) fourth-quarter fiscal 2013 adjusted earnings per share (EPS)
rose 21.1% to 46 cents, surpassing the Zacks Consensus Estimate
of 43 cents. This represents the eighth successive earnings beat
for Cyberonics, largely benefitting from a lower tax rate in the
Net income shot up 8.1% on a year-over-year basis to $11.5
million in the fourth quarter of fiscal 2013.
Adjusted EPS in fiscal 2013 was $1.74, up 31.8% year over year.
The result beat the Zacks Consensus Estimate of $1.71 as well as
the company's expectation of $1.66−$1.72.
Revenues jumped 19% year over year to $68.3 million in the
quarter, well ahead of the Zacks Consensus Estimate of $64
million. Fiscal 2013 net sales were $254 million, up 16% from
fiscal 2012. The fiscal revenues surpassed the Zacks Consensus
Estimate of $249 million and the company's previously guided
range of $248−$250 million.
Quarter in Detail
In the fourth quarter, worldwide unit sales surged 15% year over
year to 3,436 units. On a geographic basis, Cyberonics recorded
17% growth in U.S. revenues to $56.1 million and 10.5% unit
growth in the fourth quarter. International sales, representing
roughly 18% of the company's revenues, grew a robust 24% on a
reported basis (or 27% at CER basis) to about $12 million with
unit growth of 22%. Growth in the overseas market was led by
healthy European unit sales growth with higher replacement
activity in U.K., Norway and Sweden.
In the reported quarter, the company witnessed higher utilization
and adoption for its VNS Therapy generators, as reflected in the
record high quarterly sales. AspireHC - Cyberonics' newest VNS
Therapy generator - gained traction, representing 19% of total
generator sales in the domestic market. Further, average selling
price improved 4.6% from the prior-year quarter for the company.
Gross profit climbed 16.7% to $57.3 million in the quarter.
However, gross margin contracted 74 basis points (bps) to 90.7%.
The impact from the medical device tax and associated costs since
Jan 1 accounted for the decline.
With a 15.1% increase in selling, general and administrative
expenses to approximately $30 million and a 26.5% rise in
research and development expenses to $11.5 million, operating
margin contracted a significant 130 bps to 29.9% in the reported
quarter. This is mainly due to the expansion of Cyberonics'
marketing team, higher expenses associated with the E-36 clinical
study and other costs related to the groundwork of the facility
in Costa Rica.
The company exited the fiscal with cash and cash equivalents of
$120.7 million, up 24.9% from fiscal 2012. Cyberonics has no
interest-bearing debt on its balance sheet. The company
repurchased 0.27 million shares during the quarter and is left
with 0.945 million shares under its current buyback program.
Taking into account the solid financial results of fiscal 2013,
Cyberonics provided avid outlook for fiscal 2014. The company
envisages revenues in the range of $279−$283 million. The current
Zacks Consensus Estimate of $279 million hovers around the lower
end of the company's guidance. Cyberonics expects global unit
growth of roughly 10%.
Income from operations is expected in the range of $85−$88
million resulting in net income of $53−$56 million and adjusted
EPS of $1.93−$2.01 for fiscal 2014. The current Zacks Consensus
Estimates of $1.93 for fiscal 2014 tallies with the lower end of
Update on VNS-TRD
The decision of Centers of Medicare and Medicaid Services (CMS)
of non-coverage of VNS Therapy for patients with
treatment-resistant depression (TRD) was a setback for
Cyberonics. While the company is seeking options for obtaining a
review on CMS decision, it will continue to work with other
interested parties for the TRD indication.
Cyberonics has consistently delivered strong quarterly results in
the recent past, topping expectations. The company continues to
rein in soaring demand for its VNS Therapy for the treatment of
refractory epilepsy. The second successive fiscal year of solid
overseas growth, amid several macroeconomic uncertainties in the
European market, was encouraging. Further, the guidance for
fiscal 2014 reflects accelerating growth for Cyberonics.
However, contributions from Japan lagged the company's
expectations for another quarter. Moreover, gross margin pressure
remains an overhang. Considering the ongoing costs associated
with the development of the Costa Rican facility and product
development initiatives, Cyberonics expects the margin pressure
to continue in fiscal 2014.
Nonetheless, we are optimistic about Cyberonics' growth prospects
on the back of strong untapped growth potential of the epilepsy
market. Further, the company's effort to extend VNS Therapy
treatment for other indications like Obstructive Sleep Apnea
(OSA) and Chronic Heart Failure (CHF) is impressive.
Given the consistent strong performance and several upsides, this
Zacks Rank #1 (Strong Buy) stock warrants a look. Other Zacks
Rank #1 medical stocks are
Myriad Genetics Inc.
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