Nevro(NVRO) - 2022 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) Unaudited Q3 2022 financials show net income growth from a litigation credit, assets at $605.5 million, and ASU 2020-06 adoption impacting debt Condensed Consolidated Balance Sheets Total assets reached $605.5 million as of Sep 30, 2022, driven by cash growth, with liabilities and equity also increasing Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $130,839 | $34,710 | | Total current assets | $566,073 | $531,204 | | Total assets | $605,512 | $574,544 | | Liabilities & Equity | | | | Total current liabilities | $80,298 | $82,203 | | Long-term debt | $186,559 | $151,310 | | Total liabilities | $280,577 | $270,928 | | Total stockholders' equity | $324,935 | $303,616 | Condensed Consolidated Statements of Operations and Comprehensive Loss Q3 2022 revenue grew 8% to $100.5 million, with a $105 million litigation credit driving $81.5 million net income Q3 2022 vs Q3 2021 Performance (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Revenue | $100,466 | $93,205 | | Gross Profit | $69,302 | $64,630 | | Income (Loss) from operations | $82,082 | $(46,444) | | Certain litigation charges (credits) | $(105,000) | $20,000 | | Net income (loss) | $81,508 | $(50,075) | | Diluted EPS | $2.22 | $(1.44) | Nine Months Ended Sep 30, 2022 vs 2021 Performance (in thousands, except per share data) | Metric | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | | Revenue | $292,521 | $284,145 | | Gross Profit | $201,128 | $196,910 | | Income (Loss) from operations | $25,522 | $(84,719) | | Certain litigation charges (credits) | $(105,000) | $20,000 | | Net income (loss) | $22,193 | $(101,226) | | Diluted EPS | $0.63 | $(2.91) | Condensed Consolidated Statements of Cash Flows Nine months ended Sep 30, 2022, saw $38.1 million net cash from operations, a significant improvement from prior year Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $38,098 | $(26,722) | | Net cash provided by investing activities | $63,832 | $235,947 | | Net cash used in financing activities | $(3,831) | $(172,657) | | Net increase in cash, cash equivalents and restricted cash | $96,129 | $36,288 | Notes to Condensed Consolidated Financial Statements Notes detail ASU 2020-06 adoption, revenue by geography, and the $105 million Boston Scientific litigation credit - The company adopted ASU 2020-06 on January 1, 2022, which simplifies accounting for convertible instruments, resulting in a $34.3 million increase to long-term debt, a $48.3 million reduction to additional paid-in capital, and a $14.0 million reduction to the accumulated deficit[27][28] Revenue by Geography (in thousands) | Region | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | United States | $86,130 | $78,052 | $248,393 | $237,806 | | International | $14,336 | $15,153 | $44,128 | $46,339 | | Total | $100,466 | $93,205 | $292,521 | $284,145 | - Revenue from the Painful Diabetic Neuropathy (PDN) indication, approved in July 2021, accounted for 13% of worldwide permanent implant procedures in Q3 2022, generating approximately $13.4 million in revenue[32] - In August 2022, Nevro settled its intellectual property litigation with Boston Scientific, receiving a net payment of $85.0 million and a $20.0 million verdict release, totaling a $105.0 million credit[53][65][143] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2022 revenue growth, profitability from a $105 million litigation credit, and investments in new indications and R&D Overview and Recent Developments Nevro focuses on chronic pain with Senza SCS, expanding indications to PDN and NSBP, and recently gained FDA approval for Senza HFX iQ - Nevro is focused on its Senza® spinal cord stimulation (SCS) system, featuring proprietary 10 kHz Therapy for chronic pain[89] - Recent FDA approvals include expanded labeling for Painful Diabetic Neuropathy (PDN) in July 2021 and Non-Surgical Back Pain (NSBP) in January 2022[89] - The company received FDA approval for its latest system, Senza HFX iQ™, in October 2022 and plans a limited U.S. release in Q4 2022, followed by a broad launch in early 2023[90] Results of Operations Q3 2022 revenue increased 8% to $100.5 million, with a $105 million litigation credit significantly boosting operating income Q3 2022 vs Q3 2021 Revenue (in millions) | Region | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | U.S. Revenue | $86.1 | $78.1 | +10% | | International Revenue | $14.3 | $15.2 | -6% | | Total Revenue | $100.5 | $93.2 | +8% | - For Q3 2022, Painful Diabetic Neuropathy (PDN) represented 13% of worldwide permanent implant procedures, resulting in approximately $13.4 million in revenue[139] - Gross margin was flat at 69% for both the three and nine months ended September 30, 2022 and 2021[140][149] - The settlement with Boston Scientific resulted in a $105 million credit to 'Certain litigation charges (credits)' in Q3 2022, which was the primary driver of profitability for the quarter and nine-month period[143][153] - Interest expense decreased significantly in 2022 due to the adoption of ASU 2020-06, which changed the accounting for the company's 2025 convertible notes[145][155] Liquidity, Capital Resources and Plan of Operations Nevro had $386.9 million in liquidity as of Sep 30, 2022, with $38.1 million cash from operations, sufficient for the next 12 months - The company had cash, cash equivalents, and short-term investments of $386.9 million as of September 30, 2022[158] - Net cash provided by operating activities was $38.1 million for the nine months ended Sep 30, 2022, compared to net cash used of $26.7 million in the prior-year period[162][163] - The company has minimum annual purchase commitments of $17.6 million for each year from 2023 to 2025[170] - Contractual obligations for the 2025 Notes include annual interest payments of $5.2 million for 2023-2024 and a final payment of principal and interest totaling $192.4 million in 2025[172] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk exposures related to interest rates, market prices, or foreign currency exchange since year-end 2021 - There have been no material changes in the company's market risk exposures related to interest rates, market prices, and foreign currency exchange since year-end 2021[174] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of Sep 30, 2022, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2022[176] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[177] PART II—OTHER INFORMATION Item 1. Legal Proceedings Legal proceedings information, primarily the Boston Scientific settlement, is incorporated by reference from Note 6 of the financial statements - Information regarding legal proceedings is incorporated by reference from Note 6, Commitments and Contingencies, in Part I, Item 1 of the report[179] Item 1A. Risk Factors No material changes to the company's risk factors have occurred since the Annual Report on Form 10-K filed in February 2022 - There have been no material changes to the company's risk factors since the Annual Report filed on February 23, 2022[180] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds from such sales were reported during the period - There were no unregistered sales of equity securities during the reporting period[181] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - None reported[183] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[184] Item 5. Other Information No other information was reported for this item - None reported[185] Item 6. Exhibits This section lists exhibits filed with the quarterly report, including corporate governance documents and officer certifications - Lists exhibits filed with the Form 10-Q, including CEO and CFO certifications required by the Sarbanes-Oxley Act[187] Signatures Official signatures confirm the accuracy and completeness of the quarterly report