Q2 2020 Nevro Corp Earnings Call
Good afternoon, and welcome to narrow second quarter 2020 conference call I'd now like to introduce Juliet Cunningham Nevros Vice President of Investor Relations. Please go ahead, and it's going again.
Good afternoon, and thank you welcome to never <unk> second quarter 2020 earnings Conference call.
With me today, our keep Grossman, chairman, CEO, and President and Rod Mccoy.
Chief Financial Officer.
The format of our call today will be a discussion of second quarter trends and business results from Keith followed by detailed financials from ride and then we'll open up for questions.
Earlier today never released its financial results for the second quarter, which ended June Thirtyth 2020.
Copy of our earnings press release is available on our Investor Relations website.
This call is being broadcast live over the Internet to all interested parties on August 2020, and an archived copy of this webcast will be available on our Investor Relations website.
Before we begin I'd like to remind everyone that comments made on today's call may include forward looking statements within the meaning of federal Securities laws.
Our actual results could differ materially from those expressed or implied as a result of certain risks and uncertainties.
Please refer to our FCC filings, including our form 10-Q to be filed later today.
A detailed presentation presentation of risk.
In addition, we'll refer to adjusted EBITDA, which is a non-GAAP measure that is used to help investors understand Nebraska ongoing business performance.
Please refer to the GAAP to non-GAAP reconciliation table, including in our earnings press release.
Now I'd like to hand over to keep.
Thank you Julie and good afternoon, everyone. Thanks for joining us today.
Today, we reported second quarter 2020 worldwide revenue of 56.4 million, which well below prior year is significantly above our initial cobot adjusted expectations as well as those of our analyst consensus estimates.
As I said in my last earnings call in early May we expected the second quarter to be extremely challenging given the global pandemic.
At the beginning of the quarter many areas of the world were under shelter in place restrictions and elective surgery procedures were of course severely restricted.
This led to a rapid and steep decline in our business, particularly in the month of April as.
As the quarter progressed. However, we were pleasantly surprised by the pace of improvements in U.S. trials permanent implant procedures and the sales.
In fact in the month of June we returned to procedure volumes in the U.S. that were roughly even with June of the prior year.
And this pace of recovery has continued in the month of July.
Also as expected international volumes during the second quarter of 2020 were severely impacted with Oh, U.S. revenue decreasing by 65% year over year on a constant currency basis.
We continue to believe that international markets, particularly the UK and Australia are likely to recover at a more uneven pace compared to the U.S., but we have seen some encouraging early signs of recovery in July.
I see us procedures are performed.
On an as most of you know what an outpatient basis with relatively little or time required no inpatient or I see you resources typically consume.
We've seen our customers returned to performing procedures as quickly as patient willingness and facility safety requirements have allowed.
While we expected to see a shift from hospital to seize or ambulatory surgery centers during the pandemic, our second quarter site of care mix actually remained at roughly historical levels.
It's hospital outpatient procedure volumes recover more quickly than we initially anticipated.
Though overtime, we do feel believed that the gradual shift toward performing SCS procedures in agencies will continue to grow as a percentage of total procedures.
We've been closely monitoring those areas of the U.S., where cobot cases have been more recently back on the rise, but thus far we've seen only a small impact from cancellations and these were primarily due to patients reluctance to enter a health facility at this time, thus far patients who are suffering from chronic and debilitating pain.
Especially those who have completed a successful SCS trials already are generally still moving forward with treatment.
Obviously this year, it's been unlike any other than we've experienced and visibility remains very limited. So we're still not providing financial guidance at this time, but we will share our current perspective, and we'll continue to do so at regular intervals.
Our may earnings call. We said, we expected Q3 to show continued incremental recovery from a Q2 that was then thought to be even more deeply impacted than it turns out to be and that Q4 could even approach a more normal pace of activity.
As we sit here today to beginning of August roughly half of the kobin related cancelled or stranded trials and permanent procedures in the U.S. have now been either completed or reschedule.
We're carefully balancing the need to respond to these backlog cases with the need to also refill the trial funnel with new cases.
At this time, we expect the majority of backlog permanent implant cases to be completed over the course of Q3.
Which leads us to believe that Directionally the revenue recovery curve appears to be playing out a bit faster than we originally expected.
We now expect total Q3 revenues show positive growth on a year over year basis benefiting not only from backlog cases, but also the return of new trial and permanent implant activity.
