8-K: Nevro Revises 2024 Guidance Amidst Market Softness, Initiates Strategic Review

Nevro Corp. reported a decrease in second-quarter revenue, revised its full-year 2024 revenue and adjusted EBITDA guidance, and announced a strategic review to explore options for accelerating growth and maximizing stockholder value.

Summary

• Nevro's second-quarter 2024 worldwide revenue was $104.2 million, a 4.3% decrease compared to the same period last year.
• U.S. revenue decreased by 2.4% to $90.7 million, while international revenue fell by 15.0% to $13.5 million.
• The company experienced a 9.5% decrease in U.S. trial procedures, indicating a slowdown in the core spinal cord stimulation (SCS) market.
• Nevro's net loss from operations was $19.6 million, but adjusted EBITDA was $3.0 million.
• Full-year 2024 revenue guidance has been revised to $400 million to $405 million, down from the previous range of $435 million to $445 million.
• Adjusted EBITDA guidance for the full year has been revised to a loss of $20 million to $18 million, compared to the previous guidance of a loss of $5 million to a profit of $2 million.
• Third-quarter 2024 revenue is expected to be between $92 million and $94 million, with an adjusted EBITDA loss of $10 million to $9 million.
• The company is initiating a process to explore strategic options to accelerate growth and maximize stockholder value.

Sentiment

Score: 4

Explanation: The document presents a mix of negative and positive elements. The revised guidance and revenue decline are concerning, but the strategic review and cost management efforts offer some hope for future improvement. The overall sentiment is cautiously negative.

Positives

• Adjusted EBITDA for the second quarter of 2024 was $3.0 million, compared to a loss of $3.1 million in the same quarter of 2023.
• Operating expenses improved by $9.7 million, or 9.6%, compared to the prior-year quarter, reflecting the benefits from the company's January and May 2024 restructurings and continued disciplined expense management efforts.
• The company resolved legal disputes with the Mayo Clinic and Flathead Partners in the second quarter of 2024, reducing litigation-related expenses.
• Nevro presented a biomechanical analysis at the American Society of Pain & Neuroscience 2024 Annual Conference showing that Nevro1 provides a significantly better opportunity for robust arthrodesis of the SI joint compared to competing devices.
• The company has a strong cash position with $273.7 million in cash, cash equivalents, and short-term investments as of June 30, 2024.

Negatives

• Worldwide revenue decreased by 4.3% year-over-year to $104.2 million.
• U.S. revenue decreased by 2.4% to $90.7 million.
• International revenue decreased by 15.0% to $13.5 million.
• U.S. trial procedures decreased by 9.5%.
• Full-year 2024 revenue guidance was revised down to $400 million to $405 million.
• Full-year 2024 adjusted EBITDA guidance was revised to a loss of $20 million to $18 million.
• Gross profit for the second quarter of 2024 was $67.5 million compared with $74.4 million in the second quarter of 2023.
• Gross margin in the second quarter of 2024 was 64.8%, or 70.5% excluding the supplier contract renegotiation charge, compared with 68.4% in the second quarter of 2023.
• The company experienced a $6.0 million one-time charge related to the renegotiation of a supplier contract.
• The company experienced a $4.6 million charge related to the company's May 2024 restructuring.

Risks

• The company faces ongoing softness in the U.S. spinal cord stimulation (SCS) market and competitive pressures.
• Newer treatment therapies are emerging earlier in the care continuum, potentially delaying patients from receiving SCS therapy.
• Negative SCS-related media reports in Australia and healthcare reform in Germany impacted international revenue.
• The company's revised guidance assumes that U.S. SCS trialing growth rates do not improve from the second quarter of 2024.
• The company's ability to successfully execute its growth and diversification strategy is subject to various risks and uncertainties.
• The company's ability to successfully evaluate and execute on potential strategic opportunities is subject to various risks and uncertainties.

Future Outlook

Nevro has revised its full-year 2024 revenue guidance to a range of $400 million to $405 million and adjusted EBITDA guidance to a range of negative $20 million to negative $18 million. The company expects third-quarter 2024 revenue to be between $92 million and $94 million, with an adjusted EBITDA loss of $10 million to $9 million. Nevro is also initiating a process to explore strategic options to accelerate growth and maximize stockholder value.

Management Comments

• Our second-quarter 2024 results were primarily driven by ongoing softness in the U.S. spinal cord stimulation (SCS) market and competitive pressures, said Kevin Thornal, Nevro's CEO.
• Our recent in-depth market analysis shows that newer treatment therapies have emerged earlier in the care continuum ahead of SCS therapy, said Kevin Thornal, Nevro's CEO.
• We believe these therapies are, in some cases, delaying patients in getting SCS therapy, which is towards the end of the care continuum, but we believe many patients will ultimately continue their journey to treat the often-multiple causes of their pain through SCS therapy, said Kevin Thornal, Nevro's CEO.
• While the SCS market remains significantly underpenetrated and will remain an important solution for patients suffering from chronic pain, 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, said Kevin Thornal, Nevro's CEO.
• In light of the evolving market dynamics, our Board of Directors and senior management team have begun a process aimed at building on our growth and diversification strategy with the goal of accelerating profitability and maximizing stockholder value, said Kevin Thornal, Nevro's CEO.
• We have retained advisors, and over the next several months, we will move aggressively to explore broader options beyond our current standalone path that may help us accelerate achievement of our goals, said Kevin Thornal, Nevro's CEO.
• Importantly, we are in a solid financial position and remain committed to bringing innovative products to our customers that treat patients suffering from chronic pain, said Kevin Thornal, Nevro's CEO.
• Our customer-facing team is one of our largest assets, and they remain dedicated to partnering with our physicians to provide exceptional patient care, added Thornal.

Industry Context

The announcement reflects challenges in the spinal cord stimulation market, with increased competition and newer therapies impacting patient adoption. Nevro's strategic review and diversification efforts indicate a response to these evolving market dynamics, aiming to position the company for sustainable growth and profitability.

Comparison to Industry Standards

• Nevro's revenue decline of 4.3% contrasts with some competitors in the medical device space who have reported modest growth, indicating a specific challenge in the SCS market.
• The decrease in U.S. trial procedures by 9.5% is a significant indicator of market softness, which is not uniformly experienced across all medical device companies.
• The revised full-year revenue guidance to $400-$405 million is a notable reduction from the previous $435-$445 million, suggesting a more cautious outlook compared to initial projections.
• The adjusted EBITDA guidance revision to a loss of $20-$18 million from a previous range of a loss of $5 million to a profit of $2 million indicates a significant shift in profitability expectations.
• Companies like Medtronic and Abbott, which also operate in the neuromodulation space, have reported varying results, highlighting the competitive landscape and the specific challenges Nevro is facing.
• The strategic review initiated by Nevro is a proactive step, which is not always seen in companies facing similar challenges, indicating a willingness to explore all options for growth and value creation.

Stakeholder Impact

• Shareholders will be impacted by the revised financial guidance and strategic review.
• Employees may be affected by the ongoing restructuring and strategic changes.
• Customers and physicians may experience changes in product offerings and support services.
• Suppliers may be impacted by the renegotiation of contracts and changes in manufacturing processes.

Next Steps

• Nevro will explore strategic options to accelerate growth and maximize stockholder value.
• The company will continue to focus on commercial execution and cost management.
• Nevro will continue to bring innovative products to customers that treat patients suffering from chronic pain.

Key Dates

Keywords

spinal cord stimulation, SCS, chronic pain, medical devices, revenue, EBITDA, financial results, strategic review, guidance, SI joint, restructuring