Arun gave 3 new metrics to the analysts to help them better monitor the progress of the company.These metrics are: top line revenue, gross margins and clinical results. Arun reiterated 40% top line future growth. In 2015 the company expects gross margins to rise 3-5 points to perhaps touch 70%...wow! Arun acknowledged that the publishing of Pillar 2 results makes it an easier sell for his sales staff in dealing with hospitals. He reiterated prioritizing Pillar 3 and a new sentinel lymph node study which he stated was "superior" to radiopharmaceuticals (nuclear). The lymph study should take about a year, with FDA approvals expected in the 2nd half of 2016. He didn't dwell on the Digirad purchase, which may be addressed at the Analyst Day Conference on November 17). (assume endometriosis study still on the back burner).
Several analysts seemed very appreciative of finally having clarity ("granularity") as to how to measure the progress of the company.
This is important, because imo,the wide gyrations of the pps result, in part because there is no clear guide as to how to measure the value of the company, particularly since we're in an early startup stage( pre earnings, no dividend). Now Arun has given the analysts a light (fluorescent?) to take the pulse of the company.
Capital sales will comprise about 2/3 of revenue, during the next 2 or 3 years, with kit sales one third of revenue. Once capital sales are peaked (at least temporarily) the reverse will occur, with kit sales taking the lead at 2/3 of the revenue and capital sales at 1/3.
Arun had talked in general terms about this before, but this is the first time he quantified the percentages between capital sales and kits.
I am not surprised; the spreads on this stock can be large at times. This morning just after the start of trading for a while the bid was 14.43 and the ask 14.95. The market makers seem to be falling down on the job!
Here's my takeway from today's cc~
By taking back SPY elite and selling it directly,
Arun is very confident that Novadaq's sales team can raise the current breast penetration rate(currently 18-20%) to standard of care. He admitted that Lifecell did not add much revenue this year, but that things would be much improved in 2015.
The "pin action" (to use Cramer's phrase) of taking back SPY elite from Life cell will yield a powerful concinnity for the sales team among Pinpoint, Luna and SPY Elite to create a critical mass of clinical data across a whole battery of procedures, including head and neck, GI Series and vascular wound care. This will make it easier for sales people to make their value proposition to hospitals. And speaking of hospitals~
in the past, the sales team started at the bottom of the sales chain, dealing with surgeons,then moved up the chain to deal with committees and administrators. Now hospitals are much more familiar with the SPY technology and their CEOs are about to make major decisions of budgeting to include major packages of SPY applications throughout their facilities. I also took note that the company is continuing to target medical societies and educating them as to the benefits of SPY.
Speaking of sales, the team is currently at a strength of 65 people, and will up to 80 by year's end. By the end of Q1 of 2015, we should expect an additional 20 (total of 100). Arun was candid in saying that the turnover in sales staff is between 20/25 percent, with 20% being normal in the medical industry.
I think the question is what factual evidence do you have that trading was halted? If it was halted, there would have been a formal announcement. I agree that the call had a lot of positive aspects to it, but the idea that the company would have requested a halt in trading to announce earnings that were "spot on" with analyst estimates seems a bit far-fetched.
Are you sure it was halted. I saw a 2000 share 14.80 bid after hours
Sentiment: Strong Buy
I was surprised as anyone when there was no afterhours trade yesterday.
Theory: The company requested a halt in afterhours trading because they knew the results (financial) were pretty much spot on what the analysts consensus predicted, but the real story would not be understood until after the conference call. Listening to the conference call and one came away with the feeling NVDQ met the expectations without the national wound care center Selena purchasing a machine, but the CEO of Selena stated in his announcement that he will put them in all his centers (30 self owned and ~30+ managed). Also there will be an "amicable" transfer from Life Cell that will contribute both to the top and bottom lines starting Dec 1, 2014 of the ~400 or so hospitals that now use SpyElite. Dr. Arun stated we should expect International Sale contribution starting in the second half of 2015 with ~10 hospitals (teaching hospitals) in India and Japan already using and assessing the value and cost effectiveness of NVDQs fluorescent imaging technology. Tack on to this the marketing staff is just now beginning to see real traction on their learning curve and contact establishment here in the US. Now they will be taking a third fluorescent machine , PinPoint, LUNA, and SpyElite to the hospitals for an entire "ecosystem" of Diagnostic, Evaluative and real time analysis of the treatment for a whole host of medical needs.
