2017 Should Bring NxStage Medical a Profit

The dialysis company suffered a fourth-quarter loss but sees black ink ahead in the coming year.

Dan Caplinger
Dan Caplinger
Feb 28, 2017 at 9:40AM
Health Care

The home-dialysis market is a growing one because of the rise in incidence of diabetes and other diseases that can have an impact on kidney function. NxStage Medical (NASDAQ:NXTM) has done its best to tap into that market, but in its efforts to maximize growth in sales of its life-changing equipment, the company hasn't yet been able to reach consistent profitability. Coming into Tuesday's fourth-quarter financial report, NxStage investors weren't expecting that to change, but the news that the home-dialysis specialist gave suggests that 2017 could be the year in which NxStage turns its income statement around and starts delivering black ink on the bottom line.

Let's look more closely at NxStage Medical to see how it did and why it expects better times in the year ahead.

Patient using a NxStage home dialysis device.

Image source: NxStage Medical.

NxStage keeps pressing forward

NxStage Medical's fourth-quarter results showed the opportunity that the company has in front of it. Revenue was up 4% to $93 million, a record result that was $1 million higher than the company had forecast. NxStage posted a loss of $1.6 million for the quarter, which worked out to $0.02 per share and was near the midpoint of the $1 million to $2 million range that NxStage had predicted in its previous guidance.

Looking more closely at the report, NxStage continued to benefit from the strength of its System One platform. Sales there were up 10% from the year-ago period, driven by a 13% rise in sales of the System One for home use. Critical care revenue from System One inched higher by 3%, slowing from its faster pace of growth earlier in the year but still contributing to the company's overall success.

Meanwhile, NxStage kept de-emphasizing its in-center business. Revenue from the division fell more than a fifth from year-ago levels, reflecting its strategic decision away from its more traditional dialysis products.

However, services revenue continued to climb. Gains for the quarter approached 50%, capping a year in which sales from services more than doubled.

CEO Jeffrey Burbank was happy with how things have turned out for NxStage. "Our focus on innovation and execution is delivering the results we talked about," Burbank said, "and setting the foundation for the next wave of growth." The CEO also reminded investors that its products and services are having a positive impact on patient lives, which is in keeping with the company's core mission.

Can NxStage move to the next stage and make a profit?

Moreover, NxStage Medical sees its achievements bearing fruit in the near future. As Burbank put it, "We're excited about 2017 and are pleased to see our product pipeline development efforts continue to progress. We have many milestones on the horizon, including the introduction of our [peritoneal dialysis] system targeted for the end of this year."

Nowhere is NxStage's optimism more evident than in its guidance. Sales of $400 million to $405 million for the full 2017 year would represent another roughly 10% rise in NxStage's top line, with the company targeting 15% growth in home-based revenue. The home-dialysis specialist also said that it expects to have positive net income for 2017. First-quarter results should be generally favorable as well, with sales of $95 million to $97 million and modest losses of between $1 million and $3 million remaining roughly in line with current expectations.

Still, investors have been waiting for NxStage to become profitable for quite a while. They had already anticipated that 2017 would be a groundbreaking year for the company, and so the pressure will be on for NxStage to deliver on its full promise for the year.

Perhaps as a result, NxStage investors didn't react all that strongly to the news, and the stock traded down by about half a percent in pre-market trading following the announcement. Yet in the long run, NxStage will be able to look back at this critical time and decide whether it did everything it could to support its fundamental business prospects for its long-term future.