Q1 2021 Nevro Corp Earnings Call
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Good afternoon, maybe just sneak out and I will be your conference operator today at this time I would like to welcome everyone to NAV Russ first quarter 2021 financial results conference call on.
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Kind of vertical for Julie do lease for introductory remarks Julie.
Good afternoon, and welcome to <unk> first quarter 2021 earnings conference call. We appreciate you joining us.
I'm, Julie Dewey net Bros. VP of IR and corporate Communications with me today are Keith Grossman, Chairman, CEO, and President and Rob Mcleod Chief Financial Officer.
The format of our call today will be a discussion of first quarter trends and business results from Keith followed by detailed financials from Rod and then we'll open up the call for questions. Please note. There are also slides available related to our first quarter performance on the narrow investor relations website on the <unk>.
Then and presentations page.
Earlier today <unk> released its financial results for the first quarter ending March 31st 2021, a copy of our earnings release is available on our Investor Relations section of our website at net ROE dotcom.
Call is being broadcast live over the Internet to all interested parties on May five 2021, and an archived copy of this webcast will be sales.
That's the 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 or results could differ materially from those expressed or implied as a result of certain risks and uncertainties.
Please refer to our SEC filings, including our form 10-Q.
To be filed later today for a detailed presentation of risks for.
Forward looking statements on this call speak only as of today and we undertake no obligation to update or revise any of these statements.
In addition, we will refer to adjusted EBITDA, which is a non-GAAP measure that is used to help investors understand never is ongoing business performance.
Refer to GAAP to non-GAAP reconciliation tables within our earnings release.
And now I'll turn the call over to Keith.
Okay. Thanks, Julien Good Wednesday afternoon, everyone. We appreciate you joining us.
We reported first quarter 2021 worldwide revenue of $88 6 million, that's an increase of 1% compared to the first quarter of 2020, and an increase of 8% compared to the first quarter of 2019.
First quarter U S sales of $74 $7 million decreased 1% over prior year.
But increased 14% compared to the first quarter of 2019.
International revenue increased 14% year over year as reported or 4% on a constant currency basis to $13 9 million in the quarter compared to Q1 of 2019 international revenue decreased 15% as reported or 21% on a constant currency basis.
Both U S and the international revenue continued to be impacted by COVID-19 related issues. Although this impact certainly lessened as the quarter progressed overall, we were actually very pleased with how our revenue increased from the beginning of the quarter to the end.
And as you've now heard from numerous companies January was particularly impacted by an increase in COVID-19 activity along with much of February.
March began to show encouraging improvement in while the remaining recovery, maybe anything but smoothed or linear we still expect it to continue throughout the year with the U S market progressing probably more rapidly than most of our international markets.
Compared to prior year first quarter total U S. Permanent implant procedures stayed roughly flat with trial procedures declining 4%. However, we did see incremental improvement in trialing activity over the course of the quarter.
Approximately 130 for scheduled U S permanent implant procedures were canceled during the quarter due to COVID-19 and roughly 60% of these procedures were still unrecovered by the end of the quarter.
That's a significant sequential improvement by the way compared to the fourth quarter of 2020.
Not surprisingly the majority of these cancellations occurred in the month of January.
Trial on permanent implant volumes were impacted by a combination of patient reluctance to move forward due to COVID-19 related issues.
And of course facility constraints on electric procedures due to COVID-19 resurgence in certain geographies.
We believe we continued our two year trends now with the U S market share gains in the first quarter and anecdotally, we had a record number of new patient leads coming in from our direct marketing and education efforts, which we believe is typically an encouraging leading indicator of patient reengagement.
So let me update you on the on the current state of the COVID-19 impact on our business. We've continued to make progress so far in Q2 as patients begin rescheduling procedures and reentering the lead to trial to Perm pathway.
So as of today, it's clear that COVID-19 continues to have an impact on patient demand for SCS in case scheduling, but this impact has started to subside and we are seeing fewer case cancellations.
Encouragingly, we're starting to see some early signs that demand is coming back into SCS therapy and expect this improvement to gradually continue as COVID-19 infection rates decline vaccine availability improves and the market reserve reverts to some sort of normalcy.
Although it's still early in the recovery our best in class Technology recently upgraded Omnia platform now powered by H FX connect.
Superior clinical data and our new growth drivers in painful diabetic neuropathy and nonsurgical refractory back pain gives us confidence in our on improving full year outlook I really think we're well positioned for attractive and sustainable growth as the pressure of COVID-19 on our business continues to subside.
Now switching to <unk> or painful diabetic neuropathy as I said on our last earnings call. Our goal is to get off for a fast start on the second half of the year and referral and trialing activity, thus setting the stage for a meaningful revenue impact in 2022.
I provided a fair amount of detail on our last call regarding on market development and launch plans for P. D N, but I'd like to take just the next few minutes to update you on the recent progress that we've made over this quarter.
We were of course delighted to see the six month results from our landmark sensitive P. D. On randomized clinical trial were published on April 5th in Jama Neurology. This represents an exciting and we think an important milestone accomplishment on our pathway to securing FDA approval for P. D on.
In addition, our 12 month PD and results have been accepted for presentation at this year's American Diabetes Association meeting and that's at the end of June.
We plan to submit these 12 months, resulting including the six months crossover patient data for publication later this year. In addition, the health economic data will be submitted for publication later this year analyzing the long term outcomes of PD on patients treated with our 10-K therapy.
The FDA continues to review our P. D M. A PMA supplement submission for use of our sensor system for the treatment of chronic pain associated with P. D M.
At this point, we believe our submission our submission is on track and we haven't changed our assumptions about approval in the second half of the year.
