Breaking Down Inari Medical, Inc. (NARI) Financial Health: Key Insights for Investors

Understanding Inari Medical, Inc. (NARI) Revenue Streams

Understanding Inari Medical, Inc.’s Revenue Streams

Inari Medical, Inc. has demonstrated substantial growth in its revenue streams, primarily driven by its innovative medical products. The company categorizes its revenue into two main segments: Venous Thromboembolism (VTE) and Emerging Therapies.

Breakdown of Primary Revenue Sources

The revenue generated from VTE solutions addresses deep vein thrombosis and pulmonary embolism, while Emerging Therapies focus on chronic venous disease, CLTI, acute limb ischemia, and dialysis access management.

Year-over-Year Revenue Growth Rate

Year-over-year, revenue growth has been impressive. For the three months ended September 30, 2024, revenue increased by 21.4% compared to the same period in 2023. For the nine months ended September 30, 2024, the revenue growth was 22.4% compared to the previous year.

Contribution of Different Business Segments to Overall Revenue

In the third quarter of 2024, VTE contributed approximately 94.8% of total revenue, while Emerging Therapies accounted for about 5.2%. This trend reflects the company’s strong market position in the VTE segment, while the Emerging Therapies segment is expected to grow as new products are introduced.

Analysis of Significant Changes in Revenue Streams

There has been a notable increase in revenue from Emerging Therapies, which rose by 63.8% in Q3 2024 compared to Q3 2023. This growth is attributed to the launch of new products and expanded sales territories. The VTE segment also saw substantial growth, with an increase of 19.6% year-over-year in Q3 2024.

Overall, the total revenue for the nine months ended September 30, 2024, reached $442.4 million, up from $361.5 million in the same period of 2023, reflecting a solid upward trend in Inari Medical's financial performance.

A Deep Dive into Inari Medical, Inc. (NARI) Profitability

Profitability Metrics

Gross Profit: For the nine months ended September 30, 2024, the gross profit was $383.7 million, representing a gross margin of 86.7%. This is a decrease from 88.4% for the same period in 2023 when gross profit was $319.5 million .

Operating Profit: The operating loss for the nine months ended September 30, 2024, was ($53.2 million), compared to an operating loss of ($4.7 million) for the same period in 2023 .

Net Profit: The net loss for the nine months ended September 30, 2024, was ($73.9 million), compared to a net income of $3.0 million for the same period in 2023 .

Trends in Profitability Over Time

In the three months ended September 30, 2024, revenue increased by $27.0 million, or 21.4%, to $153.4 million, compared to $126.4 million in the same quarter of 2023 . However, the gross margin decreased to 87.1% from 88.5% . This indicates a trend of increasing revenue but declining profitability margins, primarily due to a change in product mix and ramp-up costs associated with new products .

Comparison of Profitability Ratios with Industry Averages

As of September 30, 2024, the gross margin of 86.7% is notably higher than the industry average of approximately 70% for medical device companies . The operating margin, however, reflects a loss of (12.1%) , which is below the industry average operating margin of 10-15%. The net profit margin is significantly negative at (16.8%), contrasting with the industry average of 5-10% .

Analysis of Operational Efficiency

The total operating expenses for the nine months ended September 30, 2024, were $436.9 million, up from $324.2 million in the same period of 2023 . The breakdown of operating expenses includes:

• Research and Development: $81.2 million, increased from $64.6 million (up 25.6%)
• Selling, General, and Administrative: $325.5 million, increased from $256.9 million (up 26.7%)

These increases in operational costs are attributed to higher personnel-related expenses, increased commissions due to higher revenue, and costs associated with professional fees and marketing .

The operational efficiency has been challenged due to rising costs, particularly in R&D and SG&A, which are impacting the profitability metrics negatively .

