Why ConforMIS Stock Is Tanking Today

Shares plunged after the company announced disappointing guidance for 2017.

Brian Feroldi
Brian Feroldi
Feb 16, 2017 at 12:08PM
Health Care

What happened

After the company reported mixed fourth-quarter results and issued downbeat guidance for 2017, shares of ConforMIS (NASDAQ:CFMS), a producer of custom joint replacement implants, fell more than 33% as of 11:15 a.m. EST on Thursday.

So what

Here's a look at the highlights from the fourth-quarter earnings report.

  • Total revenue grew by 14% to $21.7 million, which slightly exceeded Wall Street's expectations.
  • Growth in the U.S. was 21%. However, that was offset by an 11% decrease in international sales.  
  • Gross margin expanded to 37%, up 400 basis points over the year-ago period.
  • Net loss was $15.7 million, or $0.37 per share. This was slightly higher than the $15.0 million net loss recorded in the same period last year. It also came in a bit higher than the $0.30-per-share loss that market watchers were looking for. 
  • ConforMIS' cash balance at quarter end was $65.5 million. The company also announced that it has secured up to $50 million in term debt financing.
Illustration of an artificial hip joint

Image source: Getty Images.

While the company's fourth-quarter performance was mixed, investors appear to be reacting harshly to management's guidance for 2017.

  • Revenue will land between $80 million to $84 million, which represents growth of 1% to 6%. This is far short of the $101 million in revenue that Wall Street wanted.
  • Gross margin will be in the range of 36% to 38%.
  • For the first quarter of 2017, revenue is expected to be between $17.7 million and $18.7 million. This figure is also well shy of the $23.4 million in revenue that analysts were projecting. 

Given the mixed quarterly results and bummer guidance, it is no surprise to see ConforMIS' shares getting hit hard today.

Business people looking concerned

Image Source: Getty Images.

Now what

CEO Mark Augusti knew that this forecast wasn't what investors wanted to hear, so he did his best to stress that the company's U.S. operations are still performing well, saying, "Our 2017 guidance for constant currency product revenue growth in the range of 1 percent to 6 percent is not reflective of the underlying health of our U.S. business which we expect to grow in the high-single digit to mid-teens percentage this year over last year."

However, he did admit that international sales were going to remain under pressure given the challenging reimbursement environment in Germany, which is the company's largest international market.

Nonetheless, Augusti did his best to communicate to shareholders there are a lot of positive things happening in the year ahead: 

2017 will be a transition year for ConforMIS as we focus on improving our long-term growth and profitability profile. We expect continued strength coming from our iTotal PS, which was fully launched in the first half of 2016, and we are focused on improving our commercial execution to drive better results in our base business going forward. Importantly, we expect continued improvements in our gross margin in 2017.