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NEVRO CORP (NVRO)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 revenue was $104.2M, down 4.3% year over year; GAAP diluted EPS was a loss of $0.53. Adjusted EBITDA turned positive at $3.0M, vs a $(3.1)M loss in Q2 2023 .
  • The quarter missed the company’s prior Q2 guidance of $106–$108M revenue; management cited softness in the U.S. SCS market and competitive pressures, plus one-time international headwinds (Australia media coverage; Germany healthcare reform) .
  • Nevro sharply cut FY 2024 guidance: revenue to $400–$405M from $435–$445M, and adjusted EBITDA to $(20)–$(18)M from $(5)–$2M. Q3 guidance: revenue $92–$94M, adjusted EBITDA $(10)–$(9)M. These represent material downward revisions and implied near-term margin pressure despite structural cost actions .
  • Strategic review launched to “explore broader options” including partnerships, mergers or sale to accelerate diversification (SI joint fusion, broader pain portfolio) and profitability; this is a potential stock catalyst subject to outcomes and timing uncertainty .

What Went Well and What Went Wrong

What Went Well

  • Adjusted EBITDA inflected positive to $3.0M in Q2 (from $(3.1)M in Q2’23), reflecting cost actions and operating discipline; gross margin excluding a one-time supplier renegotiation charge reached 70.5% (vs 68.4% in Q2’23) .
  • Litigation-related expenses dropped to $0.8M (vs $4.9M in Q2’23) after resolving Mayo Clinic and Flathead Partners disputes, aiding OpEx improvements (OpEx $92.6M; $90.4M excluding specified items) .
  • Management reinforced diversification strategy: ramping SI joint fusion (Nevro1), growing AI-enabled HFX iQ adoption, and pursuing expanded indications (PDN sensory RCT interim analysis targeted for early 2025) .

Quotes:

  • “We believe our strategy to enter and build our business in more diverse markets serving patients earlier in the care continuum will position us to realize sustainable growth, a faster path to profitability and value creation.” — CEO Kevin Thornal .
  • “We remain excited about achieving a long-term gross margin in the mid-70s.” — CFO Rod MacLeod (longer-term view) .

What Went Wrong

  • Revenue missed company Q2 guidance ($104.2M actual vs $106–$108M guided); U.S. SCS trials fell ~9.5% YoY and U.S. revenue declined 2.4% YoY, reflecting competitive launches and market softness .
  • International revenue contracted 15% YoY (to $13.5M), impacted by negative SCS media reports in Australia and healthcare reform delays in Germany; these transitory factors constrained OUS growth .
  • Gross margin compressed to 64.8% including a $6.0M supplier renegotiation charge; management also flagged second-half 2024 margin headwinds from inventory variance accounting during manufacturing transitions .

Financial Results

Core P&L and EPS (quarterly trends)

MetricQ4 2023Q1 2024Q2 2024
Revenue ($USD Millions)$116.176 $101.899 $104.161
Gross Profit ($USD Millions)$81.477 $71.528 $67.467
Gross Margin (%)70.1% 70.2% 64.8%
Gross Margin excl. supplier charge (%)——70.5%
Total Operating Expenses ($USD Millions)$93.264 $107.362 $92.588
Loss from Operations ($USD Millions)$(11.787) $(35.834) $(25.121)
Net Income (Loss) ($USD Millions)$(8.981) $(25.409) $(19.575)
Adjusted EBITDA ($USD Millions)$8.366 $(9.596) $3.039
Diluted EPS ($USD)$(0.25) $(0.70) $(0.53)

Notes:

  • Supplier renegotiation one-time charge in Q2: $6.0M .
  • Litigation-related expenses Q2: $0.8M vs $4.9M in Q2’23 .

Balance Sheet Liquidity

MetricQ4 2023Q1 2024Q2 2024
Cash & Equivalents ($USD Millions)$104.217 $90.303 $74.702
Short-term Investments ($USD Millions)$218.506 $191.180 $198.991
Cash + ST Investments ($USD Millions)$322.7 $281.5 $273.7

Geographic and Activity Metrics

MetricQ4 2023Q1 2024Q2 2024
U.S. Revenue ($USD Millions)$101.5 $87.0 $90.7
International Revenue ($USD Millions)$14.7 $14.9 $13.5
U.S. Trial Procedures (YoY %)~−1% −5.1% −9.5%
U.S. Permanent Implants (YoY %)+3% ~Flat −6.5%

Guidance vs Actual (Q2)

PeriodMetricPrior GuidanceActualResult
Q2 2024Revenue ($USD Millions)$106–$108 $104.2 Miss