If approved the sensor system would be the only SCS system with an FDA approved indication for treating P. D M.
Now remember there are over 5 million patients in the U S alone diagnosed with PD on an approximately 2 million of these patients are refractory to or failing conventional medical management and in need of a new solution to treat their chronic pain.
Does that represent a roughly 47 billion dollar prevalent pool in the U S and an estimated annual incidents market of approximately $5 billion again in the U S.
But much more importantly than that it represents a very large number of patients who suffer intensely from this condition, who don't currently have good treatment options.
And by the way, who are disproportionate consumers of health care resources.
We really think we can play a new and meaningful role in helping many of these patients.
Our PD and commercialization team is hard at work preparing for a successful U S launch following receipt of FDA approval recall that our two overarching goals for this launch are one to generate awareness and that's with both patients and referring physicians.
And two to expand market access with increased third party payer coverage.
To ensure we reach these goals we are investing in a broad commercial launch strategy, including a dedicated P. D. M field organization to educate those highest volume, referring doctors as well as targeted professional education programs and digital as well as various other outreach initiatives to PD on health care practitioners and also to patients.
We've already hired almost all of our PD on field team and will begin extensive training this month.
Following FDA approval. This dedicated P. D on referral selling organization, along with remote selling resources will be ready to begin calling on doctors that are treating the most PD on patients right now <unk>.
Including primary care physicians endocrinologists, internal Medicare medicine specialists and podiatrist.
We also know as we've said before that these diabetes patients take a very active part of their care and their highly engaged online given this high level of engagement never O is beginning to invest in patient education around PD on.
On the market access front, we've already started approaching payers with the goal of expanding policy coverage to include PD on patients where it doesn't exist today.
Our initial outreach included contacting the top payer organizations, such as United and Cigna to provide them with information on our FDA submission in our Jama neurology publication.
So far it seems like the data is going to be compelling for those payers, particularly given this patient population, where they just haven't received much traction with other therapeutic options that they're paying for.
We even achieved our first PD on coverage when before data was even published with a small per preferred provider network in the Midwest. While some payers have told us. They will require 12 month data, we expect to have that data by the time, we receive FDA approval.
With this in mind, we expect our commercial coverage to increase over time as additional commercial payers expand coverage throughout 2022.
I also want to give you a brief update on our early international P. D on activities, which are in the very initial stages similar to the U S. Our primary international PD on launch goals are to drive education awareness and expand access for 10-K therapy for patients failing conventional medical management.
We've created advisory panels with local diabetes pain, and neurology experts in Australia, Germany, and the U K, we're piloting new sales resources to drive education and awareness with the primary physicians treating P. D N in each country.
We're also collaborating with local diabetes pain, and neurology societies to work towards an update to clinical practice guidelines for the treatment of P. D M.
Unsurprisingly theres been some impact from COVID-19 on our ability to execute our plans as quickly as we would like but we continue to make progress on look forward to providing status updates on these initiatives later in the year.
The clinical evidence, including last month, Jama neurology publication, demonstrating the high frequency spinal cord stimulation provided exceptional really for PD on patients is beginning to create a lot of excitement in the pain and the diabetes communities and we're eager to bring this treatment opportunity to the millions of PD on patients who are suffering on unable to find relief with currently available.
Alible pharmacologic options.
At the end of April we introduced H FX, a comprehensive new brand identity that combines narrows innovative high frequency SCS technologies advanced therapies and end to end patient support.
Today, we're known for our highly differentiated differentiated H F 10 products, but the value of our technology.
Our technology provides to patients and customers is really much greater.
Under this new H F X brand identity will be able to bring products services and support together under one cohesive durable framework that supports today's solutions and importantly, some.
Some of our planned future offerings, whether those are new products innovations and wave forms and frequencies services clinical data or unique forms of patient and customer support.
Our recent on the upgrade known as H FX connect is in full market release, and we plan to upgrade the majority of our existing U S user base by the end of the year.
We expect a full market release on Australia later this month with regulatory approval expected in Europe later in the year.
The Hff's connect upgrade enables us to be more responsive to patient need because now instead of needing to schedule an in person visit to optimize the patient's therapy are H F X coaches can remotely optimize a patient's therapy right when it's needed by the patient.
Now this is because on the powered by <unk> connect is both more pre populated programs on any other IPG and the programs with the highest likelihood for success. These programs are based on our proprietary therapy algorithms, which were informed by therapy outcomes data from over 70000 patients stored on our H F X cloud.
Complementary to these pre populated programs on our patient dedicated H F X coaches, who not only work with patients directly to optimize their therapy remotely, but also follow a proactive patient outreach plan also informed by data in <unk> cloud. This is so much more than just another app, where patients can answer questions and send them off to.
Someone this is a dedicated team of 70 to 80 professionals assigned to each patient who are in touch with that patient on a regular basis answering questions and optimizing care and drawing on the immense knowledge base of our H FX cloud data.
Importantly, all of these changes are also going to make our sales team much more efficient over time and will be a critical part of the efficiency with which we scale over the next few years.
The FDA also approved on new trial Stimulator and is currently being evaluated in a limited market release, the new trial devices designed to provide improvements in patient comfort to a smaller more contoured cable free system that allows patients to focus more on their pain relief and less on the device itself.
The new trial trial Stimulator also comes with increased programming versatility for a patient can evaluate our proprietary 10-K therapy as well as a broad range of other waveforms prior to receiving permanent implant.
I'd like to also highlight that we published our first ESG report on the first quarter, which is available now on our website, we recognize the growing importance of broader corporate responsibility to many of our stakeholders and while we're still early in that ESG journey.
