Q2 2021 NuVasive Inc Earnings Call
Good day ladies.
Ladies and gentlemen, and welcome to the Nuvasive second quarter, 2020, 1 and earnings conference call I would now like to introduce your host for today's call Ms. Juliet Cunningham Vice President of Nuvasive Investor Relations. Please go ahead Ms Cunningham.
Thank you good afternoon, everyone and welcome to our second quarter 'twenty.
And 21 and financial results Conference call. Joining me today are Chris Barry Chief Executive Officer, and Matt Harbaugh, Chief Financial Officer.
Chris will provide an overview of new base of recent business results and trends and Matt will review, our detailed financial results as well as the company's 20.
<unk> 2021 financial guidance.
And then we will host a question and answer session.
If you have not had a chance to review our earnings release, which was released after market close today. It can be found on the Investor Relations section of our website and Nuvasive dotcom.
The release has also been.
Filed with the SEC on form 8-K.
In addition, we've posted to our website supplementary slides to summarize our results.
If you'd like to be on the distribution list for our IR materials and the future. Please drop me of note and I'll be happy to add you to our left.
Yeah.
This is <unk>.
Call today is being recorded and webcast live to all interested parties the.
Audio of portion of this call will be available on the Investor Relations section of our website approximately 2 hours. After this call and it will be archived there for 30 day.
Our remarks today will include.
A discussion of financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP.
For a full reconciliation of GAAP to non-GAAP financial measures. Please see the reconciliation tables provided in our second quarter 2021 earnings release and the supplement.
Supplementary slides posted on our website.
The discussion during today's call will include forward looking statements. It's our intent that all forward looking statements will be protected under the private Securities Litigation Reform Act of 1995.
Forward looking statements are based.
Current expectations and are subject to risks and uncertainties and.
Actual results may differ materially from those expressed or implied by such forward looking statements.
In particular, there of significant uncertainty around the duration and impact of the COVID-19 pandemic on the company's business.
Operations and financials.
The COVID-19 impact continues to evolve and it's important to note that our commentary reflects our best estimates as of today.
To better understand these risks and uncertainties that may affect our future results. We refer you to the documents.
And that we file with the Securities and Exchange Commission, including New base of most recent forms 10-Q and 10-K.
And they says assumes no obligation to update these statements.
Before I hand, the call over to Chris Let me summarize.
Top line performance.
Face of delivered second quarter, 2021 net sales of $294.8 million and increase of 44.8% on a reported basis of 43.3 per cent on a constant currency basis compared to.
For the prior year period.
Later on the call and that will provide detailed financials for the second quarter and commentary on our expectations for the remainder of the year.
And now I'd like to introduce Chris Barry.
Thank you Julia and good afternoon, everyone.
Earlier today, we reported.
Second quarter 2021 financial results.
All of this call all of them.
Provide updates on our progress delivering multiple vectors of growth and key procedural segments and international markets and our upcoming commercial launch of the post work for them.
We're evolving from an implant and focused company.
And so just spine technology company and the World as discussed we continue to focus on multiple vectors of growth, making deliberate investments in select procedural segments, where we've historically had underrepresent and market share and commercial operations to further globalize our business.
This was reflected in our quarterly performance.
The the launch which was in line with 2019 results.
And I'm encouraged by the progress and momentum we're building for the back half of the year.
Our business continued to show signs of improved recovery across all procedural segments as we began to see stabilization and the U S and key international.
And the markets.
Results and U S. Spinal hardware were driven by continued adoption of our <unk> hundred 60 cervical portfolio and improvement in the Oracle lumbar led by our <unk> procedure with modulus Ayliffe.
And as outlined previously.
There is of $2.6 billion.
Dollar opportunity and cervical and we are committed to taking share and this key subsegment.
And Q2, we saw continued growth of <unk> 360.
Our comprehensive portfolio of for anterior and posterior cervical spine surgery.
Our new base of ACP system, the finished and tourists.
For cervical plate currently on the market is procedurally integrated with our differentiated advanced materials science technologies, the modulus cervical implant and cohere cervical implant.
Yeah.
As we shared last quarter and invasive simplify cervical disc achieved a regulatory milestone of U S FDA approval.
Well for 2 level of cervical total disrepair and April <unk>.
Making it 1 of only 3 devices approved for use and 2 level of ctr of procedures.
This is a truly differentiated product and the market.
These results along with early surgeon feedback and adoption validate our strategic investment and further.
Further our continued growth and 1 of the largest sub segments and spine.
There is a $900 million opportunity and the interior spine sub segment and we are well positioned to continue leading in this space.
And the second quarter, our <unk> procedure was the primary driver of durable and.
And by improvement led by modulus Ayliffe.
Would you be commercially launched last week following successful clinical evaluations.
Modulus Ayliffe as the latest 3 D printed porous titanium implant and our Ams portfolio and it supports our goal of becoming number 1 and a live.
In addition of neutral.
New Journal articles recently published comparing single position surgery or X 360, the dual position lumbar fusion.
The article helps validate the benefits of <unk> hundred 60, outlining shorter hospital time and stays with the X 360, while maintaining similar clinical outcomes.
These results build.
And our prior literature of validation of X 360, a comprehensive system, enabling surgeons, who access every single level of lumbar spine and lateral per.
1 lateral.
And posterior fixation procedures, all why keeping the patient and a single position.
The integration of the ex Liffe ex Ala.
With an expectation of procedures into a single system helps deliver clinical financial and operational outcomes for all stakeholders.
Yes.
Posterior spine surgery is at $1.6 billion opportunity and remains an important growth driver for the company.
And Q2.
