-15% of this year's growth is due to ending the LifeCell agreement, due to the fact there is no 50-50 splitting of revenue. The analyst asked why they felt confident growth will pick up in the second half of 2015 going forward and Arun said they think the LifeCell transition is over and the large number of new salespeople are just becoming productive (this last 1/2 sentence is my paraphrasing of Arun's statement).
-In 12 to 18 months utilization will be a bigger driver. This will be interesting to see how quickly revenue from kit sales starts to gain on capital sales as Novadaq will eventually be making more revenue off the "razor blades" than the "razors".
-This fall their introducing a generation of new products and upgrades.
-Arun mentioned something I've never heard before, that there are 3-4 other companies with approved products that may eventually be competitors. We all new about Stryker, but I'm not really aware about the other companies. He did seem to not be too concerned with them, as Novadaq has a lot of IP for the other companies to overcome here, but we need to get the growth up to keep the first-mover advantage.
So, guidance still stands at $65M in revenue in 2015, for year-over-year 40% revenue growth. I think this is possible, but they missed badly in Q1 2015 and had no idea about what was going on with LifeCell in Q4 2014, so I doubt the $65M forecast.
Q1 2015 revenue was $11.9M, while the projections given to us by Arun at the end of 2014 were in the range of 25-35% revenue growth ($12.9-13.9M). In yesterday's call it was mentioned that the growth so far in April has accelerated to around 35%, but that they thought it would end up a little lower than that for the quarter.
Let's say that would get us to $26.5M in the first half of 2015, assuming around 30% revenue growth in Q2. Could Novadaq bring in $38.5M in revenue in the second half of the year? I'm sceptical. I understand that more sales staff will become productive as the year progresses, but we would have to see numbers in the 50% revenue growth range in Q3 and nearly 60% in Q4 to hit $65M. With 10% of SPY Elite accounts now "dead", I doubt their ability to regenerate sales momentum to hit $65M.
I now question the decision to create a direct sales team. Arun has said he thought a salesperson could generate $1M in revenue annually after a year or so of experience. It is clear that this is not happening. The question becomes whether the leadership of direct sales is not qualified for building out the team.
Looking back at it, from a technology perspective rather than as a Novadaq investor, I think it would have been better if they would have been purchased. Investors may not have captured the true potential of Novadaq's technology, but the products would have been assimilated into an existing sales force rather than a new group that is not penetrating the market well. While we may eventually recapture the potential Novadaq once had I feel that current management is not qualified or experienced enough to capitalize on the products' potential market and we are letting the first mover advantage slip away.