We believe our commitment in these areas will inspire our entire never a team to continue acting as a responsible corporate citizens and strengthen our trust with our investors and various other stakeholders and we look forward to continuing to expand our ESG initiatives in the years to come in helping thousands of patients every year.
In closing I believe we're really well set up for the remainder of 'twenty, one and beyond and we remain very bullish on the longer term growth drivers for our business. We're uniquely positioned in a still underpenetrated FCS market that should continue to grow for years to come with a market share position, we think should still grow over time.
We started to see incremental improvement in our business and promising signs of patient volume will continue to increase as COVID-19 subsides and patients seek care and make their way back to SCS therapy as the year progresses.
Our PD on launch preparations are on track and we continue to develop the non surgical portion of our market using <unk> data.
Our recent approvals of the Omnia upgrades powered by <unk> connect and the new trial stimulator will provide momentum throughout the year.
And we're continuing to manage expenses and drive operating leverage without eroding our team or our core capabilities to drive growth and leveraging the income statement of course remains a top priority for us in the coming years.
And lastly, I want to once again express my appreciation to the entire <unk> team for their efforts in the first quarter as they continued to navigate the impacts of COVID-19, while moving the company forward.
And with that I'll pass the call over to Roger to provide further details on our first quarter results and our guidance.
Thanks, Keith and good afternoon.
I'll begin with our worldwide revenue for the first quarter of 2021, which was $88 6 million, a 1% increase as reported and flat constant currency compared to $87 5 million in the prior year period.
As a reminder, this quarter included one less selling day than Q1, 2020, and the same number of selling days as Q1 of 2019.
Gross profit for the first quarter of 2021 was $62 3 million, an increase of 3% compared to $60 5 million in the prior year period, and an increase of 17% compared to $53 2 million in the first quarter of 2019.
The increase in gross profit was driven primarily by increased revenue as well as a reduction in the overall cost of product sold gross margin in the first quarter was 73% compared to 69, 2% in the prior year period, and 64, 8% in the first quarter of 2019.
Operating expenses for the first quarter of 2021 were $84 8 million, a 1% increase compared to $83 6 million in the prior year period and down from $95 5 million in the first quarter of 2019.
The year over year increase in operating expenses was primarily related to patent litigation related expenses personnel costs, and PD and marketing and selling related activities.
And these were partially offset by decrease in clinical trial expenses related to the P. D N and M. S. RVP studies.
These travel and meeting expenses as well as management's continued initiatives to drive leverage throughout the business.
Legal expenses associated with patent litigation were $5 9 million for the first quarter of 2021 compared to $2 1 million in the prior year period.
We continue our ongoing patent cases in the district of Delaware and at the patent office relating to spinal cord stimulation technologies.
While these disputes are unrelated to our core high frequency therapy IP <unk>.
Protecting these innovations remain in an important objective.
We are anticipating in October 2021 trial to present, our case regarding Boston Scientific's infringement of our IP directed to 1200, Hertz paresthesia free therapy as well as other related IP and to present, our defenses with regards to Boston Scientific's older claims against us for.
Patents and trade secrets unrelated to high frequency SCS.
Net loss from operations for the first quarter of 2021 was $22 5 million.
2% improvement compared to a loss of $23 1 million in the prior year period, and a 47% improvement compared to a loss of $42 3 million in the first quarter of 2019.
Non-GAAP adjusted EBITDA for the first quarter of 2021 was negative $6 6 million compared to negative $11 million in the prior year period and negative $28 7 million in the first quarter of 2019.
Non-GAAP adjusted EBITDA excludes certain litigation expenses interest taxes, and noncash items, such as stock based compensation and depreciation and amortization.
Please see our financial tables for the GAAP to non-GAAP reconciliations.
We continue to focus on cash preservation, while balancing the need to reinvest in the recovery process and our new growth drivers in P. D N and M S RVP cash.
Cash cash equivalents and short term investments totaled $576 million as of March 31, 2021.
This represents a decrease during the first quarter of 2021 of 11 5 million. Please note that we plan to use approximately $172 $5 million of our cash on hand to settle our convertible notes that mature on June one of 2021.
Now turning to 2021 guidance, it's important to note that we will be using non-GAAP financial measures to describe our outlook for the business.
Non-GAAP adjusted EBITDA excludes certain litigation expenses interest taxes, and non cash items, such as stock based compensation and depreciation and amortization.
Please see the financial tables in our press release issued today for GAAP to non-GAAP reconciliations.
As a reminder, due to the impact of the COVID-19 pandemic on our operations and financial results.
We are providing second quarter revenue and non-GAAP adjusted EBITDA guidance today, we do not plan to provide quarterly guidance once the impact from COVID-19 subsides.
<unk> seen availability improves and patients begin to again seek elective care at typical levels.
As Keith mentioned earlier, we saw incremental improvement during the first quarter as the impact of COVID-19 began to decrease during the quarter and vaccine availability increased.
We expect second quarter of 2021 worldwide revenue of approximately 104 million to $106 million.
This updated guidance represents 84% to 80%, 88% growth over prior year, and 11% to 13% growth compared to Q2 of 2019.
This range assumes decreasing COVID-19 headwind and more normalized case scheduling an elective procedure levels beginning in the second quarter of 2021.
The company expects second quarter of 2021, non-GAAP adjusted EBITDA to be approximately negative $2 million.
To negative $4 million.
Our updated full year guidance provided today is highly sensitive to the company to COVID-19 recovery assumptions, which include an ongoing steady recovery in the U S and key international geographies, leading to more normalized case scheduling an elective procedure levels beginning in the second quarter of <unk>.
21, and continuing for the remainder of the year.
