Shares of medical device equipment company K2M Group (KTWO 18.00, -3.78 -17.4%) are getting crushed this afternoon in reaction to preliminary Q3 revenues and lowered FY17 revenue guidance which came out this morning.
Before we look at the news from this morning, let’s get a little background on KTWO out of the way. The company is mainly focused on designing, developing and commercializing innovative complex spine and minimally invasive spine technologies and techniques used by spine surgeons to treat some of the most difficult and challenging spinal pathologies. K2M has leveraged these core competencies to bring to market an increasing number of products for patients suffering from degenerative spinal conditions.
Now, onto the prelim; KTWO announced total Q3 revenues of about $62.7 million, up about 6% year-over-year on both a GAAP and constant currency basis. The company highlighted slower than planned acceleration of new distribution in the US, disruption of account activity and canceled procedures related to the hurricanes in Texas, Florida and, to a lesser extent, Puerto Rico, in early September. Further, the company noted that US sales growth in their degenerative procedure category continued to be fueled by new product introductions, but was not enough to neutralize the modestly weaker procedure volumes as compared to last year.
The company also expects domestic Q3 revenues of about $48.5 million, up about 5% year-over-year. This result is forecasted to include US Complex Spine growth of about 3% year-over-year, US Minimally Invasive Surgery growth of about 14% and US Degenerative growth of about 5%. Additionally, International Q3 revenues are forecasted to be about $14.2 million, up about 6% year-over-year and 7% on a constant currency basis.
In light of the Q3 guidance then, KTWO also updated its FY17 expectations. Due to the softer sales performance expected in Q3, KTWO now sees total revenues on an as reported basis between $255.0-257.0 million (versus prior expectations in the range of $263-270 million), representing growth of 8-9% year-over-year. The company now expects the US business to growth about 8-9% year-over-year in 2017, and sees International growth of about 9% on a constant currency basis. The updated fiscal year revenue guidance range also reflects an estimated $2.0 million impact in related disruptions from the hurricanes -- the majority of which were sustained in Q3.
Full Q3 results are slated for a November 1 after hours release.