We believe Q4 will include a much smaller percent of backlog cases.
And we'll be largely driven by new trial activity that began to ramp back up in June and July.
On balance we think this means that Q4 might be roughly flat to prior year Q4 results.
Obviously, just few assumes that we do not see new cobot related shutdowns of elective procedures like those we saw in March and April and I would caution everyone that of course. These remarks do not represent formal company guidance and that that cobot 19 situation does remain very dynamic and our views will change as the facts evolve.
Our dedication of patient support and long term outcomes is fundamental to our company and it's an area in which we've continued to invest.
During the second quarter, we expanded our digital physician education programs and remote patient support programs to an enthusiastic response from our customers.
Since this pandemic began our customer care teams have conducted approximately 100000 phone calls with patient.
During these calls we helped more than 11000 of those patients optimize their therapy remotely.
In addition, we launched Omnia in both Europe, and Australia, and a ramping up our efforts in those markets as we see early signs of good recovery.
Our supply chain has remained healthy and our balance sheet provides us great resilience with over 560 million in cash and investments at the end of June.
Our expenses have been managed prudently throughout the period, but without eroding our team our core capabilities or our ability to re emerge from the worst of the pandemic with bigger.
We continue to invest in R&D to evolve our product capabilities and expand our total addressable markets with new clinical data and patient indications.
On the clinical and regulatory side of things. We've continued a strong cadence of remote clinical support for our two large scale RC tees or randomized controlled trials.
Our Pdm study continues to move forward and we've had a very high percentage of study subjects in the control arm crossover to the FCS treatment arm at six months as permitted by the trial protocol, which we believe as a strong indication that our therapy addresses a critical and unmet need in these patients.
We still plan to present the next round to follow up data from this trial at the Nance Conference in January of 2021.
We're an early discussions with FDA regarding our submission strategy and we're still targeting NFC approval in the second half of 2021 as we've said before.
On our non surgical back pain study, we continue to expect to present, our three months data at the names conference in January with journal publication submissions thereafter.
Finally, CMS published their proposed rule for outpatient payment policies just yesterday.
There will be a comment period now followed by the publication of the final rule in the fall the changes from which will be effective for 2021.
Both hospital in AOCI facility fees were increase between two and 5%, which we view as a positive for the therapy.
CMS has also proposed a requirement for prior authorization investor, Yes procedures for Medicare fee for service patients in the hospital outpatient setting only to begin in July of 2021. This is a process we already deal with of course in the vast majority of our business are already in other words for both our private pay patient.
And our Medicare advantage patients so if necessary, we'll be prepared to do so.
With the smaller segment of patients as well.
We'll provide an update next quarter following the publication of the final rule.
Since the global pandemic began our highest priorities as a company have been and I've mentioned these to you before.
Number one the health and safety of our customers their patients and our employees.
Number two the support and coverage of our customers as their clinical case activity begins to ramp during this period.
The integrity and readiness of our supply chain.
The prudent stewardship of our balance sheet.
And finally, the maintenance or improvement of our competitive position and our capabilities in order that we might exit the crisis just the way we came in back in the first quarter with really positive momentum.
And thus far I think we've achieved just she these five goals and we'll continue to work hard in the coming weeks or months to further our progress.
I'm really grateful to the entire never team for their continued dedication in support of our customers and our patients.
They've shown really impressive resilience dedication and grid throughout these very difficult last four or five months and their dedication to our mission to meet the needs of our patients and that kind of coalition to treat them. It's been a source of real inspiration.
Now before I turn this over to Rob Mcleod I'd like to say, how happy we are to having joined our executive team. He's a great fit with the Nevro culture Annies hit the ground running rod skill set experience will help our organization to achieve our goals of profitable growth business process evolution and value creation for our shareholders.
And I'd also like to again acknowledge and thank Andrew Galligan for his many contributions to nevro over the past decade, as well as is invaluable and ongoing help with Raj transition, we all wish him and his wife, the very best in their retirement.
But with that with that I'll pass the call over to Rod.
Safety.
Happy to join the never team this pivotal time and look forward to contributing to the company's future success.
I'll begin with a worldwide revenue for the three months ended June Thirtyth, 2020, which was 56.4 million a 40% decrease compared to 93.6 million in the prior year period.
Second quarter 2020 revenue was negatively impacted by coded 19 restrictions on elective surgical procedures around the world.