So I'll continue improvement and our posterior fixation offering.
Particularly with rely and 3 D used and pediatric complex deformity procedures.
Clinical evaluations for coherent T lift a and <unk> are underway, which expands our course pic technology to the <unk> procedure and will launch later this.
We.
International continues to be a significant contributor to growth for the company and the near and long term.
The recovery and second quarter 2021, net sales was supported by strong international growth.
This quarterly performance is a testament to our investment and commercial operations progressed.
This year and our long term strategy for low to mid double digit growth and our international business.
In particular these results were led by the Asia Pacific and European regions, where leadership operations and commercial execution led to continued expansion of our correspond business in these markets.
I.
<unk> heard from what I've seen however, we have more work to do to further globalize, our footprint and bring our game changing technology to help more patients around the world.
Now turning to innovation.
We increased our investment and R&D expense year over year to advance our innovation roadmap and each procedural segment and our spine.
Timing folio has never been stronger.
Like we did with the excellent procedure.
<unk> has the ability to transport and spine surgery and the trajectory of the company.
The evolution from a spinal hardware company to a provider of a comprehensive spine solution is supported by this first of its kind technology.
<unk>, let me be clear pulse is not just the navigation system pulse is an integrated platform with multiple applications that can be utilized and of 100% of spine procedures.
This differentiated platform helps address some of the most common clinical challenges and spine surgery.
With radiation reduction.
Imaging enhanced.
<unk> Rod bending navigation and <unk>.
For the operative neuromuscular and <unk> wireless connectivity and spinal alignment technologies.
We recently received CE certification and clinical evaluations are underway and 6 European countries.
We remain on track for and expanded launch and targeted global.
Since of the pulse platform later this summer as we currently await U S. FDA 5.10-K clearance.
During the pulse clinical evaluations surgeons have completed a variety of cases from degenerative and deformity pathologies to cervical thoracic and lumbar procedures.
Throughout each.
Regis the seamless integration among all of the technologies and a single condensed footprint is 1 of the most significant differentiators of the technology.
The out cases, it was evident pulses wireless connectivity, which allows everyone and the operating room to easily manage the respective roles while not interfering.
<unk> K search and display is a major step and making surgery and more efficient.
Surgeon feedback continues to reflect our internal expectations and reaffirms our strategy with its highly differentiated technology platform.
To further validate the platform, we recently completed a cat of Eric study comparing.
Bring with the screw placement with pulses navigation to traditional fluoroscopy.
Pulse navigation significantly outperformed traditional fluoroscopy across all categories measured including.
Operating room efficiency screws replaced 40% faster.
Accuracy there was significant.
And more accurate screw placement and safety screw placement using fluoroscopy on average resulted in 14 times more radiation exposure to the surgeon.
Incredible results, which demonstrate the superiority of false and its ability to be and integral tool and the surgical workflow.
And pairings, it's still early days and enabling technology adoption and we see incredible opportunity for the platform.
Pulse is designed to increase safety.
Efficiency.
And procedural reproducibility with unmatched benefits to the surgeon hospital and patient.
With its ability for.
For utilization and 100% of spine procedures.
Participation throughout the entire operating room workflow.
And it's extensible architecture for future applications pulse as the ability to disrupt the spine market.
Nuvasive is the industry leader and surgeon education and training.
Our clinical professional development programs play a pivotal role and helping surgeons adopt our less invasive surgical techniques and enabling technologies.
As COVID-19 restrictions eased and travel began to resume we experienced a double digit increase and surgeons trained quarter over quarter.
Which is in line with our 2000.
The numbers.
Our surgeon training courses scheduled for the remainder of the year support increased surgeon interest and availability.
In addition to our World class training facility in San Diego courses will take place at our East Coast experience Center, which is on track to open later in Q3.
And 19 as we shared earlier today. The company is providing full year 2021 financial guidance the return to more normal business conditions and elective surgery stabilizing provided us more confidence and formulating expectations for the remainder of the year.
As I look ahead, we have immense.
<unk> opportunities in front of us with the strongest innovation pipeline and spine, which enables us to grow across all procedural segments.
<unk> a differentiated platform that has the ability to transform and spine surgery.
And our continued expansion across all global markets.
I remain confident and.
And our long term strategy supported by R&D investment efficiency gains and the supply chain and commercial execution.
Our talented team is committed to becoming the largest spine company and the world and I Couldnt be more excited of what's ahead for new base of.
I'll now turn the call over to Matt to discuss the company's second quarter financial.
And more detail.
Thanks, Chris and good afternoon, everyone I'll begin by reviewing our second quarter 2020.1 results and then discuss our 2020.1 financial guidance.
Net sales for the second quarter of 2021 for $294.8 million up 44, 8%.
For the result of the prior year period on a reported basis and 43, 3% on a constant currency basis.
We saw surgical volumes improved sequentially with some modest variability in May and June.
We believe this volume improvement was primarily related to continued positive recovery and the spine market.
Compared as well as the broader global economy, beginning to reopen.
Signs of recovery and the second quarter continue to support our outlook that we can deliver 2021 net sales growth that exceeds our pre pandemic 2019 results.
U S spinal hardware and net sales were $160.1 million and the second quarter.
<unk> up 47% year over year, and a return to 2019 levels.
These results were primarily driven by continued demand for products within our advanced materials science portfolio within each procedural segment.
In particular, a lift was the primary growth driver within the Oracle.
Order of procedures as we continue to see strong adoption of modulus ayliffe. Additionally.
Additionally, we saw increased momentum and cervical as our <unk> hundred 60 portfolio continued to gain traction and the market responded very positively to the simplify cervical disc which contributed nearly 2.
