Q2 2024 Earnings Summary
- Nevro plans to launch a next-generation spinal cord stimulation (SCS) therapy in early 2026, developed by the same engineers who created their revolutionary 10-kilohertz therapy. This new platform is expected to bring innovation to the market and potentially drive growth.
- The company is conducting a second randomized controlled trial (RCT) for painful diabetic neuropathy (PDN), with anticipated results in early 2025. A positive outcome could lead to inclusion in societal guidelines, boosting referrals and sales in a market that is currently less than 1% penetrated, presenting significant growth opportunity.
- Nevro's SI joint fusion business is expected to contribute significantly to growth and profitability, as it scales up and leverages the existing sales force. The SI joint device increases gross margin and provides operational efficiencies, which could enhance the company's bottom line as each incremental dollar drops more to the bottom line than before.
- Nevro is experiencing increased competitive pressures from larger competitors launching new products, resulting in decreased U.S. trial procedures by approximately 9.5% and loss of market share.
- The company has lowered its full year 2024 revenue guidance to approximately $400 million to $405 million from the previous range of $435 million to $445 million, due to ongoing market headwinds and competitive pressures impacting growth expectations.
- The initiation of a strategic review, including exploring partnerships, mergers, or a sale of the company, indicates uncertainty about Nevro's ability to execute its strategy independently amid market challenges.
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Strategic Review and Potential Sale/Merger
Q: Are you considering a merger or sale of the company?
A: We are exploring all options to accelerate our plans, including potential mergers or sales. We like our strategy of diversification and can continue on a stand-alone basis, but we felt urgency to explore all possible options. We're not giving a timeline, but we're in the early stages, and it might be best to remain stand-alone if that brings more shareholder value. -
Guidance Downward Revision and Profitability Impact
Q: How does guidance down impact path to profitability?
A: Bringing revenue down delays our move to adjusted EBITDA positive territory. In Q2, we had about $8 million in negative operating cash flows. With a bit more revenue, we're not far from breakeven, but we need more revenue to cover fixed costs. The target range for adjusted EBITDA breakeven is in the mid-$400 million revenue range. The revised guidance reflects competitive headwinds and overall market softness. -
Competitive Pressure and Market Share Loss
Q: Why are competitors gaining share, and how will you respond?
A: Larger competitors with new product launches see a big bump as accounts try the shiny new thing, but often revert back to the benefits of our 10-kilohertz therapy over time. Competitors leverage larger portfolios; we're diversifying with our SI joint business to bring more value to customers. We're expanding territories with new reps to go deeper and wider with our portfolio. We'll use our SI joint product as a door opener to competitive accounts. -
SI Joint (Vyrsa) Product Ramp
Q: How is the SI joint business progressing?
A: Many physicians are still setting up their practices, getting patients through required conservative management before implant approvals. We're seeing early success with top-performing physicians growing their SI joint business month-over-month. We continue to have strong physician interest, with heavy attendance at training courses. Our SI joint business increases gross margin and leverages our existing sales force, contributing more to the bottom line. -
Future Products and R&D Pipeline
Q: When will new products impact growth?
A: Our next-generation SCS therapy, backed by science, will be coming out in early 2026, offering exciting new platform benefits. For PDN, we're excited about our RCT study; if we achieve needed power by interim results and get a publication, it could lead to inclusion in guidelines, boosting sales in 2025. Our R&D pipeline anticipates all products in development, and we're balancing investments between SG&A and R&D. -
Pricing Holding Up in U.S. Market
Q: Has pricing in the U.S. changed due to competition?
A: Pricing has held pretty well; our average IPG pricing increased in Q2. Despite competitive pressures, overall pricing remains firm. Competitors may gain uplift from new product launches, but we continue to receive premium pricing due to our therapy's technology and clinical results.
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