You asked revenue was 51 million, a 35% decrease compared to 70.1 million in the prior year period.
Year over year, U.S. trial declined by approximately 37% and permanent implants declined by approximately 34% during the second quarter of 2020.
International revenue was 5.4 million, 65% decrease on a constant currency basis compared to 15.5 million in the prior year period.
The decrease in international revenue was primarily due to the impact of coded 19 related government restrictions on elective procedures implemented in Europe, and Australia as Keith mentioned, we expect O us recovery to be more uneven than what we're seeing in the U.S.
Gross profit for the second quarter 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 can compared to the prior period. The decrease in gross margin in the second quarter.
It was primarily attributable to a onetime charge of approximately two and a half million 2.5 million.
Related to older generation product that we deem to be in excess of forecasted demand as well as a lower revenue base.
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.
The favorable second quarter 2020 decrease in operating expenses was primarily due to reduced travel related expenses.
Temporary salary reductions and decreases in discretionary expenses during the cold at 19 pandemic as well as the impact of management focus on driving leverage throughout the business over the longer term than it already been initiated in 2019.
Second quarter 2020 operating expenses included an increase of 1.5 million in our bad debt reserves.
And 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.
We expected operating expenses will return to a run rate roughly similar to Q1 of this year as revenue recovers.
Net loss from operations for the second quarter of 2020 was 35.4 million, 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 in noncash items, such as stock based compensation and depreciation and amortization. Please see our financial tables for GAAP to non-GAAP reconciliations.
During the current pandemic and world economic conditions, we continue to focus on cash preservation, while balancing the need to reinvest in the recovery process.
Cash cash equivalent to short term investments totaled 562.3 million as of June Thirtyth 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.
As a result total weighted average shares outstanding were 34.0 million for the second quarter of 2020.
That concludes our prepared remarks, I'll turn call back over to Juliet to moderate to QNX session.
Thank you so much Rob Mcleod appreciate it.
I'd like to open the line for questions now and with that just an interest of time you limit yourself to one question and one follow up operator can you. Please go ahead.
[noise]. Thank you. So if you like that's a question. Please press star one your first question comes from Larry Biegelsen with Wells Fargo. Your line is open.
Good afternoon, guys. Thanks for taking the questions.
I wanted to ask to two questions on the the update you provided on the call I'm thrilled to be a lot of questions on on the recovery, but you know on the pipeline I just want to confirm that did nonsurgical refractive back pain study has completed enrollment.
And and implants in all patients and then on PD and the crossover you talked about Keith.
How do you think that will impact the 12 month results and what are the implications why did you called that out and I had one follow up question.
Okay.
Thanks, Larry let me take them in order on the MSR BP study, yes were patients are all enrolled at this point.
We expect there to be around 140 patients to reach the three months endpoint.
Sometime later this fall and to be able to present, a three month data at a at NAND as I said, so no real changes there on the on the PDN trial.
I think I just wanted to call out the crossover impact.
Because as we look at the presentation of data it was clear to us that maybe not everybody understood that element to the protocol. So we'll have at six months.
Some very clean data between a comparison data between the treatment arm and the control arm at 12 months the data gets a little bit more complicated, though we'll continue to get a lot more treatment arm data, which will be.
Which would be your very useful this has been a part of the protocol from the beginning.
But we thought maybe under appreciated bye bye.
By some so that was really the only reason to call it out.
That's helpful and Keith on the Medicare fee for service Hospital outpatient update you provided for the prior authorizations I guess the question is why do you think they're doing it and you know what percent of implants could that impact you know fall under that under that setting and what do you think the the impact could be thanks for taking the questions yeah.
Well I think they again this is a proposed rule not a final rule and CMS was clear that there were doing it because of the increased rate of utilization of SCS over the last over the last decade, or so and particularly over the last three or four years so that.
Thats the reason they're doing it.
At least that's the stated reason in terms of the impact on the business. You know, we think around 25% of our business is Medicare in the hospital setting. So again, you know about half of our about half of our patient treatments in the U.S. or in the hospital and sort of in the range of half of our.
Patients, our Medicare versus private pay so you've got about 25% of patients.
Our patients that are that are subject to this end of those.
About a third are under Medicare advantage, and they're already subject to a pre off a prior auths requirement anyway. So.
