NuVasive (NUVA) Beats On Q2 Earnings, Raises FY16 View

NuVasive, Inc. (NASDAQ:NUVA) reported second-quarter 2016 adjusted earnings per share (EPS) of 40 cents, reflecting a 29% rise from the year-ago quarter and an 11.1% beat over the Zacks Consensus Estimate.

Solid revenue growth primarily led to the year-over-year earnings improvement.

Including one-time items, the company reported second-quarter 2016 net income per share of 57 cents while in the year-ago quarter it had recorded earnings of 20 cents per share.

Revenues in the reported quarter increased 16.4% year over year to $236.2 million (up 16.1% at constant exchange rate or CER), ahead of the Zacks Consensus Estimate of $233 million. The upside was driven by healthy performance in NuVasive's core U.S. spinal hardware business which improved 18.3% on the back of strong growth in MAGEC and PRECICE along with roughly 9% growth coming from the NSO inclusion.

Apart from that, strong international business benefitting from the company’s continued revitalization efforts, also contributed to the growth. In the reported quarter, International business grew 35.8% year over year (up 33% at CER). Growth was significantly backed by strong contributions from core direct markets including Japan, Australia, New Zealand, the U.K., Italy and Germany.

The company reported a 143 basis points (bps) contraction in gross margin to 74.7% in the second quarter with a 23.4% increase in cost of goods sold. Sales, marketing and administrative expenses went up 17.3% to $134.5 million, while research and development expenses increased 35.3% to $11.9 million.

NuVasive posted adjusted operating income of $30.1 million in the reported quarter, reflecting a 3% decline from the year-ago number. Adjusted operating margin contracted 255 bps to 12.7% in the reported quarter.

Outlook

NuVasive -- the consolidated company, post the acquisitions of Ellipse Technologies and Mega Surgical, has once again provided an update on its full-year 2016 guidance. This latest guidance takes into consideration the acquisition effect of Biotronic NeuroNetwork and the impact from the adoption of the ASU for employee share-based payment accounting, as well as expected changes in foreign currency rates.

The company currently expects 2016 revenues of approximately $962 million (an increase from the earlier quoted guidance of $928 million), up 18.6% from 2015. The current Zacks Consensus Estimate of $934.2 million remains below the expectation.

NuVasive has also provided its estimate for the full-year 2016 adjusted earnings per share at $1.64 (Earlier prediction was $1.48), up approximately 25% from the 2015 EPS number. The current Zacks Consensus Estimate of $1.51 remains much below the company’s guidance. Additionally, adjusted operating margin for the year is projected at 16% (15.8%), up 60 bps on a year-over-year basis.

Our Take

NuVasive performed well in the second quarter of 2016 with both earnings and revenues steering past the respective Zacks Consensus Estimate. Strong growth in core international business along with solid contribution from NSO, the newly added segment contributed to the growth.

According to management, there is tremendous growth opportunity for NuVasive overseas, given that it currently holds a mere 4% of the total market share therein. In addition, we are also happy to see the continued strong contribution from NuVasive's core U.S. spinal hardware business. With the raised 2016 guidance, we can also conclude that, this growth process is going to continue in the rest of 2016 as well.

NuVasive, at present, is rapidly developing technologies and services for spine surgery, expanding its global footprint in the existing and new markets, and building itself as a commercial powerhouse with integrated sales, service and specialized customer marketing programs. To this end, the company recently acquired privately held Ellipse Technologies that works on the transformation of procedural solutions for complex skeletal deformity.

In addition, the company’s acquisition of Brazilian distributor, Mega Surgical has already started to contribute to its growth in 2016. Its latest acquisition of Biotronic NeuroNetwork is also expected to strengthen the company’s foothold in the growing spine procedure solutions space.

The stock currently carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Some of the better-ranked medical product stocks are Boston Scientific Corp. (NYSE:BSX) , GW Pharmaceuticals PLC (NASDAQ:GWPH) and Zimmer Biomet Holdings Inc (NYSE:ZBH) . All the three stocks carry a Zacks Rank #2 (Buy).