Nevro Announces Second Quarter 2020 Financial Results

News provided by

Aug 05, 2020, 16:10 ET

REDWOOD CITY, Calif., Aug. 5, 2020 /PRNewswire/ -- Nevro Corp. (NYSE: NVRO), a global medical device company that is providing innovative, evidence-based solutions for the treatment of chronic pain, today announced its financial results for the second quarter ended June 30, 2020.

Worldwide revenue for the second quarter of 2020 was $56.4 million, a 40% decrease from $93.6 million in the prior year period. Second quarter 2020 revenue was negatively impacted by COVID-19 restrictions on elective surgical procedures around the world. U.S. revenue in the second quarter of 2020 was $51.0 million, a decrease of 35% compared to $78.1 million in the prior year period. Year-over-year, U.S. trials declined by approximately 37% and permanent implants declined by approximately 34% during the second quarter of 2020 due to the COVID-19 pandemic. International revenue was $5.4 million, a 65% decrease on a constant currency basis, compared to $15.5 million in the prior year period.

"While the COVID-19 global pandemic took a severe toll on our business in the second quarter of 2020, we are encouraged by the signs of recovery we are seeing in procedure volumes, particularly in the U.S.," said D. Keith Grossman, Chairman, CEO and President of Nevro. "April was the most impacted month during the second quarter with a reduction of approximately 85% in U.S. case volume, when elective surgical procedures were restricted globally. Since then, we have seen sequential improvements in both May and June that have exceeded our expectations. In the month of June, daily U.S. trial and permanent procedure volumes were approximately equal to the prior year period, and we have seen continued improvement in the month of July. As expected, international volumes during the second quarter were deeply impacted and slower to recover. Despite encouraging signs of early recovery in the U.S., we remain cautious about the visibility and predictability of our environment through the end of 2020. We are monitoring new pandemic developments closely and will continue to work alongside our physician customers to serve patients who desperately need our therapy to relieve their debilitating chronic pain."

Gross profit for the second quarter of 2020 was $35.3 million, a 45% decrease compared to $63.9 million in the prior year period. Gross margin was 62.5% in the second quarter compared to 68.3% in the prior year period. Compared to the prior year period, the decrease in gross margin in the second quarter of 2020 was primarily attributable to a one-time charge of approximately $2.5 million related to older generation product that was deemed to be in excess of forecasted demand, as well as the impact of lower revenue.

Operating expenses for the second quarter of 2020 were $70.6 million, a 22% decrease compared to $90.5 million in the prior year period. Expenses included an increase in our reserves for bad debt of $1.5 million. The year-over-year decrease in operating expenses was primarily related to reduced travel-related expenses, temporary salary reductions and active expense management during the COVID-19 pandemic. Legal expenses associated with patent litigation were $2.3 million for the second quarter of 2020, compared to $3.9 million in the prior year period.

Net loss from operations for the second quarter of 2020 was $35.4 million, a 33% increase compared to a loss of $26.6 million in the prior year period. Adjusted EBITDA for the second quarter of 2020 was negative $22.1 million, a 98% increase compared to negative $11.1 million in the prior year period. Adjusted EBITDA excludes certain litigation expenses, interest, taxes and non-cash items such as stock-based compensation and depreciation and amortization. Please see our financial tables for GAAP to Non-GAAP reconciliations.

Cash, cash equivalents and short-term investments totaled $562.3 million as of June 30, 2020. Net cash increased during the second quarter of 2020 by $314.8 million, primarily as a result of approximately $313.5 million in funds, net of underwriter fees and expenses, received from the Company's April 2020 public offerings of common stock and convertible senior notes.

Webcast and Conference Call Information
Management will host a conference call today at 1:30 pm PT/ 4:30 pm ET. Investors interested in listening to the call may do so by dialing (833) 968-2321 in the U.S. or +1 (778) 560-2840 internationally, using Conference ID: 8783575. In addition, a live webcast, as well as an archived recording, will be available on the "Investors" section of the Company's website at: www.nevro.com.

About Nevro
Headquartered in Redwood City, California, Nevro is a global medical device company focused on providing innovative products that improve the quality of life of patients suffering from debilitating chronic pain. Nevro has developed and commercialized the Senza spinal cord stimulation (SCS) system, an evidence-based, non-pharmacologic neuromodulation platform for the treatment of chronic pain. HF10 therapy has demonstrated the ability to reduce or eliminate opioids in ≥65% of patients across six peer-reviewed clinical studies. The Senza^® System, Senza II™ System, and the Senza^® Omnia™ System are the only SCS systems that deliver Nevro's proprietary HF10^® therapy. Senza, Senza II, Senza Omnia, HF10, Nevro and the Nevro logo are trademarks of Nevro Corp.

To learn more about Nevro, connect with us on LinkedIn, Twitter, Facebook and Instagram.

Forward-Looking Statements
In addition to historical information, this press release contains forward-looking statements reflecting the Company's current beliefs and expectations of management made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including: our statements regarding early signs of recovery in elective procedures; and statements regarding our financial condition and expected effects of the COVID-19 pandemic on our business. These forward-looking statements are based upon information that is currently available to us or our current expectations, speak only as of the date hereof, and are subject to numerous risks and uncertainties, including our ability to successfully commercialize our products; our ability to manufacture our products to meet demand; the level and availability of third-party payor reimbursement for our products; our ability to effectively manage our anticipated growth and the costs and expenses of operating our business; our ability to protect our intellectual property rights and proprietary technologies; our ability to operate our business without infringing the intellectual property rights and proprietary technology of third parties; competition in our industry; additional capital and credit availability; our ability to attract and retain qualified personnel; and product liability claims. These factors, together with those that are described in greater detail in our Annual Report on Form 10-K filed on February 25, 2020, as well as any reports that we may file with the Securities and Exchange Commission in the future, may cause our actual results, performance or achievements to differ materially and adversely from those anticipated or implied by our forward-looking statements. We expressly disclaim any obligation, except as required by law, or undertaking to update or revise any such forward-looking statements. Nevro's operating results for the second quarter ended June 30, 2020 are not necessarily indicative of our operating results for any future periods.