By our numbers. This is a new requirement for what amounts to you know a 16, 18% of our of our overall cases keep in mind that we we have a dedicated in house group. The Nevro care group that works with prior auth in private payers and Medicare advantage.
Payers already.
And so this was a this is a while we don't necessarily think it's a great idea are consistent with a with the best a care for these patients, particularly given the government's focus on opioid sparing.
Approaches Nonetheless, it's a relatively minor effect on on the business and we're already set up organizationally to handle this process.
Thanks, so much Keith Okay.
[noise]. Their next question comes from Robbie Marcus with JP Morgan Your line is open.
Thanks can you hear me, Okay, we can Robbie high.
Right.
So congrats on a much better than expected or are you.
<unk>.
Here is pretty handily I in the third quarter commentary was definitely better than I think most people works.
And here for you.
So I was wondering if you could give us a little bit of what you're seeing on the ground.
How much of the Nevro recovery.
Do you think is share.
How much do you think.
C.
Such as market.
Just any commentary and then I'll ask my follow up as well here.
You know, we've got one month the bag for third quarter.
Give us.
Right.
Great.
Okay, sorry, you rather you really cut out on the on the ended that I I heard something about third quarter and Didnt hear the tail end of it.
Okay not sure if we lost Robby.
Let me take a up let me take a stab at where I think Robby what's going on the on our recovery look I think thats a great question and I really wish I had an equally great answer we don't have a lot of visibility to share.
For reasons that I've talked about before our competitors where that business lives within their business or the materiality of that segment. What they report don't report et cetera. It was our sense coming into cobot in Q1 that we were continuing to gain share the omni a launch.
The U.S. was really just getting up and going and we felt fairly certain at that time that we were picking up share. It's our sense on it and it's just that anecdotally that through the course of the pandemic thus far.
That despite the negative impact on the overall market.
That we think we've continued to pickup share we think some of our capabilities in terms of remote interaction with the patients.
The omni launch in particular and other things have have led to that conclusion, but as I said it really is just sort of a sense on the ground.
How things were going during the worst of the pandemic and then I think as we re emerge from this it is certainly our hope and our continued sense.
Did that trend continued it really is feeling of our team on the ground.
It's a bit more anecdotal than I would like right now we hope to have a little bit more clarity as Q2 information gets out there gets a little better digestion and we get some.
Information that we don't have now.
In terms of geography, I don't really think geographical mix played much of a a role there. We're we're pleased with I think the early response to recovery that we've seen in the U.S. markets, but it's been very recent in very short term I think we've seen a.
A good or beginning of a recovery in the month of July that's encouraging but it's early.
We're seeing maybe in July internationally, what we began to see and late May and June.
In the in the U.S.
In terms of the third quarter, which and I'm not sure I heard all of your question, but I think we're.
We're going to probably leave it at the at the remarks, we've given we're early in the third quarter, where effectively one month in.
What we what we didn't want to give as a exposure to the fact that hey, we're beginning to see some early recovery outside the U.S. that we didn't see over the course and most of Q2.
And that domestically, which of course was a majority of our business. The trend that we saw into May and June of recovery that continues and so we're continuing to see a a very broad response to the omnia platform.
To our remote capabilities that we offer along with the Omnia platform into the efforts of our team in the field, which I think you've just been.
Terrific.
So I think we'll leave it at that for Q3, but we're feeling we're feeling pretty good about about where we are right now.
Your next question comes from David Lewis Morgan Stanley. Your line is open.
Good afternoon. Thanks for taking the question can you just a couple from me. The first thing is just your commentary in the back half a year and obviously you're kind of discussing a faster worked out of the trial unplanned patients, which is maybe sort of pulling some growth at a fourth quarter to third quarter actually if you could just talk more granular in terms of how you're seeing the progression to the ended the year in the fourth quarter and specifically.
Yes, a couple trends that we're hearing from SCS implanters that their new patient flow is probably a little lower than it used to be but they're prioritizing SCS a little more and I'm just sort of wondering how you see these dynamics sort of playing out and how it may or may not be related to yes, Terry third quarter being a lot better in fourth quarter being more more neutral year on year and just a quick follow up after the.
Yeah.
I think everybody understands how how revenue is generated in this business model, we start with a a patient who the lead for for a pain therapy.
They decide to go to a trial and if that trial is successful. There then a candidate in most cases for a permanent implant and all that plays out over a period of of months and sometimes quarters.
