Q4 2021 Nevro Corp Earnings Call
Please wait the conference will begin shortly.
[music].
Please standby we're about to begin.
Good afternoon, My name is Paul and I'll be your conference operator today at this time I would like to welcome everyone to Nevertheless, fourth quarter of 2021 financial results Conference call.
Lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question.
Okay. Thank you I would now like to turn the call over to Julie Dewey for introductory remarks. Please go ahead.
Okay.
Good afternoon, and welcome to <unk> fourth quarter 2021 earnings Conference call. We appreciate you joining us.
Julie Dewey Narrows, Chief Corporate Communications, and IR Officer 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 fourth quarter business results from Keith followed by detailed financials and guidance from Rod and then we'll open up the call for questions. Please note. There are also slides available related to our fourth quarter performance on the <unk> Investor Relations website on the events and presentations page.
Earlier today never released its financial results for the fourth quarter ended December 31, 2021, a copy of our earnings release is available on our Investor Relations section of our website at <unk> Dot com.
Call is being broadcast live over the Internet to all interested parties on February 23, 2022, and an archived copy of this webcast will be available on our Investor Relations website.
Before we begin I'd like to remind everyone that comments made on today's call may include forward looking statements within the meaning of federal securities laws, our results could differ materially from those expressed or implied as a result.
Certain risks and uncertainties, please refer to our SEC filings, including our Form 10-K to be filed later today for a detailed presentation of risks the forward looking statements in 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 <unk> ongoing business performance non.
non-GAAP adjusted EBITDA excludes certain litigation expenses interest taxes, and noncash items, such as stock based compensation and depreciation and amortization.
Please refer to GAAP to non-GAAP reconciliation tables within our earnings release, and now I'll turn the call over to Keith.
Thank you Julie and good afternoon, everyone I'm going to focus my comments today on our fourth quarter results. The current state of our business and Covid recovery and on our <unk> launch following my comments Rod will cover the specifics of our Q4 results and our 2022 first quarter and full year guidance.
While the current Covid environment and related headwinds remain challenging we're pleased with our fourth quarter results, which were well above the high end of the most recent guidance range, we communicated for both revenue and adjusted EBITDA.
Both U S and international revenue were impacted by Covid related issues, particularly in the last two weeks of December .
The omicron variant began to spread widely we.
We were really encouraged by the level of recovery and procedures up to that point, however, which had been steadily improving since July and began to approach our highest historical levels. In late November early December . We believe this is an encouraging indication of how our market will respond as we began a more durable recovery.
We continue to be excited about the PDL opportunity, which I will discuss in more detail shortly as well as our recent FDA approval for a specific indication to treat non surgical or MSR VP patients.
All of this progress further differentiates our high frequency paresthesia free SCS technology.
We're confident that throughout two difficult quarters, we've laid the foundation for attractive growth when the impact and uncertainties of Covid on our market subsides.
Now, let's take a look at actual procedure activity compared to prior year Q4, total U S permanent implant procedures decreased 5% while trial procedures increased 3%.
Compared to the fourth quarter of 2019 U S permanent implant procedures decreased 7%, while trial procedures decreased 5% as I said, a moment ago trial and permanent implant volumes were impacted by Covid related issues in the second half of December most.
Mostly.
Oh Mcright impact continued into January so encouragingly the worst of the impact seems to have been relatively short lived and we were already beginning to see some stabilization and improvement by the end of January and that has continued through February .
The impacts of a surge like this one include changes in patient behavior increased hospital restrictions on elective procedures and the exacerbation of already existing staffing shortages.
From a volume of procedure standpoint, this shows up in lower new patient visits cancellation of cases already scheduled and.
And an increased difficulty in scheduling cases in the or particularly Perm cases, which has the effect of extending the temp to perm conversion curve and pushing revenue generation further out.
These impacts are felt across all SCS patient categories by the way.
For these reasons, we are providing first quarter guidance. In addition to full year 'twenty two guidance and Rob will cover this in more detail later in the call, but as you'll hear this guidance assumes no new material waves of infection for the balance of the year and therefore, a steady improvement in procedure volumes throughout the rest of the year with a return to solid growth in the <unk>.
Half of the year.
Since our last quarter call. We once again completed additional market survey work with our physicians and patients to gauge the progress of the SCS market recovery at all.
A high level nothing has really substantively change.
We believe the patient reluctance to reengage and willingness to differ which of course has been an issue behind the relatively slower SCS market recovery.
<unk> signs of improving.
The impact of capacity constraints related to staffing shortages at health care facilities, probably grew in the last quarter. However, we believe that will likely improve throughout the rest of the year.
And importantly, our data still confirms to us that the underlying fundamentals of the addressable market and the opportunity for attractive rates of growth remain intact.
Finally from a relative performance standpoint, our share of market, we continue to see high variability in quarter to quarter results. Among all market participants, though we feel like we have continued to win in a difficult 21 markets and in fact throughout the pandemic we.
We don't yet have U S claims data to look at procedures through the full year 'twenty, one, but on a revenue basis. Our U S revenues were roughly equal to the full year 2019, while we believe the total U S. SCS market was still down about 4% year over year.
So let me close this portion of my remarks by concluding that we're growing more optimistic that the worst of the COVID-19 impact on our business may be behind us.