The loan borrowers of net sales during the quarter.
Simplify was off to a great start and our first full quarter since acquisition and we're working through manufacturing integration and ramping up surgeon training to maximize this momentum for years to come the.
The strength from our innovation and these procedures was partially offset by.
Millions of recovery and ex lift as expected.
Surgeon training, which is typically a good leading indicator of procedural growth continues to pick up as travel returns. We were pleased to see training demand in Q2 exceed Q2.2019 levels.
Moving to the U S surgical support.
Net sales were $67.6 million and the second quarter of 43, 2% increase compared to the prior year period the.
The growth was primarily attributed to increased surgical volumes and our hardware procedures.
International net sales of $67.2 million grew 57%.
The slower 5% on a reported basis and 53% on a constant currency basis year over year.
The strong results led by Europe, Japan, and Asia Pacific and our corresponding business continued despite pockets of COVID-19 impact compared to second quarter of 2019.
International net sales grew by 16% on a reported basis and 12, 8% on a constant currency basis.
As Chris discussed, we expect our international business to be 1 of our key long term growth drivers.
Turning now to profitability non-GAAP gross margin.
And the hands of second quarter of 2021 was 73, 6% compared to 65% and the prior year period.
The quarter over quarter improvement was primarily driven by incremental inventory reserves from pandemic related impacts last year.
As part of our strategy to improve margins.
We are focused on in sourced manufacturing efforts and supply chain efficiencies, which have and are proving to be beneficial over time we.
We expect further benefit and the future as we continue to fully integrate manufacturing and distribution of the simplified desk into our Ohio and Memphis facilities.
And for non-GAAP operating expenses increased to $176.2 million and increase of 23, 2% compared to the prior year period the.
The $37 million increase and SG&A expense was primarily due to variable expenses related to higher net sales.
<unk> expense increased by $2.5 million as planned we continue to make significant investments and enabling technologies with our pulse platform across our global hardware spine offerings, while continuing to integrate the simplify cervical disc into our <unk> 360 portfolio.
Are the strongest innovation pipeline and spine. We believe these investments will fuel our future growth.
Second quarter 2021, non-GAAP operating margin was 13, 9% as compared to negative 9.8% in the prior year period the.
The improvement and non-GAAP operating.
With the margin was primarily due to COVID-19 recovery and the impact the global pandemic had on our business last year.
This improvement was partially offset by the negative impact on non-GAAP operating margin related to the simplify and medical acquisition as expected.
Non-GAAP other.
Operating and expense and the second quarter of 2021 was $1.7 million of expense compared to $6 million of expense in Q2.2020 the.
The reduction in expense for the quarter was driven by lower cash interest expense. Following the settlement of the 2021 convertible notes upon maturity.
Charity and higher unrealized foreign currency gains.
Non-GAAP tax expense and the second quarter was $8.1 million, resulting in an effective tax rate of 26% versus the prior year tax rate of 21, 2%.
And the second quarter, we reported.
<unk> non-GAAP net income of $31.2 million or diluted earnings per share of <unk> 60.
This compares to non-GAAP net loss of $24 million or diluted loss per share of <unk> 40, and the prior year period due to the global pandemic.
Importantly.
<unk> free cash flow for the second quarter was $19.3 million versus $3.9 million compared to the prior year period.
The increase and free cash flow was the result of improved operating cash while maintaining stable working capital metrics.
We ended the second quarter of 2020.
1 with cash and cash equivalents of $204.1 million. This is after we paid of regulatory milestone related to the simplify medical acquisition of $45.8 million during the quarter.
In addition, our dent debt leverage and Q2 dropped to 3.3 times down from 3.6.
And the first quarter, we also have and undrawn $550 million revolving credit facility, making us very well positioned from a capital resources and allocation perspective.
Now I'd like to discuss our expectations for the remainder of the year.
Today, we issued full year 2021 financial.
<unk> guidance, we continue to monitor and evaluate the impact of COVID-19 on our business operations and financial results and our guidance is dependent on the following key assumptions.
First our guidance assumes and ongoing and steady recovery and the U S and key international markets.
Ex tying to normalized levels of elective surgical procedures and the second half of 2021, and secondly, we assume that the impact from COVID-19 will continue to diminish as vaccine availability and adoption increases and patients continue to seek treatment at or near historical levels.
Leading.
If these assumptions differ materially from the actual pace of recovery, we may need to revise our assumptions and guidance accordingly.
With that let me share of our current business outlook for the full year 2021.
We expect worldwide net sales to be in the range.
Of $1 billion $190 million to $1.210 billion the.
This represents year over year growth of approximately 14, 2% at the midpoint compared to full year 2020.
And 2.7% compared to the company's 2019 financial result.
<unk>.
From a phasing perspective, we expect our net sales to be a slight sequential improvement due to the ramp in Q2 procedural volumes, which was sooner than we anticipated.
In addition, we expect SG&A expenses to increase sequentially as business travel returns.
Yeah.
We continue to believe that net sales growth will be weighted towards Q4 with growth and our core spine business and the full commercial launch of our pulse platform.
We also continue to expect approximately $5 million of net sales for pulse this year largely weighted to the fourth quarter.
Turns and we continue to expect $5 million and net sales for simplify and 2021 as we continue to ramp up production as previously discussed.
For the full year 2021, we expect non-GAAP operating margin and the range of 14, 4% to 14.
The 9% and non-GAAP earnings per share in the range of $2.25 to $2.35.
To wrap up we're very pleased with our second quarter 2021 the results at.
