Nuvasive (NUVA) 8-K Nuvasive Reports Second Quarter 2016 Financial Results

NuVasive, Inc.

Second Quarter 2016 Results

Supplemental Presentation to Earnings Press Release

July 26, 2016

Exhibit 99.2

©2016 NuVasive®, Inc.

©2016 NuVasive®, Inc.

Forward-Looking Statements

NuVasive

cautions

you

that

statements

included

in

this

presentation

that

are

not

a

description

of

historical

facts

are

forward-looking

statements

that

involve

risks,

uncertainties,

assumptions

and

other

factors

which,

if

they

do

not

materialize

or

prove

correct,

could

cause

NuVasive’s

results

to

differ

materially

from

historical

results

or

those

expressed

or

implied

by

such

forward-looking

statements.

In

addition,

this

presentation

contains

selected

financial

results

from

the

second

quarter

2016,

as

well

as

projections

for

2016

financial

guidance

and

longer-term

financial

performance

goals.

The

numbers

for

the

second

quarter

2016

are

prior

to

the

completion

of

review

procedures

by

the

Company’s

external

auditors

and

are

subject

to

adjustment.

In

addition,

the

Company’s

projections

for

2016

financial

guidance

and

longer-term

financial

performance

goals

represent

current

estimates,

including

initial

estimates

of

the

potential

benefits,

synergies

and

cost

savings

associated

with

acquisitions,

which

are

subject

to

the

risk

of

being

inaccurate

because

of

the

preliminary

nature

of

the

forecasts,

the

risk

of

further

adjustment,

or

unanticipated

difficulty

in

selling

products

or

generating

expected

profitability.

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;

the

risk

of

further

adjustment

to

financial

results

or

future

financial

expectations;

unanticipated

difficulty

in

selling

products,

generating

revenue

or

producing

expected

profitability;

the

risk

that

acquisitions

will

not

be

integrated

successfully

or

that

the

benefits

and

synergies

from

the

acquisition

may

not

be

fully

realized

or

may

take

longer

to

realize

than

expected;

and

those

other

risks

and

uncertainties

more

fully

described

in

the

Company’s

news

releases

and

periodic

filings

with

the

Securities

and

Exchange

Commission.

NuVasive’s

public

filings

with

the

Securities

and

Exchange

Commission

are

available

at

www.sec.gov.

The

forward-

looking

statements

contained

herein

are

based

on

the

current

expectations

and

assumptions

of

NuVasive

and

not

on

historical

facts.

NuVasive

assumes

no

obligation

to

update

any

forward-looking

statement

to

reflect

events

or

circumstances

arising

after

the

date

on

which

it

was

made.

2

©2016 NuVasive®, Inc.

©2016 NuVasive®, Inc.

Non-GAAP Financial Measures

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,

purchase

accounting

related

charges,

leasehold

related

charges,

integration

related

expenses

associated

with

acquired

businesses,

one-time

restructuring

and

acquisition

related

items,

CEO

transition

related

costs,

certain

litigation

charges,

non-cash

interest

expense

and/or

losses

on

convertible

notes,

and

the

impact

from

taxes

related

to

these

items,

including

those

taxes

that

would

have

occurred

in

lieu

of

these

items.

Management

also

uses

certain

non-GAAP

measures

which

are

intended

to

exclude

the

impact

of

foreign

exchange

currency

fluctuations.

The

measure

constant

currency

is

the

use

of

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,

purchase

accounting

related

changes,

leasehold

related

charges,

integration

related

expenses

associated

with

acquired

businesses,

CEO

transition

related

costs,

certain

litigation

liabilities,

acquisition

related

items

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.

This

presentation

is

intended

to

accompany

the

Company’s

second

quarter

2016

earnings

announcement,

which

includes

financial

results

reported

on

a

GAAP

and

non-GAAP

basis.

For

reconciliations

of

non-GAAP

financial

measures

to

the

comparable

GAAP

financial

measure,

please

refer

to

the

earnings

announcement,

as

well

as

supplemental

financial

information

posted

on

the

Investor

Relations

section

of

the

Company’s

corporate

website

at

www.nuvasive.com.

