This is Abiomed (ABMD). Remember that this is not a high conviction stock as of now, just a tryout stock. Here are my personal notes to myself on the company:
July 2015 - I got this stock from Keith’s screen. It had earnings like this:
2013: XX -04 03 11
2014: 09 -04 09 30
2015: 224
That $2.24 jumped out at me. Quarterly earnings of $2.24 or something, up from 30 cents sequentially and 9 cents the year before. You don’t have to be a genius to realize that something must be wrong with a figure like that! Sure enough, those were silly GAAP earnings instead of real adjusted earnings
They reported $96 million of GAAP income for their fourth fiscal quarter, of which $84 million was a release of valuation tax adjustment (meaning they are writing off all their past tax losses).
Their real operating earnings were $12+ million, which when divided by the number of shares gave the real earnings per share of 28 cents. Still very good, but not ridiculous.
However my research on this led me to read in their transcript that they had something like 22 quarters in a row of double-digit revenue growth. That sounded pretty impressive. Here are the last three years plus of revenue.
2012: 37 39 37 38 = 151
2013: 44 43 44 46 = 177
2014: 50 49 52 62 = 213
2015: 68
The last four quarters revenue were $231 million, the four quarters before that were $183 million, so trailing revenue was up 26%. That’s not bad for revenue growth! And, revenue for the last six months was up 35% (130/96), so revenue growth is even accelerating.
So I looked at adjusted earnings, which was a bit hard to find. Sometimes they gave stock-based comp and sometimes not, so I had to track it down in the 10-Q’s. Taking this much trouble meant I was serious about the company. Also sometimes the legal expenses from the DOJ investigation were broken out and sometimes not. Here’s what adjusted earnings looked looked like, as close as I could figure:
2013: XX 11 10 15
2014: 15 11 19 42
2015: 36
The last four quarters adjusted earnings were $1.08, the four quarters before that were 51 cents, up 112%. The last six months adjusted earnings were up 160%, so earnings growth is accelerating too.
Here’s a business summary: ABIOMED, Inc. was founded in 1981 and is headquartered in Danvers, Massachusetts. It researches, develops, and sells medical devices for circulatory support and care during heart recovery for acute heart failure patients. The company offers:
Impella 2.5 catheter, a percutaneous micro heart pump with integrated motor and sensors for use in interventional cardiology;
Impella CP that provides partial circulatory support using an extracorporeal bypass control unit;
Impella 5.0 catheter and Impella LD, which are percutaneous micro heart pumps with integrated motors and sensors for use primarily in the heart surgery suite; and
Impella RP, a percutaneous catheter-based axial flow pump.
It also manufactures and sells AB5000 circulatory support system for temporary support of acute heart failure patients in profound shock, including patients suffering from cardiogenic shock after a heart attack, post-cardiotomy cardiogenic shock, or myocarditis.
In addition, the company provides Symphony, a synchronized minimally invasive implantable cardiac assist device designed to treat chronic patients with moderate heart failure by improving patient hemodynamics.
Further, it’s working on a percutaneous expandable catheter pump, which enhances blood circulation from the heart with an external drive shaft.
The company sells its products through direct sales and clinical support personnel in the US, Germany, France, Canada, Japan, and the UK.
Gross Margins are 84% and rising.
Operating Margins last quarter were 18%, up from 7% the year before. For the fiscal year they were 12.4%, up from 4.6% the year before.
The PE is 61. Their rate of earnings growth is 112%. Their 1YPEG is 0.54.
Cash of $146 million. No Debt.
Recurring Income - I presume all these little catheters and minipumps are one-time use.
Moat - First mover and need for complicated FDA approvals.
They recently got important FDA approvals, AND the Dept of Justice closed an inquiry about labeling (I think), without bringing any charges, which ends a lot of distraction and a lot of legal expenses which have been impacting GAAP earnings, but which it’s been hard to keep track of. These two developments should transform and accelerate the company and revenue and earnings should increase even faster.
June 2015 - ABMD is planning a large expansion thanks to the recent FDA approvals, etc, adding employees and space to increase its manufacturing. They announced that they will add another 100 employees in the next two years to their 600-employee base. To accommodate the growth, the company will lease an additional space in a building next to its headquarters, doubling their existing space.
The recent FDA approval gives us is a license to go out and be the standard of care. So that means we have to expand our manufacturing capacity to build the quantities of product necessary.
The growth comes after the FDA approved Abiomed’s heart pump device, used during cardiac procedures, for a larger population of patients. While an early version of the Impella 2.5 heart pump has been approved since 2008 as a temporary cardiac support, it can now be marketed for use for angioplasty, growing the patient market by 25,000-50,000 patients in the U.S. It’s “the only safe and effective device for this kind of procedure.”