At the same time, we recognize there is more work ahead as we prepare and continue to execute on our.
Difficult commercial product launches, which provide new base of with multiple vectors of growth.
We believe our strategy positions us well for above market growth for years to come.
And now I'd like to turn the call back over to the operator to start the Q&A session.
Thank you.
We will now be conducting a question and answer session. If you'd like to ask a question. Please press star 1 on your telephone keypad and the Gulf of.
And Mr tone will indicate your line is and the Q.
You May press star 2 if he would like to remove your question from the queue.
For participants using speaker equipment and may be necessary to pick up your handset before pressing.
And the Star keys.
And in the interest of time, we would.
And being able to answer as many questions as possible. Please limit yourself to just 1 question.
And now we will pull for questions.
Our first question is from Matthew O'brien with Piper Sandler. Please proceed.
Afternoon.
Places I can go here, but I think I think for for the story of specifically Thats. The most interesting.
And then I heard today was just this double digit increase and the.
And the number of Radnor I would never of Docs that you and trained during Q2 can you talk a little bit about.
Those clinic.
Are they are the existing clinicians or the new are you getting some people back from.
Competitors that you've lost and then and simplify specifically, helping you or the <unk> hundred 60, specifically, helping you accelerate some of the growth and that and the new the new docs that you saw here in Q2.
And thanks, Matt I appreciate the question.
It's a bit of it's a bit of all of the things that you just mentioned, we're bringing in and clearly we've had a bit of of pent up demand. That's opened up and we saw double digit growth comparative sequentially quarter to quarter and the number of surgeons trained.
So all things considered we're ramping.
And by our ability to train on and simplify I think thats, garnering interest and the portfolio. We continue now to react to reestablish the focus we had with extra 60 pre pandemic.
So all in all just a just a probable growth pent up demand and just the normal training that we've that we've traditionally done so it's a little bit of everything.
<unk> I think the broader portfolio is attracting a new subset of surgeons to our campus that likely hasnt been there and the past specifically and the fact that we didn't have certain aspects and we talk about multiple vectors of growth. We think that will continue obviously, we talked a lot of about the experience and on the East Coast. We think that also expands our reach so that's still and our future but.
<unk> all positive signs positive indicators that the market is returning with the number of people, we're seeing come through and training.
Okay.
Thank you our.
Our next question is from Robbie Marcus with JP Morgan. Please proceed.
Hey, guys. This is actually Allen on for Robbie just like the first the question you gave a little bit of directional guidance on third quarter. I. Just wanted to ask you about kind of specifically of the trends that you are seeing so far in July and also just the throw it out there I think right now the street and kind of that.
And I guess, they're kind of $13 million number on the top.
Okay, 65 cents and the bottom is that like an appropriate range for us to begin just in light of the the guidance you provided today.
Thanks, Alan and I appreciate the question.
And let me just kind of back up and I think I'd look at Q2, we sort of mentioned this and some of the prepared remarks, but we saw continued sequential improvement April through June.
And interesting enough in June we really saw a return to what the pre COVID-19 seasonality look like.
So for all intensive purposes, we're seeing trends of the full year sort of playing out the way we thought it was with the exception of June was better than we expected now coming into July as you know the seasonality specifically in the business you have holiday.
And vacations that happen I think that's actually even more pronounced coming out of the pandemic.
But but we're seeing that returned and or normal seasonality. So for the full year, we're right on track, where we're super excited as we've talked about with really the some of the key investments coming to fruition with with cervical with our focus on <unk> the.
Yes, the launching pulse and as we've continuously of international business really just just produce really strong results. So Matt and I know if you of any of that on that yeah, Chris the only other thing I would add is that.
From a net sales perspective.
I would say, we're looking at the third quarter to be likely and.
Kind of the low 3 hundreds.
But really nothing has changed it's just kind of inter quarter change and we're seeing here, we've been saying since February that we're going to be plus or minus against $1.2 billion and obviously and the guidance. We provided today, we still feel very confident that that's a good range for us to deliver on a full year basis.
Thank you. Our next question is from Joanne Wuensch with Citi. Please proceed.
Good afternoon, and thank you for taking the question and I spend of.
Little bit of Taiwan pulse with the CE Mark approval in June it sounds like you're looking near term for the form 10-K, okay and the okay, Okay and the.
The U S.
And also how you're thinking about rolling out instead of 6 countries and then into a more fulsome launch. Thank you.
Thanks, Joe and thanks for the question Les and number 1 we're very excited about the pulse system and we do.
Did receive CE mark.
Earlier, and we've been doing as we talked about clinical valuations and 6 European countries.
And we are to your point, we're literally waiting day by day on the FDA 5.10-K approval.
That will then kick off the valuations that will schedule for the U S market as we roll it out it's really going to be relegated on phase 1 I would say with western Europe and U S.
We feel like we've got a we've got good demand.
And we've got good line of sight to delivering what we say, we're going to deliver and I've said, all along with the with pulse that we're being disciplined on how we roll. It out you know, we're making sure that we we we obviously have been building a pipeline to sell the product we've been building flexibility and a portfolio of options to offer our customers want to make sure.
Sure, we and serviced appropriately and install the system to actually do what we've talked about which is participate and 100% of spine cases. So.
And we're being very disciplined, but we feel very confident and how we roll of the product out and what it represents for us for us going forward.
From there we will start to move into other regional geographies over the 2020.
And beyond but as we as we look forward over the course of this year really in the Q4.
Rolling through Q3 of the clinical evaluations and looking to fully start to commercialize and the Q4 time frame.
Yeah.
Thank you. Our next question is from Josh Jennings with Cowen. Please proceed.