This guidance also assumes the impact from COVID-19 will diminish with each sequential quarter of this year as a vaccine availability improves and patients begin to again see elective care at typical levels of course.
For vaccine rollout takes longer recovery is delayed.
For patient willingness to seek treatment is slower than anticipated or alternatively, if recovery is faster or there's a larger recapture pent up demand than anticipated.
Any or all of these factors can quickly and easily impact our guidance range.
With that in mind.
We now expect world wide revenue for full year 2021 of approximately 440 million to $450 million.
This is updated from our previous range of $430 million to $450 million.
This updated guidance represents 22% to 24% growth over prior year.
And 13% to 15% growth compared to 2019.
This range also assumes FDA approval of PD and at the beginning of the third quarter of 2021.
And a mid single digit million dollar revenue contribution from PD and in 2021 with the majority of that generated in the fourth quarter.
We have also updated all our full year 2021, non-GAAP adjusted EBITDA to be in the range of 5 million to $15 million.
And that's from our previous range of zero to $15 million and significantly ahead of last year's non-GAAP adjusted EBITDA loss of $3 9 million.
For the full year, we continue to expect gross margins to be approximately 69% and operating expenses to be approximately $370 million, including litigation expenses and approximately $22 million of investment to support a successful PD and launch and market.
Development.
We believe that this investment will not only drive some early revenue contribution from <unk> in the third and fourth quarters of 2021.
But more importantly positions us with a solid run rate of patient referrals in trials as we enter 2022.
In closing we made good progress in the first quarter and remain on track to drive growth and scale profitably and our core business. We are in a great position strategically with best in class SCS technologies share gain momentum future growth opportunities in PD and MSR BP.
Superior clinical data and a strong commercial organization.
We continue to advance our operating margin expansion effort with many of the changes we are investing in this year such as our integration of manufacturing early development of the PD end market and the Omnia upgrades that Phil facilitate greater commercial productivity.
<unk> to provide continued improvement in our financial leverage as we grow.
That concludes our prepared remarks, and I'll turn the call back over to Julie to moderate the Q&A session.
Thanks, Rod before we start the Q&A session, we'd like to ask.
You limit yourself to one question and one short follow up.
Operator would you please give us for Q&A instructions.
As a reminder to ask a question you will need to press star one on your telephone.
I've got a question.
Please standby, while we compile the.
Q&A roster.
Your first question comes from the line of Bob Hopkins from Bank of America. Your line is now open.
Oh, great. Thank you and good afternoon.
I have a short term on a long term oriented question. So I'll just lift from both upfront on the short term side. Just curious what are you seeing currently from a trialing perspective.
And also in your Q2 guidance wondering how much of the backlog you assume you know converts in the second quarter.
That was kind of my short term question and then on the longer term on on PD and just curious how big a sales force you've ended up hiring you mentioned that it's pretty much completely done and and then when we could maybe hear something on from some of the payers in terms of coverage wins and thank you.
Hmm.
Okay. Thanks, Bob.
I think let me take part of the first question and then ask Rob to talk about the backlog.
Contribution to Q2.
From a trialing standpoint, I would say trialing has done better.
In fact, if you look at say the month of March on a per day basis. It was the best March we've ever had as a company in both trials and firms.
It's still not quite where we would want it and it's clear that it is still.
Impacted by the environment to some extent.
And it's probably going to continue to be a little bit uneven. So it's it's not where we would like it to be a bob but it's getting a lot closer and we expect that to continue to improve I think I mentioned some of the early indicators that we follow like and not the least of which including patient.
Patient engagement with some of our efforts online are all pretty positive right now so.
We think that bodes well for chartering activity over the coming months and the quarter I'll come back on the PD and sales force and maybe you can talk a little bit about backlog share hi, Bob.
As we mentioned in.
In the call we saw an improvement in Q1 on the on the cancellation of the firms as it as it relates to Q4 and we've continued to see the cancellations get better. So the team has done a great job of going after those customers that that they canceled.
And as of right now we have we have a few hundred that are that are in our backlog that that will be chasing down through to the end of the year I don't have a great sense on how many of those we'll recapture this quarter, but we will be tracking them down throughout the remainder of the year on the team's done a really saw.
The job of being able to all of those customers.
Through the pipeline.
And Bob on the PD on question. So I think we mentioned in prior calls that our initial field presence for this referral selling organization was going to be between 30.
<unk>, 30% and 40 people strong and also and that's by the way exactly what it will be coming out of the gate and we as.
We said in our remarks already hired nearly all of those people.
Our existing field organization, which is far far larger than that will also be very involved in P. M. So the P. D on sales organization to which we referred is going to be a specifically calling on referring doctors. There's lots of other things, we'll be doing in the field that'll be driven by our existing.
Our field organization.
In short we've hired basically the number that we said we would hire to launch the referral.
Net sales force.
And on the insurance side.
When we will be able to hear him up here from payers okay.
I'm, sorry, I missed that Bob. So your question was what are we going to hear more from Payors, yeah. When when could we possibly you know here here's some some news flow from the payers as you know and I know you've approached them now, but just curious on how long it might take to convert and just to try to set some expectations around that.
I think it's going to be I think it's going to be kind of a steady drumbeat I think some of these payers make decisions on an annual basis on that and that annual data is different for every payer some make them real time as they get evidence and they simply changed their policy some are driven by a larger.
You kind of structure, others are driven by the decision of a medical director.
So I would think you'll probably start hearing from us once we have the 12.
<unk> 12 month data and where and we're actively talking to people post the Ada meeting about the 12 month data I would think on a regular quarterly basis, we'll be able to give you. Some news on payer reaction and response and and decisions. So I think probably as early as our Q3 call Q4 call and then certainly all throughout.
