015 a notional principal amount of $16.8 million in foreign currency forward contracts was outstanding to hedge currency risk relative to the Company’s foreign receivables and payables. The Company did not have notional principal amounts outstanding as of September 30, 2014.
The Company’s currency exposures vary, but are primarily concentrated in the pound sterling, the euro, the Australian dollar, the Singapore dollar, and the yen. The Company will continuously monitor the costs and the impact of foreign currency risks upon the financial results as part of the Company’s risk management program. The Company does not use derivative financial instruments for speculation or trading purposes or for activities other than risk management. The Company does not require and is not required to pledge collateral for these financial instruments and does not carry any master netting arrangements to mitigate the credit risk.
The following table summarizes the fair values of derivative instruments at September 30, 2015 and December 31, 2014:
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|||||||||||
|
|
|
|
|
Fair Value |
|
|
|
|
Fair Value |
|||||||
|
|
|
Balance Sheet |
|
September 30, |
|
|
December 31, |
|
|
Balance Sheet |
|
September 30, |
|
December 31, |
||
|
(in thousands) |
|
Location |
|
2015 |
|
|
2014 |
|
|
|||||||