NuVasive, Inc. NUVA reported second-quarter 2015 adjusted earnings per share (EPS) of 31 cents, reflecting a substantial 106.7% rise from the year-ago quarter and a 29.2% beat over the Zacks Consensus Estimate.
Solid revenue growth and an improved operating margin performance in the quarter were primarily responsible for the year-over-year earnings improvement. Including one-time items, the company reported second-quarter 2015 net earnings per share of 20 cents, which compared favorably with the year-ago quarter’s loss of 9 cents per share.
Revenues in the reported quarter increased 6.4% year over year to $202.9 million (up 6.4% at constant exchange rate or CER), ahead of the Zacks Consensus Estimate of $200 million. The upside was driven by strength in lumbar, cervical and monitoring in the U.S., partially offset by domestic biologics sales which were flat year over year on account of a difficult year-over-year comparison related to the launch of Osteocel Pro in the year-ago quarter.
As stated earlier, NuVasive currently operates under three revenue categories, U.S. Implants and Services, U.S. Biologics and International.
Sales in U.S. Implants and Services (that includes the lumbar, cervical, NVM5 and services businesses) grew 7.8% year over year as products like precept posterior fixation system, ALIF ACR, Vuepoint 2 posterior cervical fusion system and Archon interior cervical plating system served as major growth drivers. The company expects this segment to maintain a growth rate of approximately 5% in 2015.
U.S. Biologics sales were essentially flat owing to a difficult year-over-year comparison related to the launch of Osteocel Pro in the year-ago quarter. NuVasive expects the U.S. Biologics business to grow approximately 7% in 2015.
NuVasive’s International business, which includes Puerto Rico, grew 7.4% year over year (up 22.6% at CER) backed by strong contributions from Japan, Australia and Italy. Management believes that, with the recent leadership change in the International division, it is currently trying to optimize its market approach in other countries which include greater direct engagement with customers to create focus on differentiated solutions and capitalize on NuVasive’s surgeon education programs.
The company reported a 35 basis points (bps) contraction in gross margin to 76.1% in the second quarter with a 7.9% increase in cost of goods sold. Sales, marketing and administrative expenses declined 1.4% to $115.3 million, and research and development expenses fell 12.8% to $8.8 million. NuVasive posted adjusted operating income of $30.4 million in the reported quarter, reflecting a massive 61.6% increase from the year-ago number. Adjusted operating margin expanded 512 bps to 14.9% in the reported quarter.
Outlook
NuVasive provided an update on its full year 2015 guidance. The company still expects full year revenues of approximately $810 million, up 6.2% from 2014, However, at CER, revenues are currently expected to grow at approximately 7.9% (up from the earlier expected growth rate of 7.8% at CER). The current Zacks Consensus Estimate of $812 million exceeds the expected range by a whisker.
NuVasive has increased its estimate for full-year 2015 adjusted earnings per diluted share to $1.17 (earlier guidance was $1.10), up approximately 74.2% from the comparable period last year. The current Zacks Consensus Estimate of $1.19 exceeds the company’s guidance. Additionally, adjusted operating margin for the year is projected at 15% (earlier 14.4%), up 360 basis points.
Our Take
NuVasive performed well in the second quarter of 2015 with both earnings and revenues steering ahead of the Zacks Consensus Estimate. Based on market share-taking strategy, the company showed balanced growth in the U.S. and outside. NuVasive is rapidly developing disruptive technologies and services for spine surgery, expanding its global footprint in existing and new markets and building itself as a commercial powerhouse with integrated sales, service and specialized customer marketing program. Moreover, the strong operating margin expansion continues to attract investors’ attention toward the company’s strong fundamentals.
NuVasive is currently focusing on three growth areas viz. effective increase in market share, driving innovation in products and business, and consolidating its position as a market-leading distributor and innovator in spine. The company’s performance in the international space particularly boosts our confidence. According to management, the region holds tremendous growth opportunity for NuVasive, given that it currently holds a mere 4% of the total market share therein. Additionally, although the U.S. Biologics sales were flat in the quarter, the company’s reaffirmation of the earlier stated target boosts our confidence.
The stock currently carries a Zacks Rank #1 (Strong Buy).
Key Picks from the Sector
Some of the top-ranked stocks in the broader medical sector are Abaxis, Inc. ABAX, Vascular Solutions Inc. VASC and LeMaitre Vascular, Inc. LMAT. All the three stocks carry a Zacks Rank #1.
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