Mazor Robotics Ltd. reported adjusted loss of 11 cents in the second quarter of 2016, which was wider than the year-ago loss of 5 cents but narrower than the Zacks Consensus Estimate of a loss of 21 cents.

The wider loss may be primarily attributed to the higher operating expenses.

Revenue Details

Revenues increased 6.2% to $8.3 million, primarily due to stellar performance in international markets. Revenues in these markets surged almost 23% to $1.6 million. International markets accounted for 19% of total revenue as compared with roughly 17% in the year-ago quarter, reflecting Mazor’s expanding overseas footprint.

Revenues in the U.S. were $6.7 million as compared with $6.5 million in the year-ago quarter. The U.S contributed 81% to revenues, which declined from almost 83% in the year-ago quarter.

Capital sales totaled $4.1 million compared with $4.6 million in the year-ago quarter. This includes revenues from eight Renaissance systems this quarter compared to seven systems and one upgrade in the year-ago quarter.

Recurring revenues from system kits, services and other increased 31% on a year-over-year basis to $4.2 million. The upside was driven by increased utilization of the company’s Renaissance system in the U.S. and an expanded installed base.

During the second quarter, Mazor Robotics received orders for six Renaissance systems in the U.S., including two systems with the brain module. The company received orders for five Renaissance systems from its distributors in Italy, China and Australia as compared to one in the year-ago quarter. Notably, three international deliveries were made in the second quarter of 2016.

Margins

Gross margin for the quarter contracted 230 basis points (bps) to 77.5% owing to higher expenses of manufacturing components like accessories and spare parts along with overhead costs, freight, amortization of intangible assets and other service costs.

Adjusted operating expenses expanded 370 bps to 122.7%, largely due to Mazor Robotics’ continued investments in sales and marketing (S&M). However, general and administrative (G&A) expenses expanded 410 bps to 17.3%.

Collaborations

During the quarter, Mazor Robotics agreed to a commercial co-promotion and co-development deal with Medtronic plc (MDT Quick QuoteMDT - Free Report) , under which the latter has already added 15 Mazor X systems.

The purchase orders for 15 systems have been placed by Medtronic, out of which five will be installed in its own facilities and the remaining in leading clinical centers and hospitals.

Apart from the collaboration, Mazor Robotics has planned to commercialize the product in Oct 2016. These recent initiatives are expected to generate awareness among surgeons and patients about Mazor X and will drive the company’s top line over the long haul.

Our Take

Innovation continues to be the major area of focus for Mazor Robotics, which will propel considerable growth over the long haul.

Top-line growth reflects the company’s increased traction in international markets. Mazor Robotics has also managed to boost its presence in academic centers, which is a key positive in our view.

The Renaissance system is an important growth driver for the company and continuing contract wins will drive significant top-line growth. Moreover, the Mazor X product is  a path breaking innovation.
 
However, it is to be noted that considerably higher operating expenses on sales and marketing raise caution.

Zacks Rank and Other Key Picks

Currently, Mazor Robotics has a Zacks Rank #2 (Buy).

Other well placed stocks in the medical sector are Masimo Corporation (MASI Quick QuoteMASI - Free Report) and Mesa Laboratories Inc. (MLAB Quick QuoteMLAB - Free Report) , both of which sport a Zacks Rank #1 (Strong Buy).

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