What that means is we have a lot of visibility to revenue over the over six months forward based on trial activity, but it also means when you go through this rather unique period were trials get shut down.
For a period of time that you've got two things going on at the same time, you've got some some pent up backlog demand that you're hoping that you'll get back or at least most of it but you also have this gap in new organic trial activity. So you have to refill that trial pipeline and that refilling that gap plays out over a period of as I said week.
In months or or even longer.
It's a new way to look at the business. We've never gone through this experiment, where we're just interrupted the flow for entirely for a couple of months. So we're probably learning as as we go but where we are right now is as and we have a lot of visibility. These patients. When there are cases are scheduled et cetera.
We believe between those that have taken place in July and those that are scheduled.
For the balance of the year that most of those again absent some some new and unforeseen.
Broad scale coverage spike most of those will be recaptured in Q3. So we we balance that against the trial activity, where we need to.
Fleet Black out there for part of the second quarter and the activity we've seen organically beginning to start again in June and July and we look at Q3 weeks and we come up with a common with a prospect that drove the commentary today, which is we think Q3 will actually be in a year over year positive situation driven.
Some by the organic trial activity, we've seen in June and July that will drive some permanent implant activity in Q3, but probably more by the backlog cases that we think are coming in much more quickly.
And then we had originally modeled which is a very good sign by the way.
What that means as Q4 is more dependent upon the organic trial activity of the prior weeks and months and again, so you're making up for that tough time, you had in second quarter and then you're looking at a trial funnel that you're attempting to refill so little bit less visibility to Q4, but nonetheless, we think.
Okay.
Q4 will do very well under those circumstances, but because of the lower impact.
Of the ore from the backlog cases, we were thinking it's somewhere kind of in the neighborhood of a flat year over year, then as we committed to 2021 21, we'll of course depend entirely on our success in generating.
New trial activity between now and the ended the year as we think a backlog cases will play a really had a de minimus role and in 2021.
Is that help David.
It does case I think it's very very clear. Thank you and then just a quick follow up any firm for Rod I'm, just thinking about your commentary on Opex recovery, It's still sounds like you've got a shot of getting the EBITDA breakeven Buddy ended the year and just sort of wonder as you think about coming out of coal, but how are you thinking about sort of profitability heading into the forward year, and we think about NSR VP and then I sort of consider the crossover.
Our update on PDN to be a positive in terms of depot to commercialize that product maybe faster so when you're thinking about the pipeline drivers and 21 can you get to EBITDA profitably in the fourth quarter and can you sustain that momentum in the forward year, given some of the investments. Thanks so much.
Yes.
Okay, Let me jump in with part of that I. So I'll, let rod talk a little bit about kind of expenses and how we see operating expenses come back up.
In terms of profitability David It's a good question you know we don't we don't have we don't have guidance in place for the rest of year and certainly not for next year, but but I think look generally speaking.
We would expect the the productivity of our sales level going forward to be comparable to whatever we thought it was going to be before so well, there's always puts and takes on the on the operating expenses and projects that you decide to go away and others that get added based on big tectonic shifts like this.
In general if we thought we were going to be productive from an earnings standpoint in a certain revenue run rate before we probably continue to feel that way. So I think it really will depend on on revenue and when we see it getting back to comparable levels and getting back into a growth mode. I don't expect that will guide you to different expectations on the.
Bottom line on a on a like for like revenue basis.
You can talk a little bit about 10 to expenses on operating expenses. As we mentioned we finished Q2. It had 70 million than we do anticipate that as business continues to ramp up in the second half year. We do expect those two to return to kind of normal sort of levels like we.
We saw in Q1.
Your next question comes from Margaret Zohr with William Blair. Your line is open.
Hey, guys. Good afternoon. Thanks for taking my question Hi, Mark.
I wanted to follow up a little bit on on PDN, and NSR VP and a variety of way. So I don't know if you were able to host any virtual education sessions at this point.
Given that wall in April that you are able to take advantage of at that time to just start creating that market and maybe lay the groundwork.
And as we think about 2021 I know, it's it's very early on we have any continued the data but.
You know what's the what's the timeframe of launch is it going to be kind of slow in study limited trial.
And then kind of ramp more broadly or or walk us through the strategy there.
Okay.
Well of course the.
The timing will depend on our in large part I think well on the continued read out of the data of course, but but but on our discussions with the FDA. So we're in the midst of those right now.
