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  • SomnoMed Hits High Gear, Sales Records For Sleep Apnea Appliances 0 comments
    Jul 23, 2014 10:59 PM

    SomnoMed (ASX:SOM) shares have surged after breaking sales records for its sleep apnea products in the North America, Europe and APAC/Japan regions during the 2013/14 financial year.

    It also expects further acceleration of its growth during the 2014/15 financial year.

    Shares in the company had hit an intra-day high of $1.84, up 15% from its close of $1.60 on 22 July 2014 and a fresh 12 month high.

    Sales in the fourth quarter reached 11,973 units, the highest unit sales in the company's history.

    Other records were set in all regions during the quarter.

    For the first time North America reached 6,400 units in a three month period and set a new record, with sales of over 2,300 units in a single month; Europe exceeded quarterly sales of 4,300 for the first time and APAC/Japan sold over 1,250 units in a quarter for the first time.

    Unit sales in the second half came in at 22,983, 24% above the same half year period in the previous year, reflecting accelerating growth in both North America and APAC/Japan regions, while Europe maintained its strong performance during the second half of the financial year.

    Total sales units for the year came in above guidance at 43,438, which was 21% above the previous year.

    "Besides Europe continuing on its extraordinary expansion and APAC/Japan showing clear acceleration in its growth rates throughout the year, the positive developments in North America are of greatest importance," executive chairman Dr. Peter Neustadt said.

    He added that while direct sales to its dental network had suffered due to dental sales and service issues its U.S. operation experienced during the last two years, these direct sales have now shown consistent accelerating growth in every quarter in 2013/14.

    "Year on year growth rates for direct sales in the US went from 3.1% in the first half to 16% in the second half," Neustadt added.

    "The changes are even more impressive on a quarter by quarter basis compared to the previous year - after a 9% drop in Q1, Q2 recovered with a 16.9% growth rate, Q3 was up by 14.2% and Q4 grew by 17.6%.

    "The trends are good and we are confident that the measures we have taken in the US have put us solidly on a higher growth path for the future."

    Financial Results

    SomnoMed's results have grown by 40% in the 2013/14 financial year to more than $25.8 million, higher than guidance previously given.

    Cash at the end of the financial year was just under $3 million.

    "A significant increase in accounts receivable was recorded during the year, due to the fast growing business with insurers in Europe and the US, with longer payment cycles than those experienced with our dental customers," Neustadt said.

    Earnings before interest, tax, depreciation and amortization are expected to be around $1 million after expensing about $2.3 million in costs associated with the medical initiative in the US, set up costs in preparation for the launch into new markets in Europe and APAC and the employment of new sales staff.

    Guidance Financial Year 2014/15

    "The volumes achieved in 2013/14 and the trends observed in all three global regions augur well for the 2014/15 financial year and are proof that our strategies around the world are achieving the desired results," he added.

    "We are going very confidently into the new financial year.

    "The good growth we have seen in the second half of 2013/14 in the US is expected to continue, due to the improved dental sales and service operations, excellent acceptance of our Herbst products and results from our medical initiative, which are now becoming visible.

    "Europe's growth of 41% in the 2013/14 year will be hard to beat. However, the strong trends in emerging markets, which we opened in the last 18 months, together with the new markets we are expanding into in 2014/15 should allow us to maintain a high level of growth in the new financial year.

    "Activities in APAC/Japan also indicate that further acceleration in growth is likely in 2014/15. In Australia, Japan and Korea sales forces are being strengthened to respond to increasing demand from physicians and leading hospital centres treating obstructive sleep apnea patients."

    Sales volumes are expected to grow in 2014/15 by 26.5% from 43,438 units and exceed 55,000 units.

    Revenues are expected to hit $32.5 million at current exchange rates.

    "Our expectation for 2014/15 is that we will maintain our gross margin for SomnoDent® products in the upper sixty percent range," Neustadt added.

    "We currently anticipate start-up losses in five new markets in Europe and a much reduced shortfall in our medical departments in the US will cost us around $800,000 in the first half of 2014/15 but should be cost neutral in the second half year.

    "We believe the second half will show signs of the future earnings strength of SomnoMed, which will underpin the growth of profits in the future.

    "Our expectation for 2014/15 is an EBITDA range between $2.0 and $4.0 million."


    SomnoMed's results are an affirmation, if needed of the fast growth path ahead for the company in 2014/15.

    We believe this is just the start for its oral devices given advantages over CPAP.

    SomnoMed's oral appliance therapy for obstructive sleep apnea will snowball revenues.

    Its products offer improvements over existing devices and a greater level of patient comfort which is one of the key aspects of treatment of sleep apnea.

    Proactive Investors re-affirms our share price target guidance of $2.05 to $2.19 within 6-9 months.

    The share price was $1.45 when we calculated our price target, it is currently trading $1.82.

    Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX "Small and Mid-cap" stocks with distribution in Australia, UK, North America and Hong Kong / China.

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