Mazor Robotics Misses on Revenue But System Sales Remain Strong

Posted on August 03, 2018

Mazor Robotics ($MZOR) shares have been under significant pressure after reporting a disappointing Q2 earnings report this past Thursday. At Wednesday's close, Mazor Robotics was trading at $63.43 and is currently trading at $52.00 on Friday afternoon.

Why the Pressure?

The most obvious miss was on revenue, with the company coming in at $13.2 million compared to $15.5 million in the same period last year, representing a decline of 15% in revenue. Domestically, revenue came in at $11.8 million compared to $14.1 million at the same time last year.

While negative growth is never a great look for a company, Mazor's CEO shared that the decline was in part due to the transfer pricing of their distribution agreement with Medtronic:

"Our efforts to accelerate the adoption of our technologies resulted in a significant increase in robotic guidance systems sold in the second quarter of 2018 compared to the year-ago period," commented Ori Hadomi, Chief Executive Officer.  "Our objective for 2018 is to achieve our prior outlook for modest revenue growth as compared to 2017.  

As we previously disclosed, 2018 is a transition year for the Company following the late 2017 move from direct sales of the Mazor X System to a distribution model with Medtronic.  The expected larger unit volumes, offset by the transfer pricing, is designed to accelerate the adoption of our systems by extending our market reach and expanding our geographical presence. The faster growth of our installed base will also accelerate our recurring revenue business, which represented 48% of our Q2 revenues."

What is Mazor X?

Hadomi continues, "During the quarter, several globally recognized academic centers and hospitals adopted the Mazor X. With this continued trust by the market, we remain confident that together with our partner we will achieve our joint objective of placing hundreds of Mazor X systems into service over the next few years. 

"Later this year, Mazor and Medtronic are anticipating a market-changing event with the introduction of the Mazor X Stealth Edition system integrating Medtronic's legacy Stealth navigation system with the Mazor X platform.  Given the binding purchase commitments received to date, and to ensure rapid system and upgrade delivery, we are implementing production capacity increases at our Israel facilities.  We look forward to unveiling the Mazor X Stealth Edition at NASS in late September in Los Angeles."

Hot Take

At initial glance, this quarterly report looks like a rough one, but that may not be fair or accurate. Taking a "forest through the trees approach" may be the right move as system sales did increase 25% during the quarter. That is not a small feat in selling capital equipment to a hospital. These system sales take time and a 25% increase in systems being sold show a very strong demand for the product. 

Additionally, while revenue was down for the quarter, sales are still up on a year-over-year bases. Not bad at all. Looking even deeper, system sales still remain strong even considering Mazor is unveiling their Mazor X Stealth Edition at NASS this September. If demand was light, wouldn't customers wait to see what Mazor's next iteration will going to look like?

Other Mazor Earnings Highlights:

  • For the six months ended June 30, 2018, revenue increased 6% and totaled $28.7 million compared to $27.2 million for the six months ended June 30, 2017.
  • Gross margin for the six months ended June 30, 2018 was 57.3% compared with 67.3% in the six months ended June 30, 2017.
  • Total operating expenses were $11.3 million compared to $14.6 million in the year-ago second quarter.
  • Net loss for the second quarter of 2018 was $3.8 million, or $0.07 per share, compared to a net loss of $3.7 million, or $0.08 per share, for the year-ago second quarter.
  • Net loss for the six months ended June 30, 2018 was $5.1 million, or $0.10 per share, compared to a net loss of $8.9 million, or $0.19 per share, in the first six months of 2017.
  • As of June 30, 2018, cash, cash equivalents and investments totaled $108.1 million.

Mazor Robotics Investor Presentation