Q1 2024 Earnings Summary
- Margin expansion expected in 2025 and beyond due to higher ASPs from HFX iQ devices and cost efficiencies from the Costa Rica manufacturing facility, leading to strong opportunities to improve profitability. Roderick MacLeod stated that the mix shift to HFX iQ, which represented 58% of total permanent implants in Q1 2024 (up from 53% in Q4 2023), will continue, and they are picking up a pricing premium on that product. Additionally, the Costa Rica facility is producing lower labor and material costs, with COGS coming in as expected.
- Significant cost reductions from restructuring efforts, with over $25 million in savings projected for 2024 and over $30 million annualized, will enhance profitability without disrupting operations. As Roderick MacLeod mentioned, they were able to shed about $25 million in reductions for this year alone, through increased focus on key aspects and strategies.
- Strong growth opportunities in the underpenetrated PDN market, which remains around 1% penetrated, with Nevro expressing continued strong interest and commitment to educating on the benefits of their therapy. Kevin Thornal noted that PDN came in right in line with expectations and will continue to be a strong part of the business moving forward.
- Despite exceeding Q1 revenue expectations by about $4 million, Nevro did not raise its full-year guidance, suggesting potential concerns about lower sales in the remainder of the year.
- The spinal cord stimulation (SCS) market experienced softness in trialing activity during Q1, which could indicate persistent challenges in market growth.
- The company anticipates gross margin pressure in the second half of the year due to overhead variances associated with the transition to the Costa Rica manufacturing facility, which may impact profitability.
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2024 Guidance and Q1 Outperformance
Q: You beat Q1 but didn't raise full-year guidance. Is Q2-Q4 outlook lower?
A: Management explained that although they overdelivered in Q1 by about $4 million, they are maintaining the full-year guidance as they anticipate the first half to be in line with initial expectations. They noted that while Q1 was slightly stronger, Q2 is expected to be a touch softer than earlier projections. -
Gross Margin Outlook
Q: Despite strong Q1 gross margin, why expect sequential decline?
A: The company is transitioning from contract manufacturers to their Costa Rica facility. This shift will introduce some overhead variances that will impact costs in the second half of the year due to prior year volume and mix shifts. However, long-term prospects remain positive with solid labor and material costs in Costa Rica. -
Vyrsa (SI Joint) Business Expectations
Q: How much of Vyrsa's sales are baked into guidance?
A: Vyrsa is still an immaterial part of the business, and the company hasn't provided any $20 million sales figures. They are focusing on scaling the business, training over 220 physicians so far, but it's expected to take time before it significantly contributes to revenue. -
Competitive Dynamics in PDN Market
Q: Has Abbott's synergy with Libre changed the PDN dynamic?
A: Management hasn't observed a change due to Abbott's presence. They emphasize their clinical superiority with 10 kilohertz therapy, which avoids adding paresthesia to patients already suffering from tingling and numbness. They believe their technology remains the preferred choice for treating PDN patients. -
Spinal Cord Stimulation Market Health
Q: How is the spinal cord stimulation market, and when will Nevro regain share?
A: The company noted that while there was softness in trialing, they and a few competitors grew in Q1. All trialing, replacements, and sales force ramp-up are baked into the 2024 guidance. They are optimistic about reconfirming guidance and see potential for regaining share. -
HFX iQ Adoption and Impact
Q: What's the outlook for HFX iQ and its effect on margins?
A: The mix is shifting towards HFX iQ, reaching 58% in Q1, up from 53% in Q4. They are achieving a pricing premium on this product. Despite some COGS pressure in the second half, they expect strong margin expansion opportunities in 2025 and beyond. -
Restructuring and Cost-Cutting Measures
Q: Can you discuss the additional restructuring and expected disruptions?
A: The company doesn't anticipate significant disruption from restructuring efforts. They have reduced costs by about $25 million for this year, with annualized savings over $30 million, by focusing on key projects and strategies. -
SI Joint Training Impact
Q: What's the expected disruption from SI joint training?
A: SI joint training requires physicians and sales reps to spend time away from clinics, causing some impact on trials. This is expected to continue slightly into Q2 but isn't a massive disruption. Training is conducted efficiently by training physicians and reps together.
Research analysts covering NVRO.