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Research Note - OpSens Inc. (OPS:TSX, $1.98|BUY $4.00 TARGET) - Q1/23 - Gross Margin Improvements Ahead Of Expectation

OpSens Inc. reported Q1/23 financial earnings on the morning of January 12th, 2023. Q1/23 revenue came in lower than our expectations at $10.2M vs. Q1/23E of $11.5M, and Q1/23 EBITDA came in at -$2.8M vs. Q1/23E of -$3.1M. Gross margins improved ahead of our expectations to 58% (expectations of 50%) by three quarters. Looking forward we are adjusting our expectations to reflect the most recent results; we are now expecting FY/23 revenue to come in at $47.2M (from $53.3M) and FY/23 EBITDA to come in -$11.3M (from- $9.7M). We are expecting gross margins to end the year at 59% based on more direct sales and sales of SavyWire. Looking towards the future we are seeing FY/23 as pivotal for the future of OPS; we are expecting the full release of SavyWire into the North American market for H2/23 to allow OPS to penetrate the North American guidewire market and become a dominant player in FY/25.


Financial Results

OPS reported Q1/23 results that missed our expectations with revenue coming in at $10.2M vs. our expectations of $11.5M. The revenue miss was driven by less than expected sales coming in from the FFR segment and a slowing of sales from the Japanese market. Looking ahead we were able to reassess our outlook for FY/23 with more clarity. We are now expecting FY/23 revenue to come in at $47.2M (down from $53.3M). On a segment basis we can expect medical revenue to come in at ~$43.5M (from ~48.3M) and industrial revenue to come in at ~$4.1M (from $5M). We are optimistic that the early approval OPS received from the FDA for SavyWire’s use in TAVR procedures on September 15th,2022, will effectively bringing forward full release sales expectations of the SavyWire into H2/23.


OPS reported Q1/23 EBITDA of -$2.8M vs. our expectations of -$3.1M. EBITDA came in better than expected on the back of a much higher than anticipated gross margin at 58% vs. our expectations of 50%. Looking ahead we are expecting more spend on R&D on a FY/23 basis at $11.4M (up from $6.7M) and higher administrative costs at $7.5M (up from $6.7M) as OPS builds out their roster for the full release of the SavyWire on the North American Market. We are now expecting FY/23 EBITDA to come in at -$10.6M (down from -$9.7M).


OPS’s gross margin came in much higher than we had originally expected at 58% for Q1/23 vs. our expectation of 50%. While we saw a very strong gross margin in Q1/23, we are still holding our forecast for 55% in Q2/23 which improves to 59% for Q4/23. We see the margin improvement as a promising development and a result of OPS focusing on direct sales. There remains potential for additional margin improvement on the pricing power and manufacturing cost advantages of the SavyWire as deployment of the product moves from limited release to full release.


OPS ended the quarter with $17.5M in cash post bought deal closing on December 22, 2022, where OPS raised $11.5M through the sale of 6M common shares, at a price of $1.90 per share. We see this cash balance as sufficient for OPS to ramp SavyWire production and sales into the second half of 2023.

20230112 - M Partners - OPS -Q1 2023 earnings
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