Nevro (NVRO) Q3 Loss Narrower than Expected, Sales Beat
Nevro Corp. NVRO reported adjusted loss of 70 cents per share in the third quarter of 2015, which was narrower the Zacks Consensus Estimate of a loss of 78 cents. Adjusted loss in the reported quarter was however wider than the year-ago loss of 40 cents. The deterioration may be attributed to escalating operating expenses, which offset the upside in revenues.
Revenues surged 77.7% on a year-over-year basis to $15.4 million and beat the Zacks Consensus Estimate of $13 million. U.S. revenues totaled $4.5 million in the reported quarter. Notably, this is the first full quarter of Nevro’s foray into the U.S. market (which began in late May 2015).
International revenue rose 26% (up 49% at constant currency) to $10.9 million, on the back of higher adoption of the company’s Senza System – a product capable of delivering HF10 therapy and used in treatment of lower back and leg pain.
Nevro witnessed strong demand for its products in the European market, where revenues grew well over 100% on a year-over-year basis. The performance in Australia was also notable, with 60% growth.
Gross margin contracted 570 basis points (bps) on a year-over-year basis to 62.7%, owing to higher costs associated with the U.S. launch.
Operating expenses increased well over 100% to $27.1 million due to higher headcount and related personnel costs as well as augmented general and administrative costs. As a result of escalating operating expenses, operating loss deteriorated more than 100% to $17.7 million in the reported quarter.
Outlook
Nevro raised its revenue projection for 2015, as the company has now incorporated U.S. revenues in its total revenue estimates. The company expects worldwide revenues in 2015 in the range of $59.5–$61.5 million, reflecting year-over-year growth of 83%–89%. Previously projected range, which included only international revenues, was $41–$43 million.
Revenues for the fourth quarter of 2015 are estimated in the band of $23--$25 million, while operating expenses are expected to be about $30 million.
Our Take
We believe Nevro’s business will benefit to a large extent from the rollout of its HF10 therapy in the U.S. market. Additionally, better performance in the international markets, especially Europe, is a key positive. However, increasing expenses associated with the U.S. launch is expected to keep margins under pressure in the near term.
Zacks Rank and Key Picks
Currently, Nevro carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same space are EDAP TMS SA EDAP, Natus Medical BABY and Masimo MASI. All the stocks sport a Zacks Rank #1 (Strong Buy).
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