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NuVasive, Inc. (NUVA - Free Report) reported second-quarter 2017 adjusted earnings per share (EPS) of 46 cents, reflecting a 15% rise from the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of 44 cents.

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

Including one-time items, the company reported second-quarter 2017 net income per share of 22 cents, down 61.4% from 57 cents in the year-ago quarter.

Revenues in the reported quarter increased 16.2% year over year to $260.6 million (up 10.7% at constant exchange rate or CER). The figure however, missed the Zacks Consensus Estimate of $262 million.

The upside in revenues was driven by robust performance in the international market on above-market growth across all geographies. In the U.S., procedural volumes were on par with the company’s expectations.

NuVasive, Inc. Price, Consensus and EPS Surprise

 

In the reported quarter, the company’s U.S. Spinal Hardware business registered 3% growth backed by continued strong adoption of ReLine posterior fixation system within the company’s iGA platform. The company also witnessed a steady uptake of its recently launched expandable interbody cages and base TI interfixated within the ALIF procedure.

The U.S. Surgical Support business grew 19% in the second quarter, primarily driven by enhanced service offerings owing to the Biotronic acquisition in Jul 2016.

Moreover, the international business recorded 26% growth at CER or 24% on a reported basis with above-market contributions from all geographies.

In the reported quarter, there was an 11.2% increase in cost of goods sold. Despite that, gross profits rose 10% to $194.2 million. Yet, the company reported a 330-basis point (bps) year-over-year contraction in gross margin to 74.5% in the second quarter. This includes a 280-bps year-over-year impact from the low-margin Biotronic business.

Sales, marketing and administrative expenses went up 3.4% to $139.1 million, while research and development expenses increased 5.9% to $12.6 million.

NuVasive posted adjusted operating income of $42.5 million in the reported quarter, reflecting a 41.2% rise from the year-ago number. Adjusted operating margin expanded 360 bps to 16.3% in the quarter under review.

The company exited second-quarter 2017 with cash, cash equivalents and short-term investments of $130.9.0 million, down from $134.0 million at the end of the previously reported quarter.

Outlook

NuVasive reiterated its full-year 2017 guidance, taking the integration effect of NSO and Biotronic into consideration.

The company continues to expect 2017 revenue growth in the range of 10.7% to 11.7% at CER to approximately $1.065 billion, in line with the current Zacks Consensus Estimate of $1.07 billion.

NuVasive also maintained its guidance for full-year 2017 adjusted earnings per share at $2.00. The current Zacks Consensus Estimate of $2.00 is in line with the company’s guidance. Additionally, adjusted operating margin for the year is still expected at 17.1%, up 100 bps on a year-over-year basis.

Changes in Upper Management

Following the earnings announcement, the company also informed about a number of changes in the upper management. Per the company, Jason Hannon, president and chief operating officer, has stepped down from his position but will remain in an advisory capacity for another full year. The company also announced about the resignation of its chief financial officerQuentin Blackford

Also, Matt Link, president, U.S. Commercial has been promoted to an influential position of executive vice president, Strategy, Technology and Corporate Development. This division has been newly created by the company to accelerate successful implementation of the company’s innovation agenda.

Moreover, Skip Kiilwill take position of executive vice president, Global Commercial. Also, Steve Rozow, will assume the role of executive vice president, Global Process Transformation, including IT and RA/QA, in addition to his current Global Operations responsibilities. 

Our Take

NuVasive exited the second quarter with an earnings beat and revenue miss. However, the year-over-year improvement on the top-line front is on account of strong growth in the international business. Moreover, the quarter marked the third consecutive quarter of more than 20% growth in the international business. Moreover, progress within the U.S. business seems to be encouraging with the continually growing uptake at the iGA platform. Also, the company is set to step into the deformity market with ReLine and MAGEC. 

The company’s expectation to deliver a higher adjusted operating profit margin of at least 100 bps in 2017 indicates its focus on operational efficiencies and in-house manufacturing facility. Moreover, management believes that the factors challenging gross margin in the preceding quarters will slowly turn into tailwinds. Coupled with several product launches planned for 2017, the company projects strong revenue acceleration for the rest of the year.

Zacks Rank & Key Picks

NuVasive currently has a Zacks Rank #3 (Hold). A few better-ranked medical stocks are Mesa Laboratories, Inc. (MLAB - Free Report) , INSYS Therapeutics, Inc. (INSY - Free Report) and Align Technology, Inc. (ALGN - Free Report) . Notably, INSYS Therapeutics and Align Technology sport a Zacks Rank #1 (Strong Buy), while Mesa Laboratories carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

INSYS Therapeutics has a long-term expected earnings growth rate of 20%. The stock has gained around 1.7% over the last three months.

Align Technology has an expected long-term adjusted earnings growth of almost 24.1%. The stock has added roughly 29.5% over the last three months.

Mesa Laboratories has a positive earnings surprise of 2.8% for the last four quarters. The stock has added roughly 16.5% over the last six months.

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