Why Nevro Corp. Is Sinking Today

What happened

After reporting first-quarter results, shares in Nevro Corp. (NYSE: NVRO), a medical device maker that is focused on pain management, fell 15% as of 10:58 a.m. EDT on Tuesday.

So what

Here's a look at the headline numbers from the company's first quarter:

• Revenue grew 28% to $87.6 million. The growth was driven by a 33% increase in North America and a 1% bump in currency-neutral sales in international markets. That result fell short of the $89.5 million in revenue that analysts had predicted.

• Gross margin jumped 300 basis points to 71%.

• Operating expenses grew by 31% during the period, which outpaced revenue growth.

• Net loss was $17.4 million, or $0.59 per share. That was much worse than the $0.32 loss per share that market watchers were expecting.

• Management reaffirmed full-year revenue guidance of $400 million to $410 million.

Given the worse-than-expected results, it isn't hard to figure out why traders are in a foul mood today.

Business people looking upset in meeting.

Image source: Getty Images.

Now what

Nevro just recently won approval for its Senza II Spinal Cord Stimulation System in the U.S. and Europe so it is understandable that its expenses are growing rapidly as the company focuses on the launch. It costs a lot of money to market a medical device, especially when you are competing against well-funded industry giants like Boston Scientific and Medtronic, so I don't think that investors should be overly concerned with the larger-than-expected first-quarter loss.

However, I find Nevro's 1% sales growth in international markets to be a bit concerning, though I admit that it is possible that the recent approval of the Senza II is simply causing a delay in reorders. If true then it would explain why sales and net income came in far lower than expected this quarter.

Overall, I continue to see reasons for Nevro bulls to remain optimistic, especially with the company expected to flip to profitability in 2019. However, success with the Senza II is far from guaranteed, so investors need to brace themselves for a bumpy ride.

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Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool owns shares of Medtronic. The Motley Fool has a disclosure policy.