3

©2016 NuVasive®, Inc.

©2016 NuVasive®, Inc.

Double-digit revenue growth and increase in full year 2016 guidance

Second Quarter 2016 Performance Highlights*

Reported double-digit revenue growth of 16.4% to $236.2M, or 16.1%

constant

currency;

excluding

NuVasive

Specialized

Orthopedics,

Inc

(NSO),

core revenue grew 9.0%, or 8.6% constant currency

Delivered ongoing profitability improvement with GAAP operating profit

margin of 25.4%; non-GAAP operating profit margin expansion to 15.9% or 60

bps; excluding NSO impact, non-GAAP operating profit margin was 16.2%

Drove GAAP diluted earnings per share of $0.57; non-GAAP diluted earnings

per share up 28% to $0.40

Increased full year 2016 guidance: revenue growth of 18.6% to $962.0M, or

~18.5% constant currency; non-GAAP operating profit margin to ~16.0%;

adjusted EBITDA margin to ~25.4%; and non-GAAP diluted earnings per share

of $1.64, a 25.0% increase

4

Another strong quarter, outperforming the spine market and delivering double-

digit revenue growth while expanding our operating profitability year over year

*Performance growth reflects comparison to prior year period; for additional details regarding full year 2016 guidance, see slide 14.

©2016 NuVasive®, Inc.

Operational excellence

delivering significant

margin expansion

Driving organic growth

with numerous inorganic

opportunities available

Industry disruptor

adding value and

addressing unmet needs

NuVasive’s

Formula for Success

Fueling 2016 strategic agenda with proven approach to win

©2016 NuVasive®, Inc.

5

©2016 NuVasive®, Inc.

Second Quarter 2016 Revenue Highlights

U.S. SPINAL HARDWARE

Includes All Implants, Fixation, MAGEC®

& PRECICE®

Up 18.3% in 2Q16

Key Performance Factors:

Continued Adoption of Core Product

Areas within iGA

Platform, Strength

Across All Procedural Categories, and

Addition of NSO Portfolio

U.S. SURGICAL SUPPORT

Up 3.5% in 2Q16

Key Performance Factors:

Driven By Growth in M5

Neuromonitoring

Disposables

INTERNATIONAL

Up 33.3%

*

in 2Q16

Includes Puerto Rico

Key Performance Factors:

Strong Growth In EMEA and

AsiaPac

Regions

Strong revenue performance in key growth areas

*Constant currency basis

Includes Biologics, IOM Services

& Disposables

©2016 NuVasive®, Inc.

6

©2016 NuVasive®, Inc.

Non-GAAP Measures

2Q16

Actuals

2Q16 YoY

Performance Factors

Gross Margin

77.8%

170

bps driven

by med device tax repeal &

favorable contribution from NSO

Sales, Marketing

& Admin.

56.9%

40

bps driven by addition of NSO

Results included ~70 bps headwind from

non-cash share-based compensation

Research & Development

5.0%

70

bps driven by investments

in core

NUVA platform, NSO

technology

&

procedural offerings

Operating Profit Margin

15.9%

60 bps improvement from prior year while

increasing investment in R&D by ~70 bps.

Results included ~70 bps headwind from

non-cash share-based compensation

EPS

$0.40

$0.09; ~28% YoY

growth

Adjusted

EBITDA Margin

25.3%

40 bps

Operating leverage story continues to play out

Second Quarter 2016 P&L Performance

©2016 NuVasive®, Inc.

7

Driving Improved Financial Profile

Disciplined approach to driving profitability

resulting in meaningful improvements in

Adjusted EBITDA profile

Future initiatives

•

Significantly reducing inventory days

on hand

•

Reducing CapEx

burn from ~9% to

~6% of revenue over time through

better set configuration and

utilization

Incremental focus on improving the

working capital profile and CapEx

spending will drive incremental

gains in the free cash profile of the

company

*NuVasive financial performance guidance as of July 26, 2016

*

Improving Adjusted EBITDA profile

©2016 NuVasive®, Inc.

