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Abiomed Comes Up Short as Growth Slows

Brian Feroldi, The Motley Fool

Abiomed (NASDAQ: ABMD), a medical device maker focused on heart recovery, reported its fiscal fourth-quarter and full-year results on Thursday.

Investors have grown used to Abiomed posting results that blow past guidance, so it was a bit of a surprise to see that the company failed to meet its fiscal fourth-quarter targets. Revenue growth came in at 19% during the period, which is strong in absolute terms but fell short of the 25% growth rate that management was expecting.

Abiomed's fourth quarter: The raw numbers

Metric

Q4 2019

Q4 2018

Year-Over-Year Change

Revenue

$207 million

$174 million

19%

GAAP net income

$74 million

$36.8 million

101%

Earnings per share

$1.60

$0.80

100%

Data source: Abiomed.

What happened with Abiomed this quarter?

  • U.S. Impella medical device sales grew 16% to $170 million. International sales jumped 35% to $29.8 million thanks to strong growth in Japan.
  • Total revenue of $207 million came in shy of management's guidance of $218 million.
  • Gross margin rose 50 basis points to 83.2%.
  • Operating margin jumped 430 basis points to 31.6%.
  • GAAP net income grew 101% to $74.0 million, or $1.60 per diluted share. However, this figure includes an unrealized gain of $23.6 million, or $0.51 per diluted share, related to its investment in ShockWave Medical (NASDAQ: SWAV), which is a medical device company that recently became public. If you strip out the gain, EPS growth would have been 36%.

Zooming out to the full year, here are the headline numbers from fiscal 2019:

  • Revenue jumped 30% to $770 million. That fell short of the $780 million in total revenue that management had predicted.
  • Gross margin was 83.2% compared to 83.4% in fiscal year 2018.
  • Operating margin expanded 270 basis points to 29.2% of revenue.
  • GAAP net income rose 131% to $259.0 million, or $5.61 per diluted share, including the unrealized investment gain from ShockWave.
  • Abiomed spent $71.8 million on stock buybacks to offset dilution. It also invested $42.7 million in ShockWave.
  • Cash balance at year-end was $513 million.
Surgeons in operating room with lights over their heads.

Image source: Getty Images.

What management had to say

CEO Michael Minogue blamed himself for the fourth-quarter shortfall but was upbeat about the company's full-year performance:

Q4 did not meet our expectations. I take full responsibility for our disappointing performance given a soft March, and we have already initiated a plan of action to correct the course. However, Abiomed had a solid year with 30% growth and improvement in margins. Most importantly, Abiomed's clinical support, training, and education helped improve patient outcomes in both high-risk PCI and cardiogenic shock. Multiple publications continue to validate the benefits of Impella supported PCI and Impella best practices to help improve survival in cardiogenic shock.

Minogue stated on the conference call with investors that Impella utilization slowed considerably because of a confusing letter that was sent by the FDA to providers in February. The letter caused some healthcare providers to mistakenly believe that the Impella RP was being recalled over safety issues, which was not the case. Abiomed has been working directly with employees and healthcare providers to address the confusion but wasn't able to get sales to recover in time.

Looking forward

The company provided investors with an initial look at its financial targets for fiscal 2020:

  • Revenue is expected to land between $900 million and $945 million, which represents growth of 17% to 23%.
  • GAAP operating margin is expected to be in the range of 29% to 31%.

The company also plans on providing investors with more detailed guidance on its next earnings call.

CFO Todd Trapp reminded investors on the call that the company's product pipeline is full and that Abiomed remains well positioned to drive long-term growth:

The investments in new product platforms including Impella 5.5, Impella ECP and Impella BTR; new product enhancements like CP optical, SmartAssist and Impella Connect; new geographies; and new clinical studies including STEMI DTU, DanGer Shock and NCSI will continue to lay the groundwork for improving clinical outcomes and sustaining long-term performance.

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Brian Feroldi owns shares of Abiomed. The Motley Fool owns shares of and recommends Abiomed. The Motley Fool recommends ShockWave Medical, Inc. The Motley Fool has a disclosure policy.