Based on what we know as we sit here today, we still believe we'll be in a position to file with the FDA and time to to expect an approval and prepare for a launch in the second half of 2021. So I think between now and then it really will be more preparing for market launch I think we.
Maybe last quarter that around the ended the year or early next year, we'd probably begin to talk to you a little bit more about launch details tactics market development that kind of thing.
But really the timing hasn't changed much on that and if it does it will be probably primarily driven by.
Expectations of the FDA from a submission standpoint.
Because those discussions are still ongoing Margaret does that answer your question.
Yes, it sounds like maybe it's a little bit early to assume you guys are doing too much work outside of just preparing for the submission and I'm going to repeat impact can you just to make sure yeah, and then maybe you'll you'll start to fix those up and you go into the first half.
Well, we're we're doing actually a ton of work internally on on preparing for market entry is just nothing that we're.
Ready to talk about publicly yet.
Okay got it now that's helpful. And then just as a as a follow up as you guys think about strategies going into this year, where are you started what have you changed what if you kind of maybe pulled back on spend on versus maybe accelerated spend on that.
Broadly speaking I guess going into 2021 plot that strategically thanks.
Yeah.
I think we've we've made some participation changes in our product development roadmap in so in our product pipeline.
We have we what we believe our certain advantages in our patient treatment infrastructure. Some of those are our product.
Centric some of those are not in terms of our ability to track and interact with our patients in our customers remotely.
I would say that generally speaking there are things that we can do to expand that.
Profile and we're working on those things now and we've prioritized those a bit more aggressively.
More to come on that in the next couple of quarters.
But that's something that we expect to to be talking to you about probably in the first half of 21 or so I think we've gotten much more proficient at a at virtual interaction with our customers from a training standpoint.
Because we've had to like like so many companies.
We had the advantage of having data on a 55 to 65000 patients to be able to talk to our customers about.
The ability to interact with those patients throughout depend demick.
And and that's an area, where we've continued to expand and and develop and I would say you know probably aside from that these are the PDN.
Area is one that we continue to where we continue to grow in our enthusiasm and so weve spend a bit more time.
Maybe than I, even would have thought a couple of quarters ago in preparing.
For that market opportunity and that will play a larger role and in how we think about a number of our go to market initiatives and again, we'll have more to say on that in the next couple of quarters.
Wonderful thanks, guys.
Your next question comes from Bob Hopkins with Bank of America. Your line is open.
Okay, great. Thank you and good afternoon.
Hey.
Thanks for taking the question first question for me is or all of your U.S. centers. They were kind of active at the end of 2019 actively kind of implanting or trialing now and as a sort of a follow on to that you know two degrees, you're sending and I'm, specifically focused on U.S. centers and degrees are seeing variable.
<unk> I assume you are across the U.S.
What are kind of the main drivers that variability and does it give you a road map for getting slower centers back on.
As you as you work your way or as you work your way into the back half of this year.
Yeah.
I don't have the current data point in front me I think though I think the last version of that particular data I saw at the end of the quarter, but at that time, if we looked at the centers in the U.S. that were active pre cove. It in the first quarter of those centers.
I think we were generating activity in a very high.
Percentage I think it was greater than if I. If memory serves I think it was greater than 90% of those centers had come back into a activity. So we're not seeing big chunks of our customer base that remain dormant or or inactive.
So I think this is a pretty broadly shared recovery. Obviously there are some areas that have recovered more robustly than others.
You know I think it depends on a very very local and and specific circumstances, but it also clearly is tied to a local co bid activity in response.
Two infection activity.
For example, we saw in the I believe it was in the last week or so of of July.
We saw a little bit of a decline in case volumes in areas like Texas, and California, but interestingly. They were just as we saw in June in Texas They were reschedule.
So they this seems to be kind of the pattern that we're going through right now that we see temporary blips that we don't see many cases being just cancelled and put in indefinite suspension like we did back in April.
There's more of a let's push it out a couple of weeks kind of mentality.
So we're and that as you might expect extremely difficult difficult to forecast, but I would say from area to area. There's not a lot of variability that I could easily explain aside from.
Local covidien conditions on the ground.
Okay. So.
That's helpful. If it was a fall into that you know it sounds like Q4 will be a a true reflection of underlying demand because you're saying you work through the majority of the backlog or rescheduled procedures by that time. So if we I realize the big assumption, but if we make the assumption that covered is under much better control.
