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NuVasive Sees a Stronger 2018

By Dan Caplinger - Feb 26, 2018 at 5:45PM

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The spinal surgical equipment specialist saw growth flatten out but still posted its first $1 billion sales year.

Spinal surgery can be extremely dangerous, but the advances that NuVasive (NUVA 2.24%) has made in the area have helped make procedures less invasive and therefore less likely to result in devastating complications. That's helped drive long-term growth for the company, although more recently, signs of more sluggish performance have led to a substantial pullback in the stock's price.

Coming into Monday's fourth-quarter financial report, NuVasive investors were expecting to see modest signs of growth from the spinal surgical specialist. Not all of the company's numbers were quite as high as some had hoped, but 2018 could point to faster growth. Let's take a closer look at NuVasive and what its latest results say about its future.

Surgical area featuring several tables with displays and other equipment designed to assist with surgical procedures.

Image source: NuVasive.

NuVasive sales hit the $1 billion mark

NuVasive's fourth-quarter results closed a solid year for the company. Revenue of $271.7 million was essentially flat compared to year-earlier results, falling short of the modest 1% gain that investors were hoping to see. Adjusted net income rose 5% to $29.1 million, and that worked out to adjusted earnings of $0.56 per share, matching the consensus forecast among those following the stock.

A rise in costs of goods sold took a big toll on NuVasive's financial metrics. Gross margin once again took a big hit of more than three percentage points from year-ago levels. It once again took dedicated attention to cost reduction in operating expenses to prevent deterioration in operating margin figures.

NuVasive got a boost from tax reform. The company posted a net tax benefit of $4.07 million for the quarter, which presumably involved a larger total gain related to tax reform that offset whatever normal tax liability NuVasive would have had based on its profits for the quarter.

CEO Greg Lucier was happy about how the company did. "2017 was a milestone year for NuVasive as we surpassed the $1 billion revenue mark," Lucier said, "driven by impressive international sales growth of more than 20%." The CEO also pointed to record operating margin in the fourth quarter in helping to keep its bottom line moving in the right direction.

What will 2018 hold for NuVasive?

NuVasive is optimistic about its prospects over the coming year. In Lucier's words, "As we set the stage for 2018, we remain focused on accelerating our growth momentum by furthering our investment in R&D to bring innovative offerings to the market."

Also helping to advance the company's prospects is a new line of intraoperative neurophysiological monitoring services, thanks largely to the recent purchase of SafePassage. The acquisition made NuVasive's clinical services division the largest provider of outsourced services in the field, with more than 550 neurophysiologists and oversight physicians domestically that will allow NuVasive to provide services for more than 1,000 customers and 3,000 surgical professionals. That should help the company support more than 100,000 cases involving neurophysiological monitoring annually.

Guidance for NuVasive was also encouraging. The company sees growth rising at an organic rate of about 5%, with revenue for the full 2018 year coming in between $1.095 billion and $1.105 billion. Adjusted earnings per share should be in a range between $2.44 and $2.47, with further gains in operating margin driven by cost reduction efforts. The guidance was stronger than most investors had expected, although it's not immediately clear whether those following the stock had fully integrated the impacts of tax reform or the SafePassage acquisition into their forecasts.

NuVasive investors seemed to be pleased overall with the news, and the stock was higher by 2% in after-hours trading following the announcement. Nevertheless, once short-term disruptions end, it will be important for NuVasive to make good on its growth potential and find ways to accelerate adoption of its valuable technology among medical professionals in key niches of the healthcare sector.

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