2 of them.
Yeah.
Hi, Thanks, Good afternoon, I wanted to follow up on the question some of ours.
Checks with surgeons that have attended the base of training sessions and then.
<unk> got some.
And introduce to pulse.
Latest generation of pulse.
And if there's a little bit of buzz created especially around the base of loyal the surgeon and I was wondering how much of you'll able to train surgeons of upholstery of pre approval and maybe you can just give an update on the U S demand funnel of it.
And we've created here and.
Thanks for taking the question.
And thanks, Josh I appreciate it and you know where we were.
We have got and I think we've talked about this and subsequent calls the.
And the latest iteration 1 of the things that we're excited about you know, we believe really hit the mark and it's been echoed through.
Through the through the voices of our customers that are come in we are limited and we can't fully trained on the technology and the U S until we get fives and.
We've had people and the lab setting test driving and seeing how the how the product performs.
We have and more recently, we haven't been and the clinical setting and the European market and it is further validated exactly what we've seen in the lab setting and the U S. So we're excited we're waiting on the FDA approval, we are ready to go with our training in the U S.
To start that process quickly, we've got our testing sites of established and as soon as we can at 500.10-K will be moving into clinical evaluation and the U S.
There was a cat of Eric study that recently came out that I think really showcases the power of the system.
It basically measured efficiency accuracy and safety and 1 of the things I've talked a lot about.
Care for you know the value of pulse and I said in my prepared remarks, it's not just the navigation system and integrated system that provides the host of application and it's shown and the fact that.
And you know first traditional for us coffee, what should I would remind you 75 per cent of cases are still done with traditional fluoroscopy. It showed significant fastest screw placement.
It showed significantly better accuracy and and also showed with the integration of less rate and the technology and ore and the platform a significant reduction of braskem be to the staff and to the surge and so I think the first to really represent how this would line up against the traditional.
Additional way to do surgery, I think that last 1 is critical when you look at the incumbents at 25% of the market that is occupied by competitors, we believe the system and what's integrated and the application of within pulse truly differentiate us. So we're excited.
And we're moving quickly we're doing it the right way and clearly waiting on the FDA, but we feel very very confident that we're within.
Days of getting that getting that 5.10-K approval Josh the only other thing I'd add to that because you had asked about demand we feel good about that $5 million, we feel good about the demand, but I'll just echo what we've been saying and are now for a number of months, which is the lion's share of the net sales that we're anticipating and the $5 million.
The number that we.
If there is going to come from the U S market, but there are and a few of them and in Europe.
Thank you.
Our next question is from Matt mixed sick with credit Suisse. Please proceed.
Hey, Thanks, good afternoon and.
Put out of the kind of really strong quarter.
And I'll just ask maybe 1 question about the the environment.
And sort of what youre seeing across different regions.
<unk> heard a lot of different types of comments from the folks that have reported spine business metrics, so far and things like.
And congrats deferrable more deferrable Navy more affected by variability across the country.
The U S numbers look really strong and sequentially improved as youre, describing and just wondering what if anything that you are seeing in terms of the variability across the U S and pockets of strength areas of weakness any.
The effect of Delta and any.
Any color you'd provide overseas it would be super helpful. Thanks.
And thanks for the question Matt.
Welcome to the Delta last the Delta question I think that's something that's kind of playing out as we speak but generally speaking we saw and 1 of the things. We're encouraged by was more you'd.
And the market and the U S. Specifically during the quarter and I see uniformity I'll say, the where the context that we saw sequential improvement April to May to June so sequential improvement and more uniform volumes coming out of the U S. So I'd say that gave us good confidence that we're sort of past the pocketed.
And of foreign areas now.
Ill hold my breath on will that hold through the quarter based on what we're talking about and the Delta variant.
But and the international markets, it's still a little bit choppy and the European market. The U K, it's still a little bit sluggish.
So were still watching certain countries Asia Pac has.
A real strength for us specifically in Japan.
With a little bit slag slower laggard and some of the some of the Asia Pac countries and in Australia, New Zealand, but.
So I would just say in general more uniformity and the U S still little of Choppiness International with some real standouts like.
And in some key European countries, we're still moving moving forward now the Delta variant I think creates a bit of a.
Our concern and I think for everybody.
I do believe that the market is more equipped to manage I think the big question is what patient sentiment.
The play into any deferrals of procedures and maybe that's worth.
Japan and neutral original part of your question was do we see any.
Spine more.
Exposed to deferrals, and then maybe hips or knees I don't really have a great answer for you. There. We clearly saw pretty quick shutdown during the Covid situation, we saw a pretty quick return.
But certain pockets were a bit sluggish.
I think I think time will tell we're hopeful that we move past the delta Varian and move back into more normal business as we as we go for the next several weeks and months.
Yeah.
Thank you.
Our next question is from rich <unk> with us.
<unk> Leerink. Please proceed.
Hi, maybe I'll, just squeeze 2 quick ones and.
The the first is.
You mentioned, the the training demand or the demand for training and equity since the very encouraging data point, there exceeding 2090, <unk> 2019 levels and that was.
You know that that was that was the very.
And a high watermark for you where growth is accelerating and the business I'm curious what the timeframe is between training and actually getting to adoption and you know what.
What is the time time GAAP for the lead time, there and then the second question just can you walk through the puts and the take in between recovery that's anticipated in the back half.
The normal seasonality, what you called out and and abnormal vacation and that you also called out.
At the same time and backlog work out and I'm, just trying to figure out what's contemplated into your back half guide there amongst those pushes and pulls things.
And thanks, Rich I'll take the first of all I may have not helped me a little bit on the second.
