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NxStage Medical Grows but Expects No Profit for 2016

By Dan Caplinger – Feb 10, 2016 at 12:18PM

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The dialysis services company continues to see its Kidney Care investment offset any potential net income elsewhere.

Image source: NxStage Medical.

Home dialysis specialist NxStage Medical (NXTM) has made a huge change in how patients get the treatment they need, offering an alternative to the outpatient services that Fresenius Medical Care (FMS 1.00%) and other providers offer. Yet profitability has proven elusive for NxStage, and coming into its fourth-quarter financial report, NxStage investors wanted to see some stronger signs of how the company would stem the flow of red ink in 2016. The medical device maker's sales jumped more than expected for the quarter, but it also said that it expects losses to continue throughout the year. Let's look more closely at what NxStage Medical said and what lies ahead for the company this year and beyond.

NxStage exceeds its sales guidance
NxStage Medical's fourth-quarter results were generally favorable, continuing the record-setting pace we've seen in past reports. Revenue climbed 12% to $89.8 million, which was better than the $86 million to $87 million guidance range that NxStage had given last quarter. The company's net loss narrowed by about 45% to $2.7 million, and that worked out to a loss of $0.04 per share, matching the consensus forecast investors had for NxStage.

NxStage continued to see its gains come from its System One device. Home-treatment revenue climbed 13% to $47.8 million, and the pace of growth for System One critical-care applications stayed even higher at 19%. Offsetting those revenue increases was a 3% drop in sales from NxStage's In-Center traditional dialysis treatment segment, although the small catch-all Other category rose by almost a third.

CEO Jeffrey Burbank celebrated performance that topped NxStage's expectations. "We continue to advance our innovative pipeline," Burbank said, "including our next generational hemodialysis system, our new peritoneal dialysis system, and our next-generation critical card system."

Will NxStage ever make money?
NxStage remains convinced that it will find ways to stem its losses. CFO Matt Towse said, "As we continue to scale the higher-margin System One segment and align our business in support of our growth opportunities, we remain on track to achieve our long-term growth and profitability targets."

Unfortunately, NxStage's guidance for 2016 fell well short of what most investors had hoped to see. For the first quarter, NxStage projected sales of $87 million to $89 million and a net loss of $2 million to $4 million. Investors had hoped for stronger revenue growth than the guidance suggests, although the loss projection is consistent with the consensus forecast for a nickel per share of red ink.

For the full year, the news was even less encouraging. Revenue guidance for $355 million to $360 million for 2016 would be quite a bit below the $371 million that investors had expected. Losses of $7 million to $12 million would work out to roughly $0.11 to $0.19 in per-share losses over the course of the year, and although the current consensus forecast of $0.15 falls squarely in the middle of that range, shareholders had hoped that NxStage would be able to outperform those gloomy expectations.

Meanwhile, NxStage is keeping a close eye on Fresenius. Fresenius' partnership with Debiotech on a potential new home dialysis product hasn't yet yielded further announcements from the company. Given Fresenius' dialysis expertise, however, NxStage could soon face tough competition that would challenge its past success in producing consistent growth.

NxStage investors were clearly unhappy with the idea that they'd have to remain patient in their quest for profits, because the stock traded down as much as 14% following the announcement before bouncing back to cut its losses somewhat. There's no question that NxStage has a huge opportunity to dislodge rivals like Fresenius, but the company will have to prove that it can ramp up its money-making potential more quickly in order to satisfy some investors.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends NxStage Medical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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