'twenty, two we'll be able to speak to some of those decisions.
Great. Thank you.
Your next question comes from the line of Robbie Marcus from Jpmorgan. Your line is now open.
Oh, great. Thanks for the question, maybe one on pain and one on.
Alright, SCS and in traditional paint on why now on PD, and maybe starting with PD and Keith.
Keith how shall we think about just sort of what percentage of.
Payers you can get on board I know some.
Some areas, sometimes you can go really fast and stomach can drag out over 234 years. So maybe just to help set expectations and where do you think you can end 2021 as a percentage of covered lives and what's a reasonable expectation maybe exiting 2022.
That's hard to say I think until we get a little bit a little bit more experience under our belt presenting the 12 month data to these payers rami to be honest, we feel like that we come out of the gates with you know somewhere around a force 25, maybe 30% of total covered lives of PD uncovered lives coming out of it.
With coverage in place given the size of this market I think that gives us ample room to begin developing this market. So I don't I don't view it as a limitation in terms of our expectations and what we've talked to you about.
The pace at which we get to 50%, 75% a little bit tough to predict right. Now we certainly think based on the meetings. We've had that we're going to be able to drive positive.
Coverage decisions as we get further into the year, we're gonna have a submission and publication of economic outcomes data.
That will help as well so I think it'll be hired by the end of the year because I do think we'll get a handful of rapid decisions and then I think once we've been out there for six months with a 12 month data and once we get the economic outcomes data published I think we will have even more luck in 2022, but a little difficult to give you percentages.
Yeah, No I understand on and maybe just turning back to the U S market and on <unk> you have a really great offering you mentioned on the call you have the most.
Offerings or wave forms within the package versus the competition I'd love to get your sense of what's going on and.
On the ground right now you know we hear across the rest of med Tech that there just hasn't been a lot of trialing of new devices the past year.
Unfortunately that that kind of coincided right with the big launch of Omnia last year right as COVID-19 was hitting so I'd love to get a sense of where you are in terms of educating your doctors about omnia in the option and how it compares and.
How much is done how much still has to come in and what you're you're kind of seeing on the ground in terms of omnia versus the competitive offerings right now thanks, Yeah, well I mean.
We're really pleased with the Omnia contribution I mean, we were very explicit about.
About that strategy when we came to market with them on what we expected of it.
And I think we've been really pleased with the with the results I'm, even makes up between somewhere between 70 and 80% of our total utilization right now as a as a company. That's been it's been broadly adopted by our customers and despite the fact that the market was depressed over this last 12 to 14 months.
We're certain that we gained share during that period of time, which as you know.
Second best way to measure our progress on is on a relative basis.
And and we feel like the market is sort of voted with its feet in that regard. So I think on me will continue to do well remember when we brought it to market one of the promises of that platform was that it was upgradable and that we would upgrade it.
Not just for patients going forward, but for patients that already had the device and this ability now to to load 35 programs that are that are algorithm mentally are populated by the doctor and the and the rep.
And then and then the use of our <unk> coaches to to optimize care and move between these programs remotely that's an upgrade and that's a big one and that was.
Kind of the first fulfilled promise of the platform from its introduction.
I think that will make a big difference over the next year. So I think the I think the system is doing exactly what we planned it is.
It is meant to carry the message to the market that we still are the only provider of the most proven form of SCS therapy, and high frequency and the best workflow in the or and yet we offer the flexibility to do everything else for those patients who need it and I think it's a pretty compelling message, it's one that can't be replicated.
By our competitors and I think it's a I think it'll it'll give us legs here for some time to come.
Great I appreciate it thanks a lot.
Your next question comes from the line of Calix Com from tool with <unk> Securities. Your line is now open.
Great Hi, guys. Thanks for taking our questions.
I mean, you had a good quarter, it's still early in the year I just would love to understand sort of the makeup of the guidance increase is it price.
Primarily just for listeners kind of in the core business are you getting more excited about <unk>.
Market development work on just with any additional color there would be helpful.
Well I'll take a pass it on and Ron can fill in.
Some color if you'd like but I think it's a combination of things it is.
It is a I think reflects a bullishness in our market position and how we're how we're positioned right now on our ability to continue.
Continue capturing market share in our major markets.
I think it reflects a.
A very detailed view of the pace at which we think trials will pick back up.
Timing in which we think patients and doctors will will more aggressively reengage with the therapy the rate at which we will recapture canceled cases from last year.
And at least some sense that a win.
Kind of a more.
A higher level in the background pent up demand will begin to come back into the therapy. It also includes as Rod pointed out some contribution from from PD on in the second half of the year, primarily fourth quarter. So.
It's a combination of a lot of things Kayla, but it's.
It's a pretty detailed.
<unk> represents a pretty detailed view of what we think the drivers will be for the last three quarters of this year, but without question. The biggest single assumption is the resolution of the COVID-19 impact over this market.
And in our assumptions around when patients really begin to reengage with elective care and returned for procedures like SCS on a more robust rate.
Great Great that makes sense and then just on PD on you mentioned that that you achieve your first PD on coverage wins for the data was even published with a small preferred provider.
What sort of resonated with that provider.
Just kind of curious on how that conversation went in NII and what prompted that that coverage win. Thank you yeah, well. It was still a database decision on the part of this payer. This this was an example of a smaller commercial payer that has a fair amount of flexibility.
And the way they make these coverage decisions as I as I mentioned, a few moments ago and they looked at the data that had been presented at <unk> at the various society meeting so they looked at the data. Despite the fact that it hadn't yet been published in Jama.
And and they made their decision primarily on that data and and also on their recognition of what they werent able to do for these patients today.
