Why Novadaq's Turnaround Is On Track

• Novadaq Technologies Inc. NVDQ shares have plunged 31 percent year-to-date, declining steeply from a high of $17 on April 15.
• Wedbush’s Tao Levy maintained an Outperform rating on the company, with a price target of $15.
• The company reported robust 3Q results, accomplishing an important milestone in its return to growth, Levy said.

Novadaq reported its 3Q15 revenue at $17.0 million, representing 40 percent y/y growth and 13 percent sequential growth. The revenue figure beat the consensus expectation by $700K, with the beat being driven by increasing adoption of the company’s SPY technology, a marginal boost to the ASP per system, and greater system utilization, analyst Tao Levy stated.

Novadaq recorded capital-related sales growth of 53 percent y/y and 19 percent q/q and procedure growth of 15 percent y/y and 10 percent q/q. These were led by PINPOINT and LUNA. The company’s recurring revenue climbed 38 percent y/y and 7 percent on a sequential basis, with recurring revenue per direct system generating $9.4K in 3Q, versus $9.3K in 2Q.

Levy commented, “During the quarter, Novadaq sold 47 systems and installed 36 systems; importantly, management indicated that as further evidence of its improving momentum that it has installed over 20 systems in October.”

Moreover, the company’s recently-expanded sales force is starting to yield improved productivity, as each sales rep generating $700K in annualized revenue on average. This is an improvement from 600K in 2Q and $450K in 1Q. The analyst believes that this “confirms our initial expectations that the worst of the direct sales transition is now behind them.”

Levy further wrote that the favorable 3Q results represented an important milestone in “Novadaq’s return to a growth story as demonstrated by a notable improvement across its key metrics.”

Growth in the contribution from Direct revenues suggests that “management’s transition to a direct sales infrastructure from one based on partnerships - while more challenging than initially anticipated - is looking like it was the right strategy,” the Wedbush report stated.

"With momentum building behind intraoperative fluorescence imaging, we view Novadaq’s SPY technology as best-in-class and expect clinician interest across various specialties and the introduction of novel product enhancements should support our robust growth outlook for the company,” Levy added.