Patient and physician interest in pain treatments remains high.
After a very tough two years of Covid, we continue to see signs of recovery with a steady pickup in trial activity that occurred within the third and fourth quarters of last year.
And with the early signs of post omicron stabilization in the business that we're seeing in the first quarter thus far.
Although there are residual effects from the pandemic, such as economic impacts and staffing shortages, which are harder for us to predict we're hopeful that the omicron variable will be the last meaningful wave at least in terms of its impact on elective procedures and that will begin to see some relief in our core lower back and leg business by the end of the first quarter that will then continue to improve throughout.
The year.
In addition, we're excited with the progress we've made in our PD and launches the only provider of high frequency paresthesia free therapy approved by the FDA for patients who are struggling with debilitating PDF <unk> or painful diabetic neuropathy.
And who are unable to find relief with currently available drug options.
Based on published data are H FX for PD. One therapy is the most effective SCS solution for pediatrics with the highest responder rate at 86% the highest average pain relief at 77% and the only system could demonstrate neurologic improvements.
While still nascent the first six months of this launch have reinforced our excitement about our PD indication and how impactful. We believe this will be for both providers and patients.
We're very encouraged by the high levels of interest among referring physicians and patients early trial volumes and the validating clinical outcomes in those patients who have already received their permanent implants.
Worldwide <unk> revenue in Q4 was approximately $4 million in Q4, PDL trials grew 93% sequentially compared to Q3 and represented approximately 7% of our total U S trial volumes for the quarter growing 8% in the month of December .
Before I provide further details on our strong <unk> launch progress I wanted to address Medtronic FDA approval announcement for PDL.
The press release that we issued formally responding to that approval speaks for itself in terms of detailing the superiority of our high frequency data in these patients so I won't repeat that detail here.
Tough to say that we offer the most effective therapy supported by the most robust evidence in fact, I think there's a lot to feel good about here for a couple of reasons first and as we've said one of our overarching goals for a successful <unk> launch has been generating awareness with referring physicians and patients and this is always a big lift in our new.
A market like this one so having a second market participant raising awareness about this indication with referring doctors and patients can only be helpful. In developing the referral channel and an accelerating market expansion.
Second from a competitive standpoint, let me say I think there is now a pretty bright light on what we've been saying all along and that is that low frequency just doesn't work very well in these patients. After all the referenced studies were published eight years ago and if the data had been persuasive to the clinical community back in 2014, the PD end market for low frequency SCS.
Would probably already exist.
We now have is a very stark contrast between outcomes using our high frequency non paresthesia treatment with low frequency paresthesia based treatment, which is summarized by the way on slide 12 in our Q4 investor deck that is now up on our website.
The responder rates in the sense of PD and trial will roughly double those of the study using the Medtronic device. It is one of our key investigators said recently and some of you have heard me quote we've known for years, you don't treat paresthesia based pain with more paresthesia.
In fact, we recently fielded PD and market research with a random sampling of pain specialists and of physicians, who indicated medtronic was their primary SCS system.
70% found the number of PD and data more compelling.
In addition, roughly two thirds of the same Medtronic users indicated they are more likely to use 10 kilohertz therapy to treat <unk> patients after reviewing the data.
This competitive proposal doesn't impede our opportunity for success or dampen our optimism for this market. This is an enormous potential market and the superior outcomes and patient experience with high frequency in these patients will continue to put us at an advantage.
Our PDL referral sales team has called on close to 10000, referring physicians and over 900 patients have now been referred to see a specialist which is up 80% from our last call. We're finding the unmet needs of these patients are top of mind with our referring clinicians and many times, we've been entrusted with patient referrals on the initial call.
Among our early treated PD patients we're seeing the results we would expect based on our clinical trial outcomes and we're working with the referring doctors to make sure that they are aware of the very positive results in their patients after the treatment.
Just on the success of our Purion referral sales team in educating these referring physicians, we're planning to expand this team by around 50% during 'twenty two and we will be moving all of these team members from their current roles with our market channel partner to in house never team members.
Also encouraging is that our core SCS sales team, calling on our existing pain specialists is gaining access to new implanting accounts that didnt previously implant or used narrow products <unk> is opening doors for us with these customers and many have already begun using effort not just for <unk>, but for lower back and leg pain as well.
Our customers appreciate the investment we've made in our technology and the quality and outcomes of our trial and resulting approval and.
And the opportunity to treat a new class of patients that has for the most part not previously been treated by SCS.
We are also seeing tremendous interest among our pain specialists to reach out to referring physicians in their own local communities to do patient outreach.
The number of pain physicians that say they are proactively seeking local PD and referrals has already nearly doubled from before our PD and approval to over 60%.
To facilitate such interest we went live at the beginning of January with a new co marketing platform that provides marketing materials to those implanting physicians, who want to do their own local outreach to referring physicians.
We've also executed dozens of PDL expert seminars for pain physicians, ensuring these doctors are educated not only on how to treat <unk> patients with 10 kilohertz therapy, but also how to achieve the significant political outcomes that we reported in our trial.
At the end of November three important clinical data publications for treating PDL was 10-K therapy were published this included 12 months data from our landmark PDL RCT published in diabetes care as well as real world evidence publication