Nevro Corp. (NVRO) Q2 2024 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
Despite some positive elements like cost savings and cash reserves, the overall sentiment is negative. Financial performance is declining with reduced revenue and increased competition. The guidance has been lowered, and management's responses in the Q&A lacked clarity, raising concerns about future prospects. While there are potential strategic options for shareholder returns, the uncertainty and financial challenges overshadow potential positives.
Key Financial Performance
Worldwide Revenue $104.2 million, decreased 4.3% year-over-year due to competitive dynamics and softness in the U.S. spinal cord stimulation market.
U.S. Revenue $90.7 million, decreased 2.4% year-over-year, primarily due to competitive pressures and ongoing softness in the U.S. SCS market.
U.S. SCS Trial Procedures Decreased approximately 9.5% year-over-year, mainly due to competitive pressures and ongoing softness in the core U.S. SCS market.
Net Loss from Operations $25.1 million, compared to a net loss of $25.6 million last year, showing a slight improvement.
Adjusted EBITDA Positive $3 million, compared to a loss of $3.1 million in the year-ago quarter, indicating progress towards profitability.
Cash and Investments Over $270 million, decreased by $7.8 million from the previous quarter, primarily due to cash used in operations.
Gross Profit $67.5 million, decreased 9.4% year-over-year, with a gross margin of 64.8%. Excluding a $6 million one-time charge, gross profit would have been $73.5 million, representing a gross margin of 70.5%.
Operating Expenses $92.6 million, decreased from $100.1 million in the prior year, reflecting a $9.7 million year-over-year improvement due to restructuring and expense management.
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Operating Highlights
New Product Launches: We anticipate launching our next generation of high-frequency SCS therapies in early 2026, backed by strong clinical evidence.
Acquisition: Acquired a sacroiliac joint fusion business to diversify our product offerings and provide more treatment options for chronic pain.
AI-Enabled System: Introduced the AI-enabled HFX iQ system, which allows for real-time patient data adjustments.
Market Expansion: We are diversifying our business to adjacent markets, including the SI joint space, to enhance our treatment portfolio.
Underpenetrated Markets: The painful diabetic neuropathy market remains underpenetrated at less than 1%, and we are focusing on educating physicians and patients.
Operational Efficiencies: Achieved a gross margin of 70.5% excluding a one-time supplier charge, with long-term goals of mid-70% margins.
Cost Structure Alignment: Restructuring efforts are expected to generate savings of over $25 million in 2024.
Strategic Review: Initiated a review of strategic opportunities, including potential partnerships, mergers, or a sale of the company.
Commercial Execution: Changes in the commercial team and territory realignment are aimed at improving market penetration and performance.
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Risk or Challenges
Competitive Pressures: The U.S. spinal cord stimulation (SCS) market is experiencing increased competition due to new product launches by larger competitors, leading to a decline in trial procedures by approximately 9.5%.
Regulatory Issues: International revenue decreased significantly due to negative media reports in Australia affecting SCS-related procedures and healthcare reform in Germany causing delays.
Supply Chain Challenges: A $6 million one-time charge related to the renegotiation of a supplier contract was incurred to reduce future purchase commitments and improve cash flow.
Economic Factors: The company revised its full year 2024 revenue guidance down to approximately $400 million to $405 million, reflecting a 5% to 6% decrease from 2023 due to market headwinds.
Market Dynamics: Newer treatment options earlier in the care pathway are gaining traction, potentially delaying patients from receiving SCS therapy and competing for operating room schedules.
Operational Challenges: Despite restructuring efforts, the company does not anticipate benefits from changes to the commercial team until 2025, indicating ongoing operational challenges.
Financial Performance: Adjusted EBITDA guidance was revised to a range of negative $20 million to negative $18 million, down from negative $5 million to positive $2 million, indicating worsening financial performance.
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Guidance & Outlook
Strategic Initiatives: Initiation of review of strategic opportunities, including partnerships, mergers, or potential sale of the company.
Diversification Strategy: Acquisition of sacroiliac joint fusion business to expand treatment options for chronic pain.
Commercial Execution: Focus on improving commercial execution through realignment and development of sales teams.
R&D Pipeline: Development of next-generation high-frequency SCS therapies and new devices for chronic pain.
Long-term Vision: Aim to become a comprehensive pain management company, diversifying beyond SCS.
2024 Revenue Guidance: Revised full year 2024 revenue guidance to approximately $400 million to $405 million, down from $435 million to $445 million.
Gross Margin Guidance: Expected full year gross margin of approximately 66%, or 68% excluding a $6 million supplier charge.
