), a neurological device maker, reported earnings per share ("EPS")
of 29 cents in the first quarter of fiscal 2013, up 20.8% year over
year. However excluding the impact of $2.5 million (9 cents per
share) write-down associated with certain impaired investments in
the reported quarter and $0.8 million (3 cents) product withdrawal
charge in the year-ago quarter, the adjusted EPS came in at 38
cents, up 40% from the year-ago quarter earnings and surpassed the
Zacks Consensus Estimate by 2 cents.
Revenues increased 15% year over year during the quarter to
$60.3 million, ahead of the Zacks Consensus Estimate of $58
million. Cyberonics recorded robust growth in U.S. epilepsy sales
(up 17% to $50 million), a 13% increase in unit sales to over 2,300
units. International sales on the other hand grew a mere 2.2% year
over year to $9.1 million, mainly impacted by unfavorable foreign
exchange headwind during the quarter. At constant exchange rate or
CER, there was a robust 9.8% increase in total international
Cyberonics primarily provides vagus nerve stimulation ("VNS")
therapy for the treatment of refractory epilepsy. In the reported
quarter, there was growth in both new patients and replacement
activity in the domestic market leading to a 15% increase in unit
sales of the company's AspireHC generator (launched in the previous
In the international market, the company witnessed double-digit
growth in European unit sales. However, this was somewhat offset by
slower-than-planned activity in Japan and other international
Adding to the 15% revenue increase in the quarter, improved
margin performance had a positive effect on the bottom line. Gross
margin expanded 480 basis points (bps) to 91.7% during the quarter.
Despite an 8.8% increase in selling, general and administrative
expenses to $28.3 million and an 18.3% increase in research and
development expenses to $9.7 million, operating margin increased
680 bp to 28.6% during the reported quarter.
Cyberonics also benefited from a 68.4% year-over-year reduction
in interest expense to $28.7 million. We believe that the drop in
interest expense was possible because of the $4.5 million reduction
in the company's total Convertible notes and Long-term liabilities
over the past year. The company exited the quarter with cash and
cash equivalents of $102.3 million, up from $96.7 million at the
end of fiscal 2012. During the quarter, Cyberonics repurchased
approximately 185,000 shares in the open market, and 115,000 shares
pursuant to a program to permit employees to meet statutory
withholding tax obligations on vesting of restricted stock.
Cyberonics reiterated its guidance for fiscal 2013. The company
expects to report revenues of $241−$244 million and $70−$72 million
of income from operations resulting in EPS of $1.49−$1.59. The
current Zacks Consensus Estimates of $243 million in revenues and
EPS of $1.56 for fiscal 2013 are in line with the
The company stated that the anticipated amount of medical device
tax, scheduled to be implemented from January 1, 2013, has not been
considered in the guidance for income from operations but included
in the EPS forecast.
Cyberonics witnessed an expansion in the top line due to its
strong position in the U.S. and the international epilepsy market.
Its solid position in the epilepsy market is evident from a
consistent increase in patients over the last three years.
Additionally, the company's investments in market development in
Europe are encouraging. In order to expand its international base,
Cyberonics is strengthening and also investing in sales and
However, we are apprehensive of the ongoing macroeconomic
headwinds. The company also faces increasing third-party
reimbursement issues along with stiff competition in the
neuromodulation space from players such as
St. Jude Medical Inc.
Cyberonics retains a Zacks #2 Rank (Buy) in the short term.
CYBERONICS INC (CYBX): Free Stock Analysis
MEDTRONIC (MDT): Free Stock Analysis Report
ST JUDE MEDICAL (STJ): Free Stock Analysis
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