Nevro(NVRO) - 2019 Q3 - Quarterly Report

Revenue and Growth - The company reported total revenue of $387.3 million for the year ended December 31, 2018, up from $326.7 million in 2017, indicating a growth of approximately 18.5% year-over-year[125]. - U.S. sales revenue for Q3 2019 was $84.2 million, a 6.5% increase compared to $79.6 million in Q3 2018[124]. - Revenue increased to $100.2 million for the three months ended September 30, 2019, up 5% from $95.6 million in the same period of 2018[153]. - U.S. revenue for the same period was $84.2 million, a 6% increase from $79.6 million in 2018, driven by growth in SCS procedures[153]. - Revenue for the nine months ended September 30, 2019, decreased to $275.9 million, down 1% from $279.3 million in 2018[162]. Expenses and Financial Performance - Total operating expenses for the three months ended September 30, 2019, were $85.9 million, representing 86% of revenue, up from 80% in 2018[156]. - R&D expenses increased to $13.0 million, a 4% rise from $12.5 million in 2018, primarily due to higher personnel and clinical expenses[156]. - SG&A expenses rose to $72.9 million, a 14% increase from $64.0 million in 2018, mainly due to increased personnel costs[157]. - Total operating expenses for the nine months were $271.9 million, representing 99% of revenue, up from 82% in 2018[164]. - SG&A expenses increased to $229.8 million for the nine months ended September 30, 2019, up 18% from $195.3 million in the same period of 2018, primarily due to increased personnel costs[165]. - Gross profit rose to $69.9 million, a 4% increase from $67.2 million in 2018, with a steady gross margin of 70%[155]. - Gross margin decreased to 68% for the nine months ended September 30, 2019, down from 71% in 2018, impacted by inventory write-downs and reduced average selling prices[163]. Investments and Development - The company plans to continue investments in the development of the Senza product platform and HF10 therapy, alongside ongoing R&D programs and clinical trials[171]. - The company has made significant investments in building its U.S. commercial infrastructure and sales force, which is critical for achieving expected growth rates[133]. Market and Competition - The global spinal cord stimulation (SCS) market is estimated to be approximately $2.4 billion, with the company aiming to expand its market share by treating both back and leg pain without paresthesia[122]. - The company faces significant competition in the neuromodulation market from established players like Medtronic, Boston Scientific, and Abbott Laboratories[173]. - The company experienced a slowdown in revenue growth in international markets, with expectations of minimal growth due to reimbursement constraints and market pressures[135]. Financial Position and Cash Flow - The company has accumulated a deficit of $396.0 million as of September 30, 2019, primarily due to investments in product development and commercialization efforts[125]. - Net cash used in operating activities was $36.8 million for the nine months ended September 30, 2019, compared to $10.7 million in the same period of 2018, driven by net losses of $89.9 million[175]. - Cash and cash equivalents, along with short-term investments, totaled $232.8 million as of September 30, 2019, expected to fund operations for at least the next 12 months[170]. - Cash provided by financing activities was $10.7 million for the nine months ended September 30, 2019, primarily from the issuance of common stock to employees[177]. Supply Chain and Inventory - The company relies on third-party suppliers for all components of its products, which poses risks related to supply chain management and inventory obsolescence[126]. - The company has recorded an excess raw materials charge of $3.6 million for the nine months ended September 30, 2019, due to inventory management challenges[131]. - Cost of revenue for the nine months increased to $88.8 million, an 8% rise from $82.2 million in 2018, largely due to inventory write-downs[163]. Financing and Debt - The company may seek additional funding through equity or debt financings to support commercialization and R&D activities[172]. - The company issued $172.5 million in aggregate principal amount of 1.75% convertible senior notes due 2021[190]. - The fair value of the convertible senior notes is influenced by interest rate risk and market risk due to the convertible feature[190]. - The fair value generally increases as the common stock price increases and decreases as the common stock price declines[190]. - Changes in interest and market value affect the fair value of the convertible senior notes but do not impact financial position, cash flows, or results of operations[190]. - The convertible senior notes are carried at face value less unamortized discount on the balance sheet[190]. - Fair value is presented for required disclosure purposes only[190].