Operating Expenses Guidance: Projected full year 2024 operating expenses of approximately $383 million, down $6.4 million from 2023.
Adjusted EBITDA Guidance: Revised adjusted EBITDA guidance to a range of negative $20 million to negative $18 million.
Q3 2024 Revenue Guidance: Expected worldwide revenue for Q3 2024 in the range of approximately $92 million to $94 million.
Q3 2024 Adjusted EBITDA Guidance: Expected Q3 2024 adjusted EBITDA in the range of negative $10 million to negative $9 million.
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Shareholder Return Plan
Shareholder Return Plan: The company is exploring strategic options to create shareholder value, which may include partnerships, mergers, or a sale of the company. The Board of Directors and management team have retained advisers to assist in this process.
Cash Position: Nevro ended the quarter with over $270 million in cash and investments, which is intended to fund organic growth initiatives.
Operating Expenses: The company expects to generate savings of more than $25 million in 2024 from restructuring efforts, with an annualized run rate savings of well over $30 million.
Adjusted EBITDA Guidance: The adjusted EBITDA guidance for full year 2024 has been revised to a range of negative $20 million to negative $18 million, down from previous guidance.
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Key Q&A
Q:What are some of the options for you regarding the strategic review? Are you looking for a merger or sale of the company?
A:We really like our strategy of diversification that allows us to bring more value to our customers. We're in the early stages of the process and exploring all options, but it may come down to being best to remain stand-alone if it doesn't bring as much shareholder value.
Q:How is your PDN business trending in Q2 and how much of the guide down is due to a lower outlook for PDN?
A:PDN continues to be a growth part of our business, but we're seeing headwinds in the market from a competitive perspective. The revised guidance is driven by trailing results.
Q:Why would 2025 be better than 2024 in terms of sales productivity?
A:We're expanding territories with newer reps who are ready to take on new territories, and we see growth in our SI joint business as we continue to train physicians.
Q:What's the plan to achieve meaningful cash flow generation?
A:Bringing revenue down will delay our adjusted EBITDA moving to positive cash flow, but we're not far away from breakeven with more revenue generation.
Q:How do you plan to address increased competition?
A:We see competition from larger competitors with new product launches, but we believe our clinical value and superiority will help us retain and regain market share.
Q:What is the status of the Vyrsa portfolio and its adoption?
A:Many physicians are still setting up their practice, but we see early success with top-performing physicians starting to grow their business.
Q:What does it take to reach EBITDA profitability?
A:We need more volume in the mid-to-high $400 millions to reach EBITDA profitability, and we are leveraging our P&L to drive growth while limiting expense expansion.
Q:What is the competitive landscape for U.S. pricing in the neuromodulation business?
A:Pricing has held well, with an increase in average IPG pricing in Q2, although there are pockets where we need to be creative.
Q:What is the true market growth rate for the SCS market?
A:The market has slowed from mid to high single-digits to low single-digits, but we believe PDN will be a long-term growth driver.
Q:What can you tell us about new products coming in 2026?
A:We have a next-generation SCS therapy coming out in early 2026, which will have unique clinical benefits and advantages.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer regarding the timeline for the strategic review process and the specifics of the PDN business performance. Their responses lacked clarity on the exact reasons for the guide down in revenue and the competitive pressures affecting market share.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
IPG
Nathan
PL
RCT study
RD
SCS device
SI
Senza
ability
account
analysis
asset
balance sheet
base
care
cash flow
continuum
contract manufacturing
cord
core SCS
diversification
dynamic
entrant
evidence
factor
flow generation
frequency therapy
fusion
generation SCS
guideline
hand
headwind
kilohertz therapy
market share
million
place
product launch
reason
region
softness
tool patient
treatment
work
NVRO Transcript
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The earnings call reveals several negative indicators: declining revenue and trials in the core SCS market, negative adjusted EBITDA, and reduced 2024 revenue guidance. Despite restructuring efforts and a slight cash increase, competitive pressures persist. The Q&A section highlights management's focus on cost-cutting and strategic investments, but lacks clear quantitative guidance and timelines for improvement. The negative sentiment is reinforced by the weak financial performance and cautious market outlook, suggesting a negative stock price movement of -2% to -8% over the next two weeks.
Nevro Corp. (NVRO) Q2 2024 Earnings Call Transcript
Unknown8-7
Despite some positive elements like cost savings and cash reserves, the overall sentiment is negative. Financial performance is declining with reduced revenue and increased competition. The guidance has been lowered, and management's responses in the Q&A lacked clarity, raising concerns about future prospects. While there are potential strategic options for shareholder returns, the uncertainty and financial challenges overshadow potential positives.
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