And 1.
On the on the training, we usually look at a 1 or 2 quarter turnaround on when we see training.
And I really.
The result, and adoption, we track everything pretty closely but when the process of ramping up our campuses as lively again on Friday and.
Which is of great great thing to see and so under under historical rates. When we look over the next couple of quarters for that to really start to then.
The result, and adoption of the key technologies I would just say it isn't just ex 360 of our training on anymore. It's also of <unk> 360, it simplify so we've got a multitude.
Saturday you talked a lot about multiple vectors of growth and now fully playing in that and the and the broader spine market inclusive of the $2.6 billion of global cervical side in the segment and then obviously as we move into the next several weeks and months training on our pulse system.
And we didn't gives us a unique opportunity to take advantage.
Okay.
Of the opportunity, we see now within the broader portfolio.
As far as what the puts and takes are of letting my favorite of them.
Yeah happy to answer thanks for the question.
I'd say look our June as Chris mentioned earlier on a previous question, we saw a lot more uniformity.
And so we kind of feel like we saw some.
Volume.
In June the we had kind of forecasted back.
And the late April early May timeframe, when we did our last call. We kind of we're thinking of it was going to happen more and the third quarter, but we saw started seeing and kind of manifesting itself in June because of the uniformity and so that's why I said.
Earlier.
And we're thinking that the third quarter will be and the low 3 hundreds that's great. Because if you think about it if you're comparing the $2.91.
From 2019 that kind of gets you and kind of the mid single digits range. The.
The pre Covid we saw.
And then as you're getting into the fourth quarter, what you're getting is is continued underlying strength and the business and then you add and simplify you add impulse youre getting more out of <unk> hundred 60, and generally the fourth quarter. When you don't have a pandemic going on Ah is typically our strongest quarter as well so that's why.
We feel confident.
Confident and have since February around this $1.2 billion range and obviously the guidance range of $1 billion 190 to 1 billion and $2.10 puts us squarely with what we've been saying all along.
Yes.
We will thank you. Our next question is from David Saxon with Needham. Please proceed.
Yes, thanks for taking the question.
I guess just wondering if we can get some more color on each of the businesses I mean, it sounds like international despite the choppiness should grow double digits.
Year on year at least.
But just wondering if you could give some color on the domestic business and specifically for surgical support.
I mean, that's tracked below 2019 levels. So in the back half relative to 2019 do you think that that can grow and if so.
So.
And maybe what what can drive that thanks, so much.
Got it thanks, David and thanks for the question I'll start with sort of the domestic international split on the hardware side, and then I'll move to surgical support, but we've sort of covered some of this but we feel and theres more uniformity and more predictability and the U S market and.
And that coupled with the fact that the key launches and the key areas of focus that we've developed over the last couple of years are really coming to market.
The the cervical portfolio, our pulse system, our focus on continuous training and defending our leadership position and the and the anterior lateral space our growth of a lift.
All.
All brings us into a stable market environment and the U S. International we were still very bullish on.
We're hitting that we're hitting our stride with still certain markets that are still sluggish and having impact of the pandemic. So we feel very good about the domestic international segment.
And so our surgical for support we've been challenged.
<unk> on the and on the on the NCS side. If you look back of 19, we had ran and ran some pretty solid numbers on billing and collections. So we're running against the bit of a tough comp and the back half that coupled with that that business really grows with the rate of market and has been a bit of a laggard to return for us. So it's going to be a bit of a drag for us.
Yeah as far as NSO.
We've had some some product related.
Issues that we had to resolve were and the good news is we're resolving those as we speak.
And thats been a bit of a drag we expect that to come back and submit the function of timing of when that really comes back for us all of which are contemplated in our guidance. So there is nothing I am saying.
Within any of these overview of these businesses that that materially to track from anything we've said, they're all contemplated and what we've said and we feel very confident and our ability to overcome any of the drag that we may see and take full advantage of the opportunities I spoke of.
Thank you. Our next question is from.
And the bathroom with true Securities. Please proceed.
Hi, guys. Thanks for taking our questions and so just on the simplify you know you said I think you generated about $2 million and in Q2, you're expecting on the 5 million for and that's all year because of manufacturing as you said I mean do you think that these manufacturing and she is.
Hey look for all of or by the end of this year and and if that's the case and how big of a product could this be next year I mean, it's something.
5 to 30 million you know totally off the table just would love to get your.
And your thoughts on the longer term. Thank you.
Thanks, Kayla and just let me.
Or is it always find it interesting.
It won't be the answer some of these questions, but I just want to make sure that we level set.
We just purchased the technology this year, but the first case of this was done in December of 2020. So I just want to make sure that we're clear we don't have manufacturing issues, it's just ramping up and it and transitioning the manufacturing capability that the.
The company had versus integrated and and what we're going to do with it. So it's all about transitioning the manufacturing to west Carrollton, which is the PMA product, which has some complexities to it and where.
As we speak of working diligently I'm very hopeful to be able to give a different answer to the $5 million question this year and be more clear.
And what the numbers of what it looks like next year I can tell you we're selling as much as we can make right now and our our supply.
And our demand I should say well lot of strips are current supply.
And as I sit here today, we haven't transitioned to 2 west Carrollton, and but we're in the process of making that happen and there are some hurdles.
Hurdles and some milestones we have to achieve in order to make that happen, but we're very confident of the 5 million and I'm hopeful if we can move past those milestones in Q3, we opened up upside for us potentially and the Q4 timeframe that leaves us in the next year I haven't commented and I know there's been a lot of speculation, but I don't think your numbers are too far off what was possible we got to execute.