In the United States by the fourth quarter, you know what would be to the variables that would prevent a kind of a more normalized growth rate in the fourth quarter versus the flat that you're not guiding to but you know talking about today.
Oh.
It's it's yeah, I think that's pretty straight forward. It really is just the you know the revenue in Q4 will be a function of the trial activity in Q2 and Q3.
So we have a relatively predictable curve of conversion from of patients from trials to implants. When you take that curve and you just laugh a couple of months out of it and then you spend the next couple of months after that refilling the pipeline.
You have a you have an impact that you are certain to see over the next couple of quarters, it's like steering the proverbial ocean liner, it's it's hard to change it overnight so.
So even if our activity continue to be very robust coming out of Q3 in Q4, we still have that fact pattern in our in our history at that point about kind of a big gap in Q2, that's going to kind of continue to roll through that conversion curve. So that that really would be the only thing Bob that I would focus you on.
Okay, Great. That's helpful. Thank you.
Your next question comes from Joanne lunch with Citibank Your line is open.
Good afternoon, everybody. Thank you got your question, Hi, I actually have to your well into the Ami along.
I'd be curious you could give us any bank quantitative or qualitative on how.
That's been seed and what you think of happening and the competitive landscape Henry crop.
Then my second question.
Along similar lines, which is can you just sort of give a hub big picture view of where the salesforce is today and tempo and and how they're preparing and thats recovery.
Sure.
So.
I'll take them in order so that the I think the response to the omni launch has been very good as I mentioned in my remarks, we we've now just launch.
In Europe, and Australia following approvals.
Their respectively.
I think the omni launches doing as well as we could have hoped on a relative basis, obviously coated interruption aside.
We felt extremely good about what omnia was doing in the U.S. in the first quarter coming into co bid and again from a relative standpoint, we think we think we continue to do well with omni. The response has been very good.
We measure the response and Omnia based upon adoption initially by our current customers and that.
That adoption has been very strong so if we look at the percent of our of our utilization that's coming from omni I would say, we're probably on to maybe slightly ahead of.
The curve that we the we had in our projections when we launch Omnia late last year.
And I think it's playing a role in the share that we have in.
In the splitter accounts and again those are accounts that use both nevro and at least one other.
Suppliers products. So I think on the that's that's those are sort of general comments, but I think we're very pleased with the the omni launch.
Adjusted for a for co bid of course from Salesforce standpoint.
I just couldn't be more pleased with the response from our sales organization.
We kept them extremely busy during the worst of the pandemic, we never really shutdown. We did have cases that continued in our and our field team continued to cover those cases, they shifted gears very quickly to reach out to all of our existing patients to begin optimizing therapy more aggressively capturing results feeding that back to their costs.
Drummers.
They've transition to helping our customers refill their trial funnel.
Very actively and ER and employ some of the tactics that we employed for so some of you remember back in the spring of 2019, when we were attempting to.
To refill the trial funnel as well.
And so they're they're doing a terrific job I think that Dave acquitted themselves very well relative to our competitors I think our customers.
Really appreciate that and I just couldn't be more pleased with the way they've handled themselves and our business through through this whole episode you asked one other question and that was a competitive response.
I think the competitors response to Omnia has been largely as we described last quarter. We saw right around the first of the year just before Nands one of our competitors acquired a new wave form and they've been actively promoting that wave form as well.
We haven't seen a dramatic effect on on the market or share as a result of that but we know that they're very active.
Our other competitors have had minor.
Product improvement kind of introductions.
Good to see but havent necessarily change the overall dynamic between us and as competitors.
Thank you.
[noise] entering next question comes from Danielle with Leerink. Your line is open.
Hi, good afternoon, guys. Thanks, so much for hi, there now.
[laughter] quick question on the recovery and and then I have a follow up and so on.
Keith whether patients are quote getting lots are dropping out so that canceled there or.
Deferred procedures.
I do you assume any of those do sort of fell out of the system for whatever reason. That's my first question then I'll follow up.
Okay.
Yeah, I think it's about what we assume maybe a little bit better. So we assumed that through that interruption you internally that we would see some of those patients go away I don't think you can go through something like that without.
And think that you're going to capture recapture 100% of the patients that were in your funnel before but I think our recapture rate has been at or better than what we assumed and as I mentioned it certainly has been quicker.