So just a good example of a small payer that has a lot of flexibility that looked at the data and said this makes sense and they made a decision.
Great. Thank you you bet.
Next question comes from the line of Cecilia furlong from Morgan Stanley. Your line is now open.
Great. Thanks for taking our questions I guess I wanted to kind.
Kind of turn back to the PD and data, but it's really post analyst.
Data published what you've been hearing from physicians just as they think about their current refractory PD and patients just for the patient profile best address most likely to derive benefit from Assia.
Yeah, I mean I think it.
It continues to be.
Pretty consistent and pretty positive I mean after all the publication in Jama was really.
It was just a validation and some elaboration on day to day had already been presented so it was great validation and good confirmation of what we're seeing in this trial, but it was by and large the data that.
And then our clinicians had already seen.
We don't yet have the ability to spend a lot of time with referring doctors so that would be off label promotion. So I can't really give you a detailed.
Sense of how or whether it's changed the view of referring doctors, but I can tell you among.
The pain community.
The.
The response has been extremely positive.
And I think our I think the if you think about our customers on how they're going to respond to this I think it varies from we'll see and we'll see what the referring doctors do but but we know that these patients are going to do well two on the other under the spectrum doctors that are planning increases in capacity that are planning outreach programs.
And that are planning to make this a centerpiece of their of their practice.
I think there are very few doctors, who have seen this data and say no I don't I don't think there's going to be a meaningful part of of our SCS practice and we don't plan to pay attention to this so I think it's been very positive, but also very consistent with what we've seen since the first data release.
Okay. Thank you and I guess, just turning to Pee Dee Ann that ex U S opportunity for change.
As you think longer term.
How do you view the opportunity in this patient population just for since you're currently address patient populations and just really from a reimbursement challenge standpoint, it's on.
Okay, and I guess im not sure I understand the details on the question I mean from a <unk>.
Certainly.
Coverage decisions are critical and we've talked quite a lot. So feel you about what we're planning to do there just a few moments ago with Bob we talked about per cent that are covered out of the gates on.
And on what we plan to do to increase that number over the next 18 months.
In terms of its contribution to our business, we haven't given any long term.
Any long term forecast I mean to imagine that you are sitting here at the end of five years.
And the PD and could be a a very very significant minority portion of our of our overall revenue.
<unk> is a reasonable one I think.
So we expect it to be a meaningful contributor were treating it that way.
We're hearing from our customers that that's a reasonable expectation.
We know the patient demand is out there so.
We are a we're treating us like it's going to be a very significant part of our business over the next five years.
Okay. Thank you.
Your next question comes from the line of very Big Olson from Wells Fargo. Your line is now open.
Good afternoon. This is Kevin on for Larry Thanks for taking our question.
One financial question and just one quick product question. So on the guidance Q2 looked a little bit better than we expected and my question is as you think about the back half should investors expect more normalized seasonality on the top line. So pre COVID-19 you had Q2 and Q3 generally roughly equivalent so would you.
We expect Q3 to be notably higher than Q2 in 2021, given the recovery of underlying demand or should we expect typical seasonality beyond the beyond in the second half as you recoup the backlog in Q2.
Yes, it's a good question Kevin This is Ron I'll take that.
We're assuming that as COVID-19.
Recovery continues that we will see sequential improvements quarter after quarter. So.
So you're right, usually Q2 and Q3 year about the same.
And a lot of businesses, we are anticipating that we will see some improvement going from Q2 to Q3 and in Q3 to Q4.
Yes.
The one the one thing that would probably cautious on just a bit is that July does tend to be seasonally impacted as well due to vacations and we would we would anticipate that to.
To happen this year as well, but yes. We are we are anticipating a stronger Q3, and then a stronger Q4.
Thanks, Rod and then Keith.
Keith.
<unk> announced the rebrand with H F back how.
How have you been matching this shift to clinicians the benefits and how it works within their workflow and should we expect any new products associated with the H FX platform in the coming months and years.
Yeah, well I think a part of this was was born of a reassessment of our of what we do well and what we can do better in positioning our value proposition with our customers and.
I think customers well understand the high frequency treatment in the data I think what we've what we've not done quite as good a job of in the past is really articulating.
The full value proposition from front to end in terms of how we deal with patients how we program our devices the value of the data in this cloud.
The ability to to more Algorithmically program, our patients in ways, where we know they're going to get better outcomes. Some of the things we're doing with with human intervention with these patients the investment we've made in continuously upgrading their their outcomes.
So I think the I think the rebranding just makes that a little bit easier. It also makes it easier for us.
As we think about products that might come down the road.
For this therapy to be more than just H F 10.
Currently omnia is much more than that now, but if you think about if you think about our range of protect.
Protection and frequencies, we certainly think that we have the capability to be more than an H F 10.
Therapy deliver in the future and we have a lot of other new products coming over the next few years as well in terms of those new products. This new omni upgrade Hff's connect was a pretty big deal on that is really what's resonating I think with with our users more than more than a branding issue is is the ability.
Moving to pair it with a new capability.
And a new product in the and the patient remote.
For this upgrade.
The trial's stimulator is another new product that's in limited release, now and that will what will be in full market release sometime in the coming few months.
And certainly there is a lot more coming behind that.
No. We think we're we think we're pretty well armed and equipped.
Two to manage our expectations for the rest of this year.
Super helpful. Thanks.
Your next question comes from the line of Matt for you Ryan from UBS. Your line is now open.
Alright.
Thanks for taking the question.
Wanted to ask one on the sales force have you made any changes to the core SCS sales force and you mentioned 30 to 40 for PD and how do you think about the productivity of those folks in the first year a couple of years of the PD on launch relative to the.