We've got a we've got to get our training education and order, which we're doing as we speak we get out of manufacturing and order, which is the long pole and the tenant.
But having said all of that and assuming we're going to do all of that I think I think we're within reason to think this could be a really big product force and in the next couple of years yeah. Okay. All of the only thing I'd add to your question.
Put a finer point on and I think Chris covered it but to the crystal clear the.
The 2 million its really a signal of just how strong the demand is in the marketplace for this product and so once we work our way to the supply issues and we know we've got good demand out there and that's why we're so excited about the acquisition.
<unk> and where we can go with it. Thank you for the question.
Our next question is from Kyle Rose with Canaccord Genuity. Please proceed.
Great. Thank you very much for taking the question I wanted to see if you could touch of just a little bit more and on the strength of seed and cervical and.
Just moving to.
Help us understand what the customer base looks like there and I guess, what I'm really trying to understand it and can you convert entirely new customers with the 360 <unk> such that you can then cross sell and some of the more complex the higher ASP type products or is it and see 360 really more about just capturing the.
And maybe kind of a dollar from the existing nub of customers.
Oh, Thanks, Scott I appreciate the question.
Simple answer is yes, we believe we can reach a whole new customer subset with the C 360 of that havent hasn't necessarily being interested and our and our business in the past. The when you think of it we've been more of the Oracle lumbar.
The space leader.
And many surgeons that we that we speak to or that are that are doing the cervical cases are highly specialized and cervical and treating cervical spine.
So we believe and we're seeing that come through and some of the training and education and <unk>.
Engagements that we've had of people that are familiar with new bases.
Becomes now.
How interested and where we're going and that that's a testament not only to the simple ambition.
And we met the to really overhaul our tire our cervical portfolio.
Some of the <unk> anterior cervical plate and we've launched and the and the benefit of it actually creates being the discipline the market.
Extending our for your reputation system now to rely and see and just the investment of that represents 2.2 what I consider to be of space that has not had a ton of innovation and the past couple of years, maybe the past several.
It's truly creating a new interest for us and and and this is exactly what we were hoping for by investing in the space and as a reminder, sort.
Cervical as a as a $2.6 billion global market opportunity. If you look at the entire interior space is 900 million and the post aerospace as 1.6.
Winning and breast and cervical represents a tremendous growth opportunity for us over the next several years. So we're excited and we're excited to meet these new folks that are coming in and interested in and our cervical portfolio.
Thank you. Our next question is from Anthony Petrone with Jefferies. Please proceed.
Okay.
Okay.
Hey, Darren can we hear you.
Great. Thank you very much apologies and shot in between calls.
Just kind of stay.
Stan cervical for a moment and and trying to just.
Todd the not between the $2.6 billion opportunity for you.
The call out globally for cervical just wondering the the currency $3.60 ports.
Folio is everything in net portfolio at this point to tackle that global opportunity and then the follow up there would be on the simplify level 2 FDA clearance how much specifically is that motion management piece of it in the U S. What percent of motion management.
Constitutes the 2.
6 billion, thanks, a lot.
On the $2.6 billion segment, I would say, where our portfolio of fully fully fully fully equipped now to go completely out of that market. We have we have the full instrumentation set we have the implantables.
And the posterior fixation and now we have the.
The total disc replacement with the with the with the simplified this that we believe fully equips us to take full advantage of the market opportunity.
On your second piece of that I'm, sorry, and just trying to remember what you said on the on the 2 level of indication listen it and it represents.
Maybe a lower percentage.
Of what's being done, but a lot of the a lot of the a lot of the surgeons were interacting with don't want to use 2 different disk for a single level or a 2 level. So we think it plays heavily there's only 2 other companies out there that have a 2 level of indication.
And so we're walking through we're walking through that now.
And to understand which you know how and what is the percentage.
And is that due a 2 level.
C to the or versus the single level, but what we're finding is it's meaningful for us to have that indication with the eyes of our customers. So we think it's important we think it puts us into and a very unique position and again going back to the value of simplify really striking that technology striking the balance for and mobility and stability.
With that tool of and indication not only gives us the 2 level of vacation benefit versus all of their desk. It also gives us benefit over the existing.
Competitors that actually have the feel of a indication. So we're excited we were obviously talking about getting out of our supply up to meet that demand, but we feel we feel the demand is there.
Yeah.
Thank you. Our next question is from Matthew Blackman with Stifel. Please proceed.
Good afternoon, everyone. Thanks for taking the question I was hoping you could talk to the procedure mix you saw in the quarter, just curious and it was skewed in any direction, either higher revenue generating procedures or perhaps.
And some more straightforward of cases and as we think about the second half of the year do you think there is opportunity for any mixed tailwind as you claw back more of these deferred procedures some of which as we've talked to clinicians maybe disproportionately more complex and therefore, a higher revenue per procedure opportunities. Thanks.
Thanks, Matt I don't know that we.
Necessarily I mean, let me go back during the pandemic I think we saw some lag with some of the more complex decisions based upon our procedures based upon the fact that there was health care of scarcity of if you will there were limited ICU has a limit of hospital beds and so there may have been a deferral of more complex because of that.
And the associated with them.
And that's that that that mix shift I think sort of evaporated for us earlier in the year and we saw although lower volumes more consistency and more historical mix.
That hasnt necessarily changed.
So I don't necessarily look for more complex cases to come back into the skew that there are.
Acuity Aldi.
There is seasonality to our to our mix kids that are on break specifically and the P segment that are doing high level of deformity of our early scoliosis cases happen and certain parts of the year of the Christmas holiday or are the end of the summer or beginning of the summer things like that our normal seasonality and that's.