8

$144

$167

$204

~$236

~$244

$125

$145

$165

$185

$205

$225

$245

$265

2013

2014

2015

2016E

Adjusted EBITDA

(In Millions)

©2016 NuVasive®, Inc.

Improving Non-GAAP Operating Profit Margin

Driving Improved Financial Profile

FY13-16: 680 bps improvement

•

Long term commitment to drive at

least 100 bps of improvement

annually in the core business

•

Longer term goal of 25% with key

levers identified

–

Sales force efficiencies

–

International scalability

–

In-house manufacturing

–

Asset efficiencies

*Includes 100 bps of headwinds due to NSO acquisition

Increased focus on driving improved

profitability through disciplined

spending and improved efficiencies in

core business while adding acquired

businesses that complement the

overall financial goals

9.2%

11.4%

15.4%

15.8%

~16%

©2016 NuVasive®, Inc.

9

0%

5%

10%

15%

20%

2013

2014

2015

2016E

Non-GAAP Operating

Profit Margin

*

©2016 NuVasive®, Inc.

©2016 NuVasive®, Inc.

Driving Improved Tax Rate

10

Increased focus on driving improved tax rate through international scale and domestic

tax planning

*NuVasive financial performance guidance as of July 26, 2016

42%

37%

34%

32%

30%

28%

25%

27%

29%

31%

33%

35%

37%

39%

41%

43%

2015

2016E

2017E

2018E

2019E

2020E

Long Term Tax Rate Goals

Operational Improvements

Taking Hold

•

Global tax planning initiatives are

playing through

•

International scale being realized

•

IP migration plans being deployed

•

Building localized capabilities in

country

•

In addition, adoption of Accounting

Policy Changes benefiting rate in

near term

Opportunity to drive non-GAAP

effective tax rate lower by

~1,400 bps over 5 years

*

©2016 NuVasive®, Inc.

©2016 NuVasive®, Inc.

Accelerates

NuVasive’s

transition

from

a

spine

implant

company

to

a

spine

solutions

company

offering

a

broad

range

of

integrated

capabilities

to

deliver

robust

improved

clinical and economic outcomes for patients and hospitals.

•

Delivers

Clinical

Fulfillment:

Enhances

NuVasive’s

spine

service

line

partnership

offering for health system customers, by supporting clinical fulfillment through

enhanced surgical monitoring and oversight capabilities

•

Doubles U.S. Service Footprint: Grows coverage and capabilities in key, complementary

market.

Moves from 45,000+ cases to 75,000 cases annually

•

Creates the Standard of Care:

Able to further deliver high standard of care and

increase the breadth of differentiated products and services offered to health systems

as they seek to build out their spine service line, improving the clinical and economic

value of our procedurally-integrated offerings

•

Attractive financial profile: Expected to be immediately accretive to non-GAAP

earnings per share (EPS) in 2016 and significantly accretive in 2017 and beyond

Strategic Milestone: Completed Biotronic

NeuroNetwork

Acquisition

11

Biotronic, combined with IMI, creates NuVasive Clinical Services – the nation’s

leading intraoperative neuromonitoring services provider

©2016 NuVasive®, Inc.

©2016 NuVasive®, Inc.

Strategic Milestone: Medtronic Settlement

General

•

Reached a definitive agreement with Medtronic to settle over 8 years of

ongoing patent litigation between the two companies

•

Removes associated expense of the legal proceedings and provides a clear

protocol for resolution of potential patent disputes in the future

•

Removes the overhang of the litigation, allowing NuVasive to operate freely

in the marketplace, covering our current portfolio and providing for a

standstill for future potential products, such as imaging and navigation

Financial

•

NuVasive

agreed to pay Medtronic $45 million, which is significantly lower

than the Company’s reserve of $88.3 million (as of last quarter); sufficient

liquidity to cover payment

•

Settlement payment to be made in Q3

•

Reduces the risk of on-going litigation as well as the incurred costs of this

type of patent litigation

12

The remaining

~$0.08/share impact on non-

GAAP EPS will be recorded in

the second half of 2016

(~$0.04 each in Q3/Q4)

ASU 2016-09 –

Share-Based Compensation

Background:

New

FASB

guidance

issued

in

March

2016

that

requires

mandatory

adoption

in

2017,

with early adoption permitted. The Company chose to adopt in the second quarter of 2016, which

requires adoption effective as of January 1, 2016. The adoption resulted in a recast of previously

reported first quarter 2016 results and will have an impact on full-year 2016 results.