The legacy <unk> sales.
Sales force.
Yes, I think our our our selling efforts.
Effort continues to just get better and better and more and more effective in I mean in terms of people capabilities training, but also in terms of.
Productivity.
It's important to note that we have we actually still.
Have I believe we have fewer sales territories in the U S. Today than we did in the second half of 2018 that number has actually come down over the last two years and the productivity per sales territory has gone has gone up we've moved more of what they do to our our field technical consultants and now increasing.
To this to this body of Hff's coaches it can be done over the phone and freed them up to grow much larger territories.
We've invested heavily in and training we've made a fair amount of changes in the team over the last couple of years and I'm I'm really excited with the team that we have in place now.
So I think I think both in terms of numbers and just quantitatively. The output of this team is has improved a great deal in terms of expectations over time look we're not going on I mean, we're not going to quadruple the business and still have the same number of territories, but.
But we're going to get more productive and more efficient as we scale.
The dollars per territory, I expect to get better and better from here.
And this <unk> connect upgrade by the way is one.
One element of how we do that so I think we are.
We're not fully optimized but I think we all feel really good about our sales organization and what they are and what they were able to deliver now.
Okay, Great and then just have a follow up.
I just wanted to circle back to some of the recent trends I think you mentioned in response to last question that you had.
Best in March in terms of trials, but still not where you wanted to be.
Could you comment on on April hasn't things continue to improve in.
Where do you want it to be I guess, what was the goal you are hoping for in.
Just a matter of time and COVID-19 improvement that gets you there.
Yeah, well on the latter question, yes, absolutely.
April was April was okay. I mentioned in my remarks that recovery over the course of the year, what we expect of the recovery environment I actually said it wouldn't be smoothed or linear.
April was an example, where in the first half I think we were all and this wasn't just a narrow issue by the way. This was a segment issue we were all a little surprised at how.
So many of our doctors when they when they had the first opportunity in a year over spring break to take their families and go somewhere they did and so there were a lot of empty offices in the first half of April and the second half of April looked far different.
But that affects the month of course, so there's little things like that are hard to predict this is a really difficult environment to forecast from project.
That came out on all of our all of rods, a disclaimer language around our guidance.
It's just tough to know exactly what the shape of this recovery is going to look like and how people are going to respond how doctors are going to respond.
We think it's easier to project over the course of the next nine months.
Then it is over the course of the next six days or three weeks.
But.
That color helps.
I think we're going to continue to see trials grow.
But it's not going to be quite as easy to predict on a short term basis as maybe it has in the past years.
Great. That's helpful. Thank you you bet.
Your next question comes from the line of Danielle on Telsey from SBB Leerink. Your line is now open.
Good afternoon, everyone. Thanks, so much for nickel.
Thank you for your question.
I know this is probably a little bit of a difficult question on tariffs.
Net.
Western is about what you're seeing on the overall market from a competitive price.
Perspective market share and also market growth perspective in the quarter. You know we do have now three out of the for major players that have reported waiting on us for us of course, but any color you can give you talked about one zone.
Sure.
And sounds like you're in a position to hold share in the U S. You're under index. So.
Thanks for what happened from a share per quarter.
Quarter to quarter on maybe year over.
And on how much share gain might be reflected on your and your guidance or even qualitatively from Oklahoma.
Sorry about that.
Yeah.
It's a it is a hard question not because not because we are unwilling to be transparent on share, but just for the share of data itself is not very transparent.
We do the best we can looking at what competitors do say about their FCS segment. Some some aren't very granular they talk about neuromodulation, where they talk about pain and these are segments, depending on the competitor that involve other products and other franchises.
Sometimes they will give you and some of our other analyst information and follow up calls on those end up in notes. So we read all those very carefully and we try to triangulate with some of the own our own tracking that we do internally and we.
We used one or two third party sources that are using reimbursement data among other things and those are probably the most granular and while not perfect. We think probably the most reliable.
And it is those sources that we use when we talk about share, but we kind of triangulate the other sources.
As a sniff test.
In the first quarter, we think are based on what we've seen today, we think our share continue to grow over Q4.
As it's been growing for the last two years.
It will move around so we'll get we'll get on market share report for for March and then a month later, where you'll be you'll be all the way in may and the March numbers will get adjusted up or down so.
We're not perfect and they do move around a little bit but in general if you look out over the last.
Five to nine quarters.
It's been a pretty steady March from <unk>.
<unk> thousand 14% share or so in the U S to between.
Between 20, and 21% share at the end of the first quarter in our view.
Now in terms of market growth you heard our guidance for the rest of this year part of that guidance is an assumption that we we certainly hope to pick up another point or two of market share over the course of 'twenty. One we think that some of that has already happened in the first quarter, but you can you can probably sort of back into what that means for.
Overall market growth in at least in our models.
This year, Danielle does that help a bit yeah. Yeah. No that was that was excellent. Thank you so much for for that Keith.
I have one quick follow up on a more specific question as we think about the guidance for the year.
You guys don't necessarily break out in the guidance you ask versus international but.
Wondering Rob maybe for some for you.
International has also had a pretty meaningful COVID-19 impacts I know its much smaller piece of it there for us.
But is that.
Could that potentially sort of outpaced.
On the U S market as we've moved for the year from a recovery perspective.
Now meaningfully international has remained and pass it or am I.
Right.
Wrong about that from us.
Hi, Danielle it's rod.
It's a good question I think I'd answer that in two ways.
One we are.
We're probably modeling a slightly quicker recovery U S versus international as we're looking out over the over the remainder of the year.
But then secondly, what I'd say is our mix between U S and international.