Season, and what we're seeing so I.
We will keep a close eye on it but I don't expect any massive mixed shift or either detriment or benefit to 2 to 2 and anomaly and the mix over the course of the year.
Yeah.
Yeah.
Thank you our next question is.
That's kind of range with Morgan Stanley. Please proceed.
And I'd ask your question.
And you talked to earnings and ease.
From the.
But just on the hospital administration and side kind of as you're entering the back half of the year with pulse kind of what's your confidence level and being able to approach the hospital administrators and increasingly so and then with the ASC setting anything new to offer up there I think that you are bringing in some new leadership, maybe earlier in the year.
The company and 1 was just pretty hostile to Australia, and the later and if that company and the polo at that kind of any update would be appreciated. Thank you.
Thanks, George and thanks for the question.
Listen you know 1 of the things that we've talked a lot about is established and these multiple vectors of growth to become more outside.
Outside of just the surgeon, but become more to the hospital.
Year, but.
And we've invested in new capabilities throughout the organization to <unk>.
Our increasing level of the port of our increasing portfolio. So you know we were selling to.
Degenerative surgeons doing lateral cases now we can sell the entire extra 60 portfolio.
And we're leading now and driving our elites portfolio, we've got a full gamut of cervical opportunities our portfolio.
Complementary and we got that.
At the center and a whole lot from the also provides the right rabbeting hit or interest.
And ideally you always got collateral.
Portfolio of your proposition to hospital administration, and I think we have to bring these technologies to market first and so I think our first step is happening as we speak but we have and the process of building of the portfolio invested in and capital sales leaders, we've invested in and AFC leader, we've continued to bolster our and our corporate accounts of.
And on the horizon for robotic opportunity. So we think that elevates our operating about accounts capability to start to become.
Proficient and selling at the C suite, and really really really transition and the value proposition of ace. It from just a great portfolio to help of surgeon and a patient to truly of value driver for the hospital system. So we're on our way to taking advantage of that opportunity, but I would.
Nationally and I got to walk before we can run and step 1 is launched and these technologies and showing success over the next couple of quarters.
Thank you. Our next question is from Craig Bijou with Bank of America. Please proceed.
Good afternoon, and thank you guys for.
We can take the questions and just a couple.
Couple of quick 1 zone.
Pulse most so most of the $5 million that you guys expect this year, that's going to be.
And Q4 as you said so is that a good way to think about the quarterly revenue run rate from pulse going into 'twenty, 2 and then maybe assume some.
And for some sequential growth there and then secondly on pulse just wondering again and any update on the robotics platform on.
And timing there.
Yeah, Great Craig I'll start with your first question and I'll turn it over to Chris to talk to you and robotics timing.
No the $5 million really it was.
Kind of of base I would say obviously, we're in launch phase so it's not that would not be.
A good number to use as a run rate into 2022, obviously, we are just and the initial phase of launching in Europe, and we're waiting to get approval here in the United States.
For the end of the summer so it's a bit premature.
For us to kind of throw numbers out there as it relates to 2022, but.
And do not use the $5 million and use that as the run rate into next year that would be a.
Very conservative from from our perspective.
And I'll take a shot of the second 1 on the robotics side really no no no change the way we previously communicated.
Your fate of the timeline the targeting is still and the 2020.2 time frame for our first in human.
And we're building out continue to build out our capabilities on the on the R&D side.
Hi, Roboticist and continue to evaluate.
Our timeline and where we've established milestones and we were looking.
Looking towards moving into the phase, where we're looking at regulatory approvals.
But we're right now continue to build out that platform and and the process of of of launching out the the pulse platform, which again well how's the robotic technology, we look at robotics as the next application of pulse, so getting pulse out and getting that.
System integrator getting the system installed and getting that system using 100% of spine cases, we think provides a tremendous launch and ground for us to it and introduce robotic application. So no changes what's been previously communicated we will continue to update you and subsequent quarters as the as we make progress.
Thank you. Our next question is for Matt Taylor with UBS. Please proceed.
Hello, and thanks for taking the question.
I wanted to ask 1 on NAV.
And the reversal of the the voluntary ship hold and.
Was just wondering if you could characterize what impact that can have work.
And maybe what the whole that.
The market.
As you bring it back and the second half of the year.
Yes, Matt very simply it.
It does create some volatility and the third quarter, but everything.
It was taken into consideration and the 1 point.
And plus or minus the 119 out of the 1 to 1 O that we put out today, our formal guidance if you will.
So.
The numbers that I've put out here on this call are consistent with how we view that unfolding and I'd just say on that Matt we've seen product available of challenges with that business, but pleased.
To build and we've done with the F D. A to help make the magic system available. This is these are very high risk patients and so.
We're excited of the fact that that that we're now focused back on supporting our surgeons with the case demand. However will probably take some time to bring this back to for a full product capability and fully to market and we're still obviously working from and.
With the war perspective of the other global regulators to do the same but all in all.
And as Matt said, it's contemplated in our financials and we feel like we're on track.
Thank you.
Mr. Barry There are no further questions at this time I would like to turn the call back over to you.
And at Ash comments.
Thanks, Joe and thanks, everyone for joining us today I just want to thank.
Everyone for participating.
Got it by the long term strategy I truly believe we will continue to drive diligent performance across our business and deliver innovation that benefits, our surgeon partners health care providers and most importantly patients around the world.
And for clothing for speaking to you all again next quarter. Thanks.
This concludes today's conference you may disconnect. Your lines at this time. Thank you very much for your participation have a great day.
Yeah.
Yes.
Yeah.