The primary impact is on the incremental tax benefit/expense from share-based compensation,

which historically would be booked to equity and now impacts the income tax rate. The Company’s

GAAP and non-GAAP financial results are impacted by the adoption.

Q1

$5.5m

$0.11/share

$1.1m

$0.02/share

Q2

$2.7m

$0.05/share

$2.5m

$0.05/share

Financial Impact

For

the three months ended March 31, 2016

As Previously Reported

As Recast

GAAP

diluted loss per share

$(0.18)

$(0.07)

Non-GAAP diluted earnings per share

$0.31

$0.34

GAAP

*

*

Per

share

amounts

reflect

impact

of

rounding

©2016 NuVasive®, Inc.

13

Non-GAAP

©2016 NuVasive®, Inc.

©2016 NuVasive®, Inc.

FY16 Guidance

Performance

Drivers

Revenues

•

As reported

~$962.0M, ~18.5%

YoY

growth^

~$53M NSO contribution, ~$27M Biotronic; ~$1M currency impact

•

U.S. Spinal Hardware

•

U.S. Surgical

Support

•

International

~16.6% YoY

growth

~14.2% YoY

growth

~37.7% YoY

growth

Strong expected lumbar, cervical and NSO product performance

Biotronic

contribution as of July

1, 2016

~36% constant currency impact; comprised

of core NuVasive

growth

of ~20%,

NSO product growth of ~17%

Non-GAAP

Gross Margin

~76.4%

~40 bps increase due to 2-year suspension of med device tax,

partially offset by the lower gross margin profile

of Biotronic

Non-GAAP Sales, Marketing

&

Admin.

~55.4%

~100 bps improvement driven

by core NuVasive asset and

sales

force efficiencies,

support function management, International

scale; partial

improvement related to SM&A profile of Biotronic

Non-GAAP Research &

Development

~5.1%

~80 bps increase in

organic and inorganic investment in innovation

Non-GAAP Operating Profit

Margin

~16.0%

~150 bps

of core NuVasive margin improvement,

primarily offset

by NSO investment

Non-GAAP Earnings Per Share

~$1.64

~25% YoY

growth

Adjusted

EBITDA Margin

~25.4%

~20 bps

increase

Non-GAAP Effective Tax Rate

~37.0%

~500

bps improvement from 42% in 2015; ASU adoption 2016-09

Non-GAAP

diluted WASO

~52.0M shares

Increased from ~51.3M shares due to higher share price impact on

remaining 2017 convertible note dilution;

ASU adoption

2016-09

Reflects impact of acquisitions, convertible note issuance, note repurchases, expected

currency rates & adoption of the ASU

Full Year 2016 Financial Performance Guidance*

14

*NuVasive

financial

performance

guidance

as

of

July

26,

2016;

^Constant

currency

as

reported

©2016 NuVasive®, Inc.

©2016 NuVasive®, Inc.

Relentless focus on driving shareholder value

Why Invest in NuVasive

Industry-leading innovation and

integrated procedural solutions

enables share-taking and

premium pricing

Drive surgeon conversion,

increase service line

partnerships and expand

services integration

Double International revenue

contribution in coming years

Competitively positioned in large and growing global spine market with

favorable transformative dynamics playing to NuVasive strengths

Grow revenues at

multiples of

market in high

single-digit

range*

Achieve ~25%

long-term non-

GAAP operating

profit margin and

~32% adjusted

EBITDA goals*

Optimize tax

structure to help

drive EPS growth

2x the rate of

revenue growth*

Disciplined capital

deployment for

strategic M&A

and partnerships

Set to generate

significant

increases in free

cash flow

*NuVasive financial performance guidance as of July 26, 2016

©2016 NuVasive®, Inc.

15