While it might change a little bit from month to month or quarter to quarter I think in general we're going to be at a similar sort of mixed throughout the remainder of the year as what we've seen over the last couple of quarters.
Okay. That's very helpful. Thanks, so much.
Your next question comes from the line of Bill Slavonic from Canaccord. Your line is now open.
Great. Thanks for taking my questions.
Just first on the on net.
On that HFF is you launch that you kind of view that and sell that as a premium product should we see any increased contribution there on pricing and I have a follow up.
No thats part of our Omnia offering so it's a it's a it's an upgrade that will be offering to existing omnia customers.
Which I think is.
<unk> is a terrific opportunity for customers and their patients and kind of reinforcing of the of the number of value proposition for them to.
Keep in mind that these are the things that allow us to to sell it at a premium today.
Some of those market share numbers.
Mentioned, where they're all in dollars.
And if you looked at it in units, we have even more upside in units in other words, our market share would be <unk>.
In units than in dollars, because we do sell at a premium price to our competitors and these are some of the reasons why.
What it doesn't do is carry with let's say a price increase for omnia or for that matter a special price just to upgrade the patient to H FX connect.
Okay, Great that's helpful.
And then just we really haven't talked about that and Thats RVP coverage with the three month data out there in any of the discussions you had or seen any impact on.
On the business and better penetration into that segment of the market that we have that three months need out there.
Thanks for taking my questions. Yeah. Thanks, Bill I think probably not meaningful no. There's a lot of discussion that's getting a lot of attention and I think theres a lot of a lot of debate about what this means for patient selection.
It's getting some discussion among the surgical community et cetera, but I think everybody wants to see more than three months of data, which is what we have right now so I think this will be.
Be a little bit more but we've always said that this will be kind of a gradual.
Kind of a piece of background driving overall market growth and a shift from failed back surgery syndrome patients.
A little bit more towards a version back patients and something that would transition over time and be more of a sector effect. In addition, adjusted never affect and we still believe that.
But I think the first thing we need to do is get out there with six and 12 months data before it begins to move the needle at least very much.
Thank you.
Your next question comes from the line of Adam <unk> from Piper Sandler Your line is now open.
Great. Thanks, guys I appreciate you squeezing me in here.
Maybe just two for me first on PD and.
We have the Ada meeting coming up I think that's late June that's obviously, a big meeting on the diabetes community.
You mentioned 12 months data at that meeting how do we think about the format or the air time that that data will be given us at a late breaking clinical trial.
And then I'm curious if you have other.
Activities or things planned from a net ROE standpoint, just trying to get a better sense for what the presence will look like at that meeting and then I had a follow up thanks.
We'll certainly have a presence at that meeting as you know that's a that's a very large meeting focused on.
A lot of other themes other than PD end, and probably would rank in the in the minds of most attendees higher.
And then PD and it's also a very competitive meeting in terms of getting anything accepted for.
For publication. This is not just a paper poster presentation. This is a presentation I don't recall.
Adam I'm, sorry, either the day or the format I think I'd say somewhere between a 10 and 15 minute.
<unk> presentation on the 80 day is virtual.
This year there are a few meetings that are that are going physical this summer at a day is not one of them.
So this will be a virtual meeting we will be we are a sponsor we will be at the meeting virtually of course.
And.
And our assumption is this dataset will.
Come before FDA approval.
So we still will have some inability to really promote but we expect this data set to get a lot of attention to get to get some to get some press as well and then as soon as we have FDA approval, we will begin to make.
A lot more hay with it I'm not sure that helps you as much as you would like but that's what we know right now about a day.
No that's helpful. Keith Thanks for the color there and then just on the follow up I think it's been on one or two questions on.
Product pipeline.
And so I'll add a third to that so.
Obviously, the U S. SCS market has moved to a rechargeable category, which makes sense to me, but the question is would you consider at some point developing a primary cell device just a day a supplemental option to have in the bag for accounts I'm just curious to get.
Your reaction to that and if you think H F can could be potentially.
In our primary cell.
Thanks, so much.
We haven't discussed any plans.
Right now to go to a primary so for.
Form factor.
I think look two things.
F. 10 is is unique in its ability to to offer patients not only have a great quality of life without having to deal with paresthesia and all the downside to come.
With that but also exceptional pain relief.
And the ability to optimize it over time. So there are so many advantages, but there's a there was a cost you pay for all of those advantages and it is power consumption.
So.
We like the ability to recharge the battery it allows us to do more for the patient.
So that's number one going to a primary cell device with high frequency therapy would be not impossible, but difficult in a in an acceptable form factor for the patient.
I would say the other thing is it.
We think theres, a little bit of a tide.
From Payors and primary cell is swimming against it a bit.
Currently payers are I think at least in some cases, beginning wake up to wake up to the fact that they pay the same amount. They reimburse the same amount for a procedure that puts on a device that by design will have to be replaced in a year year and a half two years.
As they do for the implementation of a device that will last something greater than 10 years, we're still figuring that out, but we know it's 10 years or more.
It's just not quite as good a deal for the payers and I think.
We have seen a bit and I think we're going to continue to see some pushback.
And eventually potentially even some differentiation between rechargeable and primary cell devices. So I'm just not sure generally that we think it's the right care for most patients.
Suitable for some.
But for most patients we think a rechargeable device is simply better care and better value.
That's very clear thank you.
There are no further question at this time I will now.
Like to turn the conference back to Mr. Brookman for closing remarks, okay, well. Thanks, everyone. I know this was a very busy earnings week. So we appreciate you spending the last hour with us.
We know you'll let us know if you have questions otherwise, we look forward to updating you next quarter.
Yes.
This concludes today's conference call. Thank you for participating you may now disconnect.
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