As spinal surgery specialist NuVasive (NUVA) can attest, the industry to produce innovative medical devices is highly competitive and fraught with danger. In the robotic healthcare arena, peer TransEnterix (ASXC -0.65%) has recently had to deal with the FDA's rejection of its SurgiBot robotic surgery system, and that setback has sent TransEnterix shares to huge losses. Yet NuVasive has had greater success with its minimally invasive, procedure-driven spinal surgical business, and coming into its first-quarter financial report on Tuesday, NuVasive shareholders expected solid sales growth and only a slight tick downward in earnings. What the company reported was even better, including a bottom-line gain and even better revenue figures. Let's take a closer look at the latest from NuVasive with an eye toward seeing what could be coming down the road.
NuVasive straightens out its earnings
NuVasive's first-quarter results were positive on all fronts. Revenue jumped almost 12% to $215.1 million, easily surpassing the consensus forecast among investors for sales of $206 million. NuVasive posted a GAAP net loss, but after adjusting for several one-time items, adjusted earnings of $0.31 per share were $0.04 greater than investors had expected and represented a slight uptick from year-ago levels.
Looking more closely at NuVasive's numbers, you can get a bit more information on how the medical device-maker did. The impact of the dollar almost disappeared from NuVasive's financials this quarter, costing the company only half a percentage point of revenue growth. Although gross margin figures were mixed depending on whether you used GAAP or non-GAAP figures, adjusted operating margins jumped one and a half percentage points to 14.1%.
Yet one of the key financial moves that NuVasive made during the quarter wasn't related to operations. In March, the company issued $650 million in convertible senior notes, extending the maturity of much of its debt through 2021 and putting in place a more attractive and flexible financing structure. NuVasive used the proceeds to repurchase $277 million in convertible debt due next year and to enter into hedging transactions designed to avoid dilution of shareholders unless the share price rises above $80 over the next five years. The debt retirement had a one-time impact on earnings, but the advantages it will give NuVasive in the years to come will be valuable for the company.
CEO Greg Lucier celebrated NuVasive's results. "Our revenue performance was driven by the fifth consecutive quarter of increasing growth for our U.S. spinal hardware business," Lucier said, "which reached double-digits during the quarter." The CEO also pointed to improved international growth and the acquisitions of new technologies to accelerate future growth.
Can NuVasive keep climbing?
NuVasive also has high expectations for recent strategic moves it has made. The company followed up its completed acquisition of Ellipse Technologies in February with another acquisition, closing on a deal to buy Mega Surgical in March. In particular, NuVasive sees Ellipse adding about $53 million in revenue during 2016, and further impacts down the road could be even more favorable for the company.
NuVasive accordingly updated its 2016 guidance to account for its results. The medical-device maker boosted its revenue projections by $5 million, now expecting a total of $928 million for the year. Adjusted earnings guidance remained the same at $1.48 per share, and NuVasive still expects that operating profit margins and EBITDA margins will rise slightly from 2015 levels.
The question for investors now is whether NuVasive itself will become a takeover target. Companies like TransEnterix sometimes have difficulty attracting investors before they have an approved device on the market, because buyers aren't always willing to bear the risk of a rejection. With NuVasive seeing solid success with its devices, however, growth-hungry acquirers could take an interest in the stock.
NuVasive investors were pleased with the results, sending the stock up more than 3% in after-hours trading following the announcement. As long as the company can keep making steady progress, NuVasive looks like it should have more room to run.