What we've seen and particularly in the U.S. market is that our doctors and our centers both hospitals in SCS had been very very motivated to reenergize. This therapy in their practice and in there in their site and patients have actually been pretty aggressive about wanting to get back on.
Back on schedule for this particular therapy, which sort of reinforces our view that.
These are not your typical elective patients these are patients that really require.
Some sort of therapeutic intervention and they're very determined and motivated to see can get that therapeutic intervention and so I think all of those have played together and weve.
We've lost maybe the same to fewer of these patients than we might have thought.
Okay, that's great and then on.
Yeah I know.
That's fair or cloud, but where you're seeing the most successful but.
Is it in switching competitive accounts are driving higher volume at existing higher nevro share I got to say at existing natural users any color you can you can give there. Thanks.
That's a hard one coming out of co vid and we've just launched outside the U.S. So so I.
I think it's one thing we can clearly evaluate is.
Is a success we've had in.
When I say competitive accounts I really mean accounts that we share with competitors. So I I do believe that we've seen a share impact.
From Omnia.
In terms of overall utilization in any given customer.
It's hard to see through the fog of Covanta really answer that question. So maybe give us another another quarter or two to answer that more clearly.
Okay totally thanks, so much.
[noise] and last question that we have time for today comes from Calia Crum with destroys Securities. Your line is open.
Hey, guys. Thanks for taking our questions. So the U.S. and put in a lot of sort of cost saving initiatives early on during the pandemic that first at this point have any of those initiatives bin bin lifted or what do you need to see in order for it to return those investments historical levels going forward.
Yeah, I think it's really it's a line by line management evaluation, we did put in place salary reductions.
Early on those were reinstated.
At the beginning of Q3 other than that I think everything we're doing we're sort of following the.
Revenue recovery and looking at reinstating certain plans kind of one of the time.
So I think a I think rod gave a little bit of guidance on what to expect for operating expenses.
I think we'll continue to find some efficiencies and I would I would remind you kill or what we said coming into the year, which was we felt like as when we gave our original guidance. We felt like we could continue to bring operating expenses down as a percent of sales.
And in a and even down to some extent on an absolute basis. Despite the growth that we were projecting so a lot of what we were doing already continues in the background. The things that we cut specifically for for Cove at some of them are active some of them more passive.
An example of the latter would just be travel expenses and up and an example, the former would be a hiring freezes are not hiring new people until we know where the business is going et cetera. So it's hard to give you one categorical answer to that question. We're really looking at these one at a time.
But we've got a lot of confidence in where the business is going long term.
We've got balance sheet a.
Capacity. So we're not a we're not going to hold off on an expensive. It's part of our long term growth objectives.
Great that makes sense. Thanks, Keith and then just something we've been hearing a lot more about us just tell how telehealth as you're just days. So I'm curious just how you're strategizing around that I guess are you finding that the pain patients are just as easily diagnosed by tele health or how could this sort of shift impact your business.
And the referral channel. Thank you.
Yeah.
It's a great question I think you know look from our standpoint.
Tele health really comes into a into what we do in two ways. One is maybe as it's tied to our direct to patient or direct to consumer initiatives.
And what we were doing there would be described as telehealth anyway in terms of capturing those patients qualify them and then helping them find a clinician where they would.
Seek care.
The other way it comes into our own business model is in managing the patients once they've received a trial indoor up a permanent implant and that's an area, where we've made a big investment over a long period of time, and where we've actually increased the utility of that of that capability more real.
Currently as we've done and this was pretty Cove, and we were already targeting to do more and more of our patient follow up.
Telephonically anyway.
I think the more important part of your question is whether or not our customers will continue to use tele medicine in a way that makes it easier for patients to be a to be seem to be.
To be assessed and to even be treated I suspect, we will I can't quantify that for you, but I think our customers are like lots of other specialties, where they've jumped into and embraced tele medicine pretty aggressively in pretty quickly and I think they see the benefits and I think our patients do too so.
My senses, we'll see a a longer term impact from tele medicine with that'll increase capacity on the part of our doctors office practice and and otherwise, but I think it's going to take a little time to really size that up.
Thanks, so much.
So if I turn the call back to presenters for any closing remarks.
Okay. Thank you everyone again for joining us on the on the heels of another rather extraordinary quarter and and we'll look forward to we're talking to you again at the end of the following quarter. Thanks.
This concludes today's conference call you may now disconnect.
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