Texas-based medical device manufacturer Cyberonics Inc. (CYBX) reported second-quarter fiscal 2015 adjusted earnings per share (EPS) of 63 cents, reflecting an increase of 26% year over year. The adjusted results also beat the Zacks Consensus Estimate of by 6.8%.
The year-over-year improvement in earnings was primarily driven by strong revenue growth and a positive outcome on the overall margin front.
However, without taking into consideration the one-time items, Cyberonics' net income was $17.3 million or 64 cents per share, a jump of 24.4% or 28%, respectively, from the year-ago equivalent numbers.
Quarter in Detail
Revenues increased 4.7% year over year to $73.4 million in the quarter but missed the Zacks Consensus Estimate by 3.4%. The year-over-year improvement was aided by growth observed in net product sales as well as unit sales, both in the domestic market and internationally.
On a geographic basis, Cyberonics recorded 3.5% growth in U.S. net product revenues to $59.9 million while unit sales growth was also slightly higher. However, U.S. net sales lagged the company's expectation. International product revenues grew 13.1% at constant exchange rate to $13.5 million with unit growth of 10.5% amounting to 1,081 units. Foreign exchange movements adversely impacted international sales for the quarter by $340,000 on a year-over-year basis.
Cyberonics experienced impressive growth in all its international regions. While Cyberonics experienced a double-digit expansion of its business in the Middle East in the reported quarter, its regional teams in Latin America, Asia-Pacific, and Japan have all delivered growth of approximately 20% to date in fiscal 2015. The company witnessed impressive unit sales growth of its AspireSR generator – a VNS Therapy System. During the reported quarter, sales of the AspireSR accounted for 12% of Cyberonics' international sales, and more than 30% of unit sales in those countries where it is now available. Cyberonics' regional teams in Latin America, Asia-Pacific, and Japan have all delivered growth of approximately 20% to date in fiscal 2015.
Gross profit rose 5.5% to $66.7 million in the quarter. Consequently, gross margin expanded 70 basis points (bps) to 90.8% from the year-ago quarter, owing to rise in the quarter's revenues.
In the reported quarter, a 0.2% drop in selling, general and administrative expenses to $29.6 million and a 7.2% decline in research and development expenses to $10.8 million led to a rise of 33.6% in operating income of $29.3 million. Lower compensation and lower equity compensation expense in the second quarter led Cyberonics to incur lower operating expense, which in turn boosted operating income. Consequently, operating margin expanded 870 bps to 39.9% on a year-over-year basis.
The company exited the quarter with cash and cash equivalents and short-term investments of $141.9 million, compared with $128.3 million as of Apr 25, 2014. Cyberonics has no interest-bearing debt on its balance sheet. The company repurchased 280,000 shares in the second quarter of fiscal 2015. It is now left with 270,000 shares under its current buyback program. This program is expected to be completed by the end of 2015.
Guidance
Cyberonics lowered its fiscal 2015 revenue guidance. The company now expects revenues in the range of $292–$298 million (from earlier provided range of $300–$307 million), reflecting annualized growth of approximately 7% (earlier 10%) (adjusting for the single country order of $4.7 million and license revenues of $1.5 million for fiscal 2014). The current Zacks Consensus Estimate of $303 million lies above the company's guidance. However, Cyberonics continues to expect global unit growth of roughly 7%.
Fiscal 2015 EPS has been reiterated in the range of $2.33 to $2.39. The current Zacks Consensus Estimate of $2.34 lies within the guided range.
The company also expects gross margin of 90.5–91%, the previous guidance range being 90–91%. Income from operations is expected to continue in the band of $96–$99 million in fiscal 2015.
Our Take
Cyberonics reported mixed second-quarter fiscal 2015 results, wherein the bottom line exceeded the Zacks Consensus Estimate, while the top line missed the same. However, the company's year-over-year outcome was impressive on both the earnings and revenue front.
We are impressed with positive data from the ANTHEM-HF study, which entailed Cyberonics' VNS Therapy System being implanted in heart failure patients to evaluate the safety and efficacy of Autonomic Regulation Therapy (ART). The significant health benefits experienced by the patients who underwent this study further bolster the effectiveness of the company's VNS technology platform. We believe this will result in further expansion of Cyberonics' market share in the drug-resistant epilepsy market.
Zacks Rank
Currently, Cyberonics carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the medical instruments industry include AngioDynamics Inc. (ANGO), Edwards Lifesciences Corp. (EW) and EnteroMedics Inc. (ETRM). While AngioDynamics sports a Zacks Rank #1 (Strong Buy), Edwards Lifesciences and EnteroMedics hold a Zacks Rank #2 (Buy).
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