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Worldwide Revenue ($USD Millions)FY 2024$435–$445 $400–$405 Lowered
Adjusted EBITDA ($USD Millions)FY 2024$(5) to $+2 $(20) to $(18) Lowered
Gross Margin (%)FY 2024~Flat with 2023 (~68%) ~66% (or ~68% excl. supplier charge) Lowered
Operating Expenses ($USD Millions)FY 2024~$390–$392 ~$383 Lowered
Revenue ($USD Millions)Q3 2024—$92–$94 New
Adjusted EBITDA ($USD Millions)Q3 2024—$(10) to $(9) New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023 and Q1 2024)Current Period (Q2 2024)Trend
AI/Technology (HFX iQ)Adoption rising; iQ 53% of Q4 implants; Android solution planned Continued push; iQ adoption contributing to mix and pricing Positive adoption; pricing premium maintained
Supply Chain/ManufacturingCosta Rica ramp; margin mid-70s long-term view $6M supplier renegotiation charge; continued shift to Costa Rica; second-half margin headwinds from variance accounting Near-term headwind; long-term positive trajectory
Competitive DynamicsLow-frequency entrants; diversified competitor portfolios noted Two large competitor product launches impacting “splitter” accounts; pricing pockets but overall ASP held/increased Heightened competition near-term
Product Performance (SI Joint)Vyrsa acquisition; immaterial 2024 revenue, training ramp Training “many more” physicians; early case growth; leverage Nevro1 as door-opener to competitive SCS accounts Building funnel; gradual ramp
Regional TrendsOUS small vs U.S.; staffing constraints easing Australia negative media → postponed/cancelled cases; Germany reform delays Temporary OUS pressure
Regulatory/LegalCarelon expands PDN coverage; litigation spend elevated Litigation expenses down sharply after dispute resolutions Cost tailwind
R&D/Clinical (PDN Sensory Study)Enrollment ahead; pausing for interim analysis Interim analysis readout anticipated early 2025; potential guideline inclusion Potential 2025 catalyst
Strategic Review—Exploring partnerships, mergers, or sale; retained advisers New strategic path/catalyst

Management Commentary

  • Market dynamics and diversification: “Newer treatment therapies have emerged earlier in the care continuum…we believe our strategy to enter and build our business in more diverse markets…will position us to realize sustainable growth.” — CEO Kevin Thornal .
  • Strategic review purpose: “We will more aggressively explore broader options alongside our current stand-alone path…may include partnerships, mergers or even a sale of the company.” — CEO Kevin Thornal .
  • Gross margin path: “Excluding [the $6M] charge, gross margin…70.5%…We remain focused on…achieving a long-term gross margin in the mid-70s.” — CFO Rod MacLeod .
  • Competition and pricing: “Pricing has…held pretty well. We saw our average IPG pricing increase in Q2.” — CFO Rod MacLeod .

Q&A Highlights

  • Strategic review scope and timing: Options include partnerships, mergers, sale; early stages with no set timeline; goal is accelerating diversification and profitability .
  • 2025 setup: Expect benefits from commercial territory expansion (ASR program), SI joint ramp, and IPG replacement cycle tailwinds to support improvement vs 2024 .
  • Cash flow inflection: ~$(8)M operating cash outflow in Q2; management believes slightly higher revenue could drive breakeven/positive cash flow, but the FY revenue cut delays timing .
  • Competition: Two large competitor launches drawing “splitter” accounts; Nevro plans to leverage Nevro1 to enter competitive accounts; overall ASP up in Q2 .

Estimates Context

  • Wall Street consensus estimates from S&P Global were not retrievable in our environment for NVRO due to a CIQ mapping issue; as a result, we cannot provide definitive “vs consensus” comparisons for Q2 2024 or FY/Q3 guidance. Values would normally be retrieved from S&P Global; unavailable in this case.
  • Given this limitation, we benchmarked results against company-issued guidance and disclosed trajectory vs prior periods from primary sources .

Key Takeaways for Investors

  • The quarter underscored U.S. SCS market softness and competitive pressure: U.S. trials −9.5% YoY; revenue missed company Q2 guidance; international headwinds added pressure .
  • FY guidance cut is significant: revenue lowered by ~8% at the midpoint and adjusted EBITDA moved from near breakeven to an $(20)–$(18)M loss; near-term sentiment likely negative. Watch Q3 execution vs $92–$94M guide and margin progression .
  • Cost actions and manufacturing transition are showing underlying margin potential (ex-charge 70.5% GM), but accounting headwinds in H2 and slower SCS market temper near-term flow-through .
  • Strategic review introduces optionality: potential partnership/M&A outcomes could accelerate diversification (SI joint, future pain portfolios) and profitability; timing and terms are uncertain .
  • 2025 drivers to monitor: SI joint fusion ramp (training funnel), IPG replacement cycle, and PDN sensory RCT interim readout aimed at guideline inclusion—each can support revenue stabilization and margin recovery .
  • Pricing and mix: Management reported ASP strength in Q2 and ongoing HFX iQ adoption; sustaining pricing is key to margin trajectory amid competitive churn .
  • Liquidity remains solid ($273.7M cash+ST investments), providing runway to execute on strategic priorities and navigate near-term pressures .