Debt vs. Equity: How Inari Medical, Inc. (NARI) Finances Its Growth

Debt vs. Equity: How Inari Medical, Inc. Finances Its Growth

As of September 30, 2024, Inari Medical, Inc. reported no long-term debt outstanding. The company had cash, cash equivalents, restricted cash, and short-term investments totaling $111.6 million, which provides a robust liquidity position for potential growth initiatives.

The company's debt-to-equity ratio stands at 0.00, indicating a complete reliance on equity financing without any long-term debt. This is significantly lower than the industry average, which typically ranges from 0.5 to 1.5 for medical device companies. This conservative approach minimizes financial risk but may limit growth potential compared to peers that leverage debt for expansion.

Inari Medical's capital structure is primarily composed of equity, with an accumulated deficit of $122.4 million as of the same date. The absence of long-term debt reflects the company's strategy to finance growth through equity rather than incurring financial obligations.

In terms of recent financing activities, Inari Medical amended its revolving credit agreement with Bank of America in November 2023. The amended agreement allows for loans up to a maximum of $75.0 million and includes a letter of credit facility of up to $18.8 million. As of September 30, 2024, the company had no principal outstanding under this credit agreement, with approximately $67.9 million available for borrowing.

Overall, Inari Medical's balance between debt financing and equity funding illustrates a conservative financial strategy, favoring liquidity and financial stability over aggressive growth through leverage. This approach may appeal to risk-averse investors while potentially limiting rapid expansion opportunities compared to competitors with a more leveraged capital structure.

Assessing Inari Medical, Inc. (NARI) Liquidity

Assessing Inari Medical, Inc. (NARI) Liquidity and Solvency

Current Ratio: As of September 30, 2024, the current ratio is calculated at 3.54, indicating strong liquidity position.

Quick Ratio: The quick ratio, adjusted for inventory, stands at 3.15, demonstrating the company's ability to meet short-term liabilities without relying on inventory sales.

Analysis of Working Capital Trends

As of September 30, 2024, the working capital is reported at $202.1 million, a significant increase from $161.8 million in the previous quarter. This trend suggests an improving liquidity position.

Cash Flow Statements Overview

For the nine months ended September 30, 2024, the cash flow from operating activities is $1.9 million, contrasting with $23.7 million in the same period of 2023. This decline is primarily due to a net loss of $73.9 million.

Cash flows from investing activities show a net outflow of $0.9 million, while financing activities yielded a small inflow of $0.6 million for the same period.

Potential Liquidity Concerns or Strengths

As of September 30, 2024, the company holds $111.6 million in cash, cash equivalents, restricted cash, and short-term investments. There is no long-term debt outstanding, which enhances its liquidity position. However, the accumulated deficit of $122.4 million poses a concern for long-term solvency.

Additionally, the fair value of contingent consideration related to the acquisition of LimFlow is $84.5 million, of which $39.2 million is recorded within accrued expenses and other current liabilities.

Is Inari Medical, Inc. (NARI) Overvalued or Undervalued?

Valuation Analysis

As of September 30, 2024, the financial metrics for the company are as follows:

• Price-to-Earnings (P/E) Ratio: Not applicable due to negative earnings.
• Price-to-Book (P/B) Ratio: 1.6, calculated from a stock price of $87.86 and book value per share of $54.89.
• Enterprise Value-to-EBITDA (EV/EBITDA) Ratio: Not directly calculable due to negative EBITDA.

The stock price performance over the last 12 months shows the following trends:

As of September 30, 2024, the dividend yield is 0.0% with no dividends declared or paid in the last year. The payout ratio is also not applicable due to the absence of dividend payments.

Analyst consensus on stock valuation shows:

• Buy: 5 analysts
• Hold: 10 analysts
• Sell: 2 analysts

In summary, the company has shown significant revenue growth but is currently not profitable, leading to P/E ratios that are not applicable. The stock price has shown resilience with a modest decline over the past year, and the lack of dividends suggests a focus on reinvestment rather than returning capital to shareholders.

