Nevro (NVRO) Q2 Earnings Lag Estimates, FY23 View Cut
Nevro Corp. NVRO reported a loss per share of 69 cents for the second quarter of 2023, narrower than the year-ago quarter’s loss of 71 cents per share. However, the loss per share was wider than the Zacks Consensus Estimate of a loss of 68 cents.
Revenues in Detail
Nevro registered worldwide revenues of $ 108.8 million in the second quarter, up 4.4% year over year on a reported basis. The figure missed the Zacks Consensus Estimate by 0.5%.
At constant exchange rate (CER), revenues were up 4% year over year.
Painful Diabetic Neuropathy (PDN) indication sales represented approximately $19 million (18%) of worldwide permanent implant procedures and were up 73% year over year.
Quarterly Highlights
In the quarter under review, international revenues were $15.8 million, up 4.5% year over year on a reported basis and 4% at CER. This figure compares to our second-quarter projection of $15.4 million.
U.S. revenues for the quarter totaled $93 million, up 4.5% year over year. This figure compares to our second-quarter projection of $95.1 million.
Total U.S. permanent implant procedures increased 8%, while U.S. trial procedures increased 4%. U.S. PDN trial procedures, representing approximately 23% of total U.S. trial volume, surged 64% from the prior-year quarter.
Nevro Corp. Price, Consensus and EPS Surprise
Nevro Corp. price-consensus-eps-surprise-chart | Nevro Corp. Quote
Margin Trend
In the quarter under review, Nevro’s gross profit rose 2.3% to $74.4 million. However, the gross margin contracted 138 basis points to 68.4%.
We had projected 68.4% of gross margin for the second quarter, in line with the company’s reported figure.
Sales, general & administrative expenses increased 3.3% to $86.8 million. Research and development expenses went up 6.1% year over year to $13.3 million. Total operating expenses of $100.1 million increased 3.7% year over year.
The total operating loss in the reported quarter totaled $25.6 million compared with a total operating loss of $23.8 million in the year-ago quarter.
Financial Position
Nevro exited the second quarter of 2023 with cash and cash equivalents and short-term investments of $329.9 million compared with $341.8 million at the end of the first quarter. Long-term debt at the end of second-quarter 2023 was $187.5 million compared with $187.2 million at the first-quarter end.
As of Jun 30, 2023, 36,763,038 shares were issued and 36,080,122 shares were outstanding.
Cumulative net cash used in operating activities at the end of second-quarter 2023 was $43.8 million compared with $41.3 million a year ago.
Guidance
Nevro has provided its financial outlook for the third quarter and lowered its financial outlook for 2023.
For the third quarter, Nevro expects its worldwide revenues to be in the range of $95 million-$97 million, reflecting a decline of 4-6% year over year at CER. The Zacks Consensus Estimate for the same is pegged at $110.6 million.
The company expects its 2023 worldwide revenues in the range of $410 million-$415 million, reflecting growth of 1-2% from the comparable figure of 2022 both on a reported basis and at CER. This is lowered from the prior outlook of $445 million to $455 million, reflecting growth of 10-12% from the comparable figure of 2022 both on a reported basis and at CER. The Zacks Consensus Estimate for the same is pegged at $442.3 million.
Our Take
Nevro exited the second quarter of 2023 with a solid improvement in overall top-line results. The company’s robust domestic and international revenues were also impressive. An uptick in total U.S. permanent implant procedures and U.S. trial procedures was promising. The improvement in U.S. PDN trial procedures was also encouraging.
In June, Nevro announced favorable SENZA-PDN Randomized Controlled Trial data at the American Diabetes Association Scientific Sessions, which demonstrated a positive correlation between the use of high-frequency (10 kHz) Spinal Cord Stimulation and reductions in HbA1c and body weight in a sub-group of patients with type 2 diabetes at 24 months.
During the quarter, Nevro also won two significant payer coverages — Florida Blue (updated their medical policy to include coverage for PDN, effective Jun 15, 2023) and Medicare Administrative Contractors Novitas and First Coast Service Options (who now covers PDN and Non-Surgical Back Pain following the Medicare National Coverage Determination, effective Jul 13, 2023). These look promising for the stock.
On the earnings call, management confirmed that the full-market release of the HFX iQ system continues to progress well, raising our optimism about Nevro.
On the flip side, lower-than-expected results and dismal bottom-line performances were disappointing. The sustained operating loss incurred by Nevro also raises our apprehension. The contraction of the gross margin also does not bode well.
Zacks Rank and Key Picks
Nevro currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories ABT, Integer Holdings Corporation ITGR and Intuitive Surgical, Inc. ISRG.
Abbott, carrying a Zacks Rank of 2 (Buy), reported second-quarter 2023 adjusted earnings per share (EPS) of $1.08, beating the Zacks Consensus Estimate by 3.8%. Revenues of $9.98 billion outpaced the consensus mark by 2.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 12.4%.
Integer Holdings reported second-quarter 2023 adjusted EPS of $1.14, beating the Zacks Consensus Estimate by 15.2%. Revenues of $400 million surpassed the Zacks Consensus Estimate by 8.9%. It currently carries a Zacks Rank #2.
Integer Holdings has a long-term estimated growth rate of 12.1%. ITGR’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 8.4%.
Intuitive Surgical reported second-quarter 2023 adjusted EPS of $1.42, beating the Zacks Consensus Estimate by 7.6%. Revenues of $1.76 billion surpassed the Zacks Consensus Estimate by 1.4%. It currently carries a Zacks Rank #2.
Intuitive Surgical has a long-term estimated growth rate of 15.7%. ISRG’s earnings surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 4.2%.
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