Investor Relations:
Juliet Cunningham
Vice President, Investor Relations
+1 650-433-3247
[email protected]

Nevro Corp.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	(unaudited)				(unaudited)
Revenue	$	56,390	$	93,571	$	143,857	$	175,719
Cost of revenue		21,140		29,628		48,060		58,567
Gross profit		35,250		63,943		95,797		117,152
Operating expenses:
Research and development		10,444		14,930		22,656		29,065
Sales, general and administrative		60,167		75,573		131,569		156,901
Total operating expenses		70,611		90,503		154,225		185,966
Loss from operations		(35,361)		(26,560)		(58,428)		(68,814)
Other income (expense):
Interest income (expense), net		(5,368)		(1,221)		(6,930)		(2,360)
Other income (expense), net		(290)		118		(243)		(225)
Loss before income taxes		(41,019)		(27,663)		(65,601)		(71,399)
Provision for income taxes		44		358		350		698
Net loss		(41,063)		(28,021)		(65,951)		(72,097)
Changes in foreign currency translation adjustment		361		(377)		(468)		(101)
Changes in unrealized gains (losses) on short-term investments		440		195		225		440
Net change in other comprehensive loss		801		(182)		(243)		339
Comprehensive Loss	$	(40,262)	$	(28,203)	$	(66,194)	$	(71,758)
Net loss per share, basic and diluted	$	(1.21)	$	(0.91)	$	(2.00)	$	(2.36)
Weighted average shares used to compute net loss per share, basic and diluted		33,988,082		30,677,567		32,913,947		30,521,463

Nevro Corp.
Consolidated Balance Sheets
(in thousands, except share and per share data)

	June 30,		December 31,
	2020		2019
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	276,515	$	65,373
Short-term investments		285,825		172,429
Accounts receivable, net		56,660		82,833
Inventories, net		91,849		91,579
Prepaid expenses and other current assets		6,088		9,838
Total current assets		716,937		422,052
Property and equipment, net		11,436		11,766
Operating lease assets		19,867		21,533
Other assets		3,976		13,338
Restricted cash		956		956
Total assets	$	753,172	$	469,645
Liabilities and stockholders' equity
Current liabilities
Accounts payable	$	18,657	$	16,048
Short-term debt		164,465		—
Accrued liabilities and other		37,646		54,563
Total current liabilities		220,768		70,611
Long-term debt		137,345		160,300
Long-term operating lease liabilities		18,634		20,445
Other long-term liabilities		1,997		1,937
Total liabilities		378,744		253,293
Stockholders' equity
Common stock, $0.001 par value, 290,000,000 shares authorized 34,274,490 and 31,544,361 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively		34		32
Additional paid-in capital		850,669		626,401
Accumulated other comprehensive loss		(556)		(313)
Accumulated deficit		(475,719)		(409,768)
Total stockholders' equity		374,428		216,352
Total liabilities and stockholders' equity	$	753,172	$	469,645

Nevro Corp.
GAAP to Adjusted EBITDA Reconciliation
(unaudited)
(in thousands)

The following table presents a reconciliation of GAAP net loss, as prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), to Adjusted EBITDA, a non-GAAP financial measure.

Reconciliation of actual results:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	(unaudited)				(unaudited)
GAAP Net loss	$	(41,063)	$	(28,021)	$	(65,951)	$	(72,097)
Non-GAAP Adjustments:
Interest (income) expense, net		5,368		1,221		6,930		2,360
Provision for income taxes		44		358		350		698
Depreciation and amortization		1,224		1,150		2,561		2,275
Stock-based compensation expense		10,083		9,721		18,571		20,123
Litigation related expenses		2,294		4,455		4,456		6,801
Adjusted EBITDA	$	(22,050)	$	(11,116)	$	(33,083)	$	(39,840)

Management uses certain non-GAAP financial measures, most specifically Adjusted EBITDA, as a supplement to GAAP financial measures to further evaluate the Company's operating performance period over period, analyze the underlying business trends, assess performance relative to competitors and establish operational objectives.

Management believes it is important to provide investors with the same non-GAAP metrics it uses to evaluate the performance and underlying trends of the Company's business operations to facilitate comparisons to its historical operating results and evaluate the effectiveness of its operating strategies. Disclosure of these non-GAAP financial measures also facilitates comparisons of the Company's underlying operating performance with other companies in the industry that also supplement their GAAP results with non-GAAP financial measures.

EBITDA is a non-GAAP financial measure, which is calculated by adding interest income and expense, net; provision for income taxes; and depreciation and amortization to net income. In calculating Adjusted EBITDA, the Company further adjusts for the following items:

Stock-based compensation expense – The Company excludes non-cash costs related to the Company's stock- based plans, which include stock options, restricted stock units and performance-based restricted stock units as these expenses do not require cash settlement from the Company.

Litigation related expenses – The Company excludes legal and professional fees associated with certain legal matters which management considers not related to the underlying operating performance of the business.

Full year guidance excludes the impact of foreign currency fluctuations.

The non-GAAP financial measure should not be considered in isolation from, or as a replacement for, the most directly comparable GAAP financial measures, as it is not prepared in accordance with U.S. GAAP.