Abiomed Is Still in the Recovery Ward

Abiomed (NASDAQ: ABMD), a medical device maker focused on temporary heart pumps, reported its fiscal first-quarter 2020 results on Thursday.

The company is still trying to undo the damage caused in February by a confusing letter sent by the Food and Drug Administration to healthcare providers related to Abiomed's Impella RP pump. The FDA issued another letter in May stating that the Impella RP was safe and effective, but the company hasn't had enough time to spread the update. That caused it to report decelerating revenue growth for the second quarter in a row, and management reined in its full-year revenue guidance in response.

Abiomed's first quarter: The raw numbers

Metric Q1 2020 Q2 2019 Change
Revenue $207.7 million $180 million 15%
GAAP net income $88.9 million $90.1 million (1.3%)
Earnings per share $1.93 $1.95 (1%)

Data source: Abiomed. GAAP = generally accepted accounting principles.

What happened with Abiomed this quarter?

  • U.S. Impella sales grew 11% to $151.7 million. Sales of the Impella RP, the device mentioned in the FDA letters, fell 20% sequentially.
  • International Impella sales grew 44% to $21.9 million. Japan was the star of the show, posting growth of 227% to $8.5 million.
  • The Japanese government approved the Impella Connect during the quarter.
  • Total revenue of $207 million fell short of the $210.7 million that Wall Street was looking for.
  • Gross margin fell 80 basis points to 82.1%.
  • Operating income grew 30% to $60.7 million, which represents an operating margin of 29.2%.
  • GAAP net income was $88.9 million, or $1.93 per diluted share. But this included a $30 million, or $0.65 per share, unrealized gain from its investment in ShockWave Medical. The company also benefited from $12.8 million, or $0.28 per share, of tax benefits related to employee share-based compensation. 
  • Adjusted earnings per share were $1.00, which was $0.03 ahead of the consensus estimate on Wall Street.
  • Cash balance at quarter-end was $527 million; the balance sheet remains debt-free.
  • Abiomed received FDA approval for extended-duration use of the Impella 5.0 and Impella LD to 14 days for certain indications.
  • The Impella CP with SmartAssist was launched in May. 
  • A $200 million stock repurchase program was authorized by the company's board.
Doctor holding a plastic heart in hands

Image source: Getty Images.

What management had to say

CEO Michael Minogue asked shareholders to be patient while the company works through its short-term issues: "In Q1, we implemented new training programs, organizational changes in distribution, and launched external initiatives that will require time to drive more growth in the future. We are confident in our ultimate global adoption because we know that our innovation improves clinical outcomes and patient quality of life."

Looking forward

The weak quarterly results caused management to pull back on its financial guidance for fiscal 2020:

  • Revenue is now expected to land between $885 million and $925 million. While this represents growth of 15% to 20%, it is down from its prior guidance of $900 million to $945 million.
  • GAAP operating margin is expected to be in the range of 28% to 30%. This is also down from its prior range of 29% to 31%.

Abiomed's stock fell by more than 28% in the trading session following this earnings release. Traders are clearly not happy with the weak quarterly results and guidance cut, especially since management already stated that it has taken the appropriate steps to address the issue. 

Minogue knew that this quarterly report wasn't going to be well received on Wall Street, so he ended his prepared remarks on the call with investors by restating his belief that the company remains as strong as ever:

Today, there is no other product like Impella and no other FDA approvals for this patient population. As a company, we remain financially prudent and profitable with $527 million in cash, no debt, and an IP platform that now encompasses over 700 patents with nearly 600 pending. We believe that Impella adoption is a function of training, data, and time, and we remain dedicated to our mission and improving the standard of care.

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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. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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