11 key notes on K2M's 19.7% revenue jump in Q3

Spinal Tech

K2M reported a significant increase in revenue for the third quarter of 2014.

Here are 11 things to know about the company's financial report.

 

1. Total revenue grew 19.7 percent to reach $47.6 million in the third quarter. The increase was due to $7 million in greater sales volume in the United States due to the expanded customer base.

 

2. The company reported $34.4 million in domestic revenue, a 25.1 percent increase over the same period last year. International revenue hit $13.2 million, a 7.8 percent growth.

 

3. Domestic complex spine revenue was up 28.7 percent to $14.6 million. By procedure category, here is the break down for the company's revenue in the United States:

 

•    Complex Spine: 42.4 percent
•    Minimally Invasive Surgery: 15.3 percent
•    Degenerative Categories: 42.3 percent

 

4. Gross profit increased 12.5 percent to $31.5 million, up from $28 million over the same period last year. The gross profit includes amortization expense on investments in surgical instruments and the medical device excise tax.

 

5. The amortization expense increased 63.7 percent to $2.3 million for the quarter. The increase was due to higher instrument purchases to support the company's revenue growth throughout the year. The company also paid $500,000 for the medical device tax in the quarter.

 

6. K2M experienced $12.9 million in loss for the third quarter, significantly higher than the $9.6 million over the same time period last year. The loss from operations is intangible amortization of $5 million and $7.5 million for the third quarter.

 

7. Net loss attributable to common stockholders for the third quarter was $16.1 million, or $0.43 per diluted share. Last year, the net loss attributable to common stockholders was $6.3 million. These numbers include the impact of primarily non-realized foreign currency transaction losses of around $3.1 million.

 

8. Operating expense was $44.4 million for the third quarter, up 18.2 percent compared to the same period last year. The company expanded its sales team, which primarily drove the operating expense increase. The investment fueled a sales commission increase with higher sales volumes and increased employee compensation due to incremental direct sales employees compared to the same period last year.

 

9. Cash and cash equivalents were $23.2 million, compared to $7.4 million as of December 2013. Working capital reached $82 million, up from $32.5 million last year.

 

10. The company reported no outstanding indebtedness as of the quarter's end. K2M's borrowing capacity is $28.3 million.

 

11. For the full year, K2M raised revenue guidance to $184.5 million to $186 million. This is a 17 percent to 18 percent increase over the same period last year. In the third quarter, the company received FDA clearance for the MESA Hooks and expanded minimally invasive technologies for the EVEREST Minimally Invasive Spinal System.

 

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