If anyone has any actual info on why the trading was halted after hours please post it.
Thanks in advance.
If you have an investment in this company, do yourself a big favor and listen to the conference call. It lasted an hour and a half and covered the entire landscape in great detail.
All I know is that the figures added up for the deferred royalty payment (some of the following from a previous post):
A figure of $200,000 of royalties was stated as being deferred until FDA clearance. Also mentioned was a total of "about 90" total Firefly systems shipped. Further, 53 were royalty-paid Si systems. Let's round the the remainder to 40 Xi systems. Under the agreement, Novadaq receives $15,000 per unit but only $5,000 is royalty. 40 X $5,000 = $200,000 in royalties.
In early 2013 Intuitive accounted for the majority of Spy placements. If the company was receiving only $15 thousand per unit then gross revenues during those quarters make no sense. Also, how could they possibly maintain a 60% gross margin on such sales. Something is missing here, at least for me.
Other than the SA article, I remember a mention of it in a JMP report listed in biotuesdays. YH doesn't allow my links. See my posts on Investor village.
Yes, I recall comments here about a price tag of $15 thousand. Let me impose on your patience. Where does that number come from? When you go back to early 2013 quarters, it is hard for me to reconcile the level of quarterly revenues being attained and only a $15 thousand per unit price tag on Intuitive sales. Back then, the bulk of quarterly unit sales were coming from Intuitive. Any help appreciated.
Endo, I thought we hashed this out in the discussion of the Seeking Alpha article of around Sept 4 (no longer available to mere mortals). If I recall correctly, the payment to Novadaq for a Firefly unit is an amazingly low $15k of which $10k is purchase price and $5k is royalty. The royalty was the only thing defered from q2 to q3. Corrections welcomed.
This is why I'd like to see the Novadaq/Intuitive agreement be renegotiated sooner rather than later.
I don't, but it will be a minority contribution at best. I suspect its around $50k per unit and around $10k gross margins per unit $5.4 m revenue, $1.1 m in gross margin contributions. This if my assumptions are correct would push the revenue estimates above the $12.1 analyst consensus and closer to my ~$15 m number. Half of them are "one time" events and if the analyst have sharp pencils may discount the up surprise. I suspect they will be "stunned" should the $15 million revenue # appear and there will be a subsequent $2 rise in the stock price. All of this is predicated on modeling and assumptions though...it is very hard to get reliable useful information on the progress of NVDQ sales.
Question still remains. We will see at 16:30 though.
Endo it should be even a greater benefit than the 109 new revenue sales, the 50 placed in the previous quarter had the expenses charged in Q2 and the revenue credited in Q3. At gross margins around 65% that should mean the equivalent of an additional ~25 sales as far as gross margin. Your number would then be not 109 but 134. Time will tell but there are a lot of stars lining up for this company. Some of them may show up this quarter but certainly by next quarter there will be "surprises" hence the confidence of Arun to meet the 40% annual grow target.
In looking at recent past press releases, Intuitive sold 50 Xi systems in the 2nd quarter and 59 Xi systems in the 3rd quarter. Since the royalty income in the 2nd quarter could not be recognized until FDA approval, the royalty income on all 109 systems will be recognized in the 3rd quarter. What royalty income are you placing into your model for each of these systems?
Since the 2nd quarter contained no such income, I am hoping all of this income now appearing in the 3rd quarter will help offset some of the shortfall in revenue that Arun discussed in the last CC.
The tax is 2.3% of the revenue...not income. This is the only tax I know of that in its effect hurts marginally profitable and especially start-up companies who have no earnings and are typically struggling with cash flow. The repeal of this ill thought out "tax" will take the "2.3%" directly to the bottom line earnings or in the case of start-ups the cash flow will be redirected from the government in Washington to the hiring of new marketing and R&D and manufacturing persons. For most established "generic" instrument suppliers this could increase earnings by ~25% not 2.3%! For start-ups like Novadaq it means positive earnings will be reached quarters, even as much as a year ahead of when it would with the tax. For share prices this could mean $28@ instead of $14@ at the end of say 2015.
Thank you all that voted for reason and growth and "fairness" in the recent elections.
I don't see how a small tax on us and the competition is going to make a bottom line difference on equipment a knowledgeable surgeon must have.
I'd guess the president is buying extra ink for his veto pen about now.