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NuVasive's (NUVA) Q4 Earnings Top Estimates, Margin Declines

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Zacks Equity Research
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NuVasive, Inc. NUVA delivered fourth-quarter 2020 adjusted earnings per share (“EPS”) of 59 cents, down 19.2% from the year-ago figure. However, the figure beat the Zacks Consensus Estimate by 7.3%.

The one-time adjustments include expenses associated with certain ongoing litigation matters and amortization expenses, among others.

GAAP earnings per share came in at 3 cents, down from the year-ago EPS of 55 cents.

Full-year adjusted EPS was $1.23, reflecting a 50.2% decrease from the year-ago period. However, the metric surpassed the Zacks Consensus Estimate by 3.4%.

Total Revenues

Revenues in the fourth quarter totaled $291.8 million, down 5.9% year over year on a reported basis (down 6.7% at constant exchange rate or CER). The top line lagged the Zacks Consensus Estimate by 2.2%.

The company registered strong international performance, especially in Asia Pacific, despite pandemic-led headwinds.

Full-year revenues were $1.05 billion, reflecting a 10.1% plunge from the year-ago period (down 10.2% at CER). Again, the metric lagged the Zacks Consensus Estimate by 0.9%.

NuVasive, Inc. Price, Consensus and EPS Surprise

NuVasive, Inc. Price, Consensus and EPS Surprise
NuVasive, Inc. Price, Consensus and EPS Surprise

NuVasive, Inc. price-consensus-eps-surprise-chart | NuVasive, Inc. Quote

Geographical & Segmental Details

In the reported quarter, U.S. Spinal Hardware business revenues fell 8.1% year over year to $155.2 million. The business was partly boosted by NuVasive’s thoracolumbar portfolio which was primarily driven by continued adoption of advanced material science implants. Also, strong results from the clinical evaluation of Modulus ALIF and Reline 3D within the company’s pediatric portfolio contributed to the growth. However, this was offset by a fall in case volumes due to the pandemic.

Revenues from the U.S. Surgical Support business were $67.4 million in the fourth quarter, down 12.9% year over year. The business experienced a decline in case volumes in the NuVasive Clinical Services business along with challenging billing and collections comparisons from the year-ago period. Further, there was a lack in levels of stocking orders within the company’s biologics or interoperative neuromonitoring product lines due to the pandemic’s resurgence creating additional pressure in late December.

In the quarter, the company registered international revenues of $69.2 million, reflecting an 8% year-over-year rise on a reported basis and 4.6% rise at CER. This resulted from strong contributions from Asia Pacific, which was driven by product launches in the cervical portfolio and lower impacts from COVID-19. However, parts of Europe continue to be heavily impacted by the pandemic, with the United Kingdom and Spain registering significant year-over-year declines.

Margin Details

In the reported quarter, gross profit declined 8.8% year over year to $207.2 million. Gross margin contracted 218 basis points (bps) to 70.9%.

Selling, general and administrative expenses declined 10% year over year to $144.3 million, whereas research and development (R&D) expenses climbed 13.9% year over year to $21.8 million.

Overall adjusted operating profit was $41.1 million, down 13.6% year over year. Adjusted operating margin was 14.1%, a 124-bps contraction year over year.

Operational Update

The company exited 2020 with cash and cash equivalents, and short-term marketable securities of $1.03 million compared with $213 million at the end of 2019.

Cumulative net cash provided by operating activities at the end of 2020 was $ 185.9 million compared with the prior-year period’s $235.3 million.

Guidance

NuVasive noted that due to the continued variability stemming from the pandemic, it is not providing any financial guidance for 2021.

Our Take

NuVasive exited the fourth quarter of 2020 with better-than-expected earnings. The company continues to experience recovery in the U.S. business, which is encouraging. The results were primarily driven by a strong international growth, led by Asia Pacific A robust product pipeline and the recent Simplify Medical buyout, buoy optimism. NuVasive’s increasing investment in R&D to strengthen foothold in less invasive surgeries looks impressive.

However, the lower-than-expected revenues in the reported quarter, along with dismal year over year bottom- and top-line numbers, are concerning. The continued pandemic-led impacts on the company’s elective surgical volumes across the world are worrying as well. Contraction in both margins does not bode well. The company is unable to provide any annual guidance, raising apprehensions.

Zacks Rank and Key Picks

NuVasive currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are Abbott Laboratories ABT, Hologic, Inc. HOLX and IDEXX Laboratories, Inc. IDXX.

Abbott reported fourth-quarter 2020 adjusted EPS of $1.45, which surpassed the Zacks Consensus Estimate by 6.6%. Fourth-quarter worldwide sales of $10.7 billion outpaced the consensus mark by 7.9%. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hologic reported first-quarter fiscal 2021 adjusted EPS of $2.86, beating the Zacks Consensus Estimate by 33.6%. The company currently carries a Zacks Rank #2.

IDEXX reported fourth-quarter 2020 adjusted EPS of $2.01 which surpassed the Zacks Consensus Estimate by 40.6%. Revenues of $720.9 million beat the consensus mark by 5.8%. The company currently carries a Zacks Rank #2.

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