Key Risks Facing Inari Medical, Inc. (NARI)

Key Risks Facing Inari Medical, Inc.

Industry Competition: The medical device industry is highly competitive, with numerous companies vying for market share. Inari Medical's market position may be challenged by established competitors and new entrants, which could impact pricing strategies and market penetration.

Regulatory Changes: Compliance with regulatory standards is critical for medical device manufacturers. Changes in regulations or delays in obtaining necessary approvals from agencies such as the FDA can significantly affect product launches and operational timelines.

Market Conditions: Economic downturns or changes in healthcare spending can influence demand for medical devices. This fluctuation could affect revenue growth and profitability.

Operational Risks: The company faces risks related to the manufacturing and supply chain processes. Disruptions in supply chains or production capabilities could lead to increased costs or delays in product availability.

Financial Risks: The company reported a net loss of $73.9 million for the nine months ended September 30, 2024, compared to a net income of $3.0 million for the same period in 2023. This financial performance indicates potential vulnerabilities in managing expenses relative to revenues.

Strategic Risks: The recent acquisition of LimFlow introduces integration challenges and potential liabilities, including a contingent consideration of $84.5 million related to performance milestones. If these milestones are not met, it could adversely affect the company’s financial outlook.

Mitigation Strategies: The company is actively expanding its sales territories and product offerings, which may help mitigate competitive pressures and enhance revenue streams. Additionally, ongoing investments in research and development, which totaled $81.2 million for the nine months ended September 30, 2024, are aimed at maintaining innovation and product differentiation.

Future Growth Prospects for Inari Medical, Inc. (NARI)

Future Growth Prospects for Inari Medical, Inc.

Revenue Growth Projections: For the nine months ended September 30, 2024, revenue increased by $80.9 million, or 22.4%, reaching $442.4 million compared to $361.5 million in the same period of 2023. For the three months ended September 30, 2024, revenue rose by $27.0 million, or 21.4%, totaling $153.4 million compared to $126.4 million for the same quarter in 2023.

Key Growth Drivers

• Product Innovations: The company has focused on enhancing its portfolio through the introduction of new products, contributing significantly to revenue growth.
• Market Expansions: There has been an expansion of sales territories and the opening of new accounts, which has played a crucial role in increasing adoption of procedures and overall revenue.
• Acquisitions: The acquisition of LimFlow is expected to complement the existing product lines and enhance market presence.

Future Revenue Growth Projections and Earnings Estimates

Analysts project continued revenue growth driven by increased adoption of products and expansion into international markets. The gross margin for the nine months ended September 30, 2024, was 86.7%, compared to 88.4% for the same period in 2023, indicating management's focus on maintaining profitability while scaling.

Strategic Initiatives and Partnerships

The company has developed critical partnerships with healthcare providers, enhancing its sales capabilities. As of September 30, 2024, Inari Medical, Inc. had cash, cash equivalents, and short-term investments totaling $111.6 million, with no long-term debt, positioning it well for future investments and strategic initiatives.

Competitive Advantages

Inari Medical's competitive advantages include:

• Highly Trained Sales Force: A mission-focused and well-trained commercial organization that fosters strong relationships with physicians.
• Innovative R&D: Research and Development expenses increased $16.6 million, or 25.6%, to $81.2 million for the nine months ended September 30, 2024, underscoring the commitment to innovation.
• Robust Market Demand: The company's products address critical healthcare needs, particularly in venous thromboembolism and emerging therapies.

Revenue Breakdown by Product Line

The company is positioned for significant growth through strategic initiatives, product innovations, and a strong financial foundation. The expected increase in revenue and the ongoing expansion into new markets will likely enhance its competitive standing in the industry.

Article updated on 8 Nov 2024

Resources:

• Inari Medical, Inc. (NARI) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Inari Medical, Inc. (NARI)' financial performance, including balance sheets, income statements, and cash flow statements.
• SEC Filings – View Inari Medical, Inc. (NARI)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.