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NuVasive (NUVA) Q3 Earnings Beat, Gross Margin Declines

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NuVasive, Inc. (NUVA - Free Report) delivered third-quarter 2020 adjusted earnings per share of 55 cents, down 6.8% from the year-ago figure. However, the figure beat the Zacks Consensus Estimate of earnings of 27 cents per share.

The one-time adjustments include expenses associated with certain ongoing litigation matters and amortization expenses among others.

GAAP earnings per share came in at 11 cents, down from the year-ago EPS of 21 cents.

Total Revenues

Revenues in the third quarter totaled $295.3 million, up 1.5% year over year on a reported basis (up 1.3% at constant exchange rate or CER). The top line exceeded the Zacks Consensus Estimate by 14.1%.

The company registered strong international performance with several spinal hardware product lines growing at high single digits or more. However, this was offset by the clinical service businesses and certain legacy products that declined year over year.

Geographical & Segmental Details

In the reported quarter, U.S. Spinal Hardware business revenues inched up 0.8% year over year to $161.2 million. With improved case volume, the company saw more normal mixture of procedures driving results. Thoracolumbar procedures grew in low-single digits. The pediatric deformity portfolio performed at pre-COVID-19 levels.

Revenues from the U.S. Surgical Support business were $69.5 million in the third quarter, down 3.4% year over year. The business experienced a slowdown in volumes due to the pandemic and NuVasive clinical services payer mix dynamics. This was partially offset by growth in intraoperative monitoring disposable products due to an increase in thoracolumbar case volumes in the quarter.

NuVasive, Inc. Price, Consensus and EPS Surprise

NuVasive, Inc. Price, Consensus and EPS Surprise

NuVasive, Inc. price-consensus-eps-surprise-chart | NuVasive, Inc. Quote

In the quarter, the company registered international revenues of $64.6 million, reflecting a 9.6% year-over-year rise on a reported basis and 7.8% rise at CER. This resulted from strong contributions from Asia Pacific, and in particular Japan, where there was less impact of COVID-19.

Margin Details

In the reported quarter, gross profit declined 1.5% year over year to $210.6 million. Gross margin contracted 218 basis points (bps) to 71.3%.

Selling, general and administrative expenses declined 4.3% year over year to $146.3 million, whereas research and development expenses climbed 12.5% year over year to $20.4 million.

Adjusted operating margin was 14.9%, a 19 bps expansion year over year.

Operational Update

The company exited the third quarter with cash and cash equivalents, and short-term marketable securities of $982.1 million compared with $926.8 million at the end of the second quarter.

Cumulative net cash provided by operating activities at the end of the third quarter was $113.2 million compared with the prior-year period’s $160.6 million.

Guidance

NuVasive noted that it is currently not reinstituting its financial guidance for the year as the scope for spine surgery volumes for the remainder of the year continues to be limited.

Our Take

NuVasive exited the third quarter of 2020 with better-than-expected numbers. The company experienced a faster-than-expected recovery from the impact of COVID-19. The results were primarily driven by a strong international growth. Surgical case volumes in key international markets like Japan and Germany and certain regions in the EU accelerated. However, others like the UK, Spain and certain countries in Latin America continue to recover at a much slower rate due to ongoing local COVID-19 impacts.

The contraction in gross margin is concerning. The company is unable to provide any annual guidance, which raises apprehensions.

Zacks Rank and Key Picks

NuVasive currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are West Pharmaceutical Services, Inc. (WST - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and Align Technology, Inc. (ALGN - Free Report) .

West Pharmaceutical reported third-quarter 2020 adjusted EPS of $1.15, beating the Zacks Consensus Estimate by 13.9%. Net revenues of $548 million outpaced the consensus estimate by 7.2%. It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher, a Zacks Rank #2 company, reported third-quarter 2020 adjusted EPS of $5.63, beating the Zacks Consensus Estimate by 28.8%. Revenues of $8.52 billion outpaced the consensus mark by 10%.

Align Technology reported third-quarter 2020 adjusted EPS of $2.25, surpassing the Zacks Consensus Estimate by a stupendous 281.4%. Net revenues of $734.1 million exceeded the Zacks Consensus Estimate by 38%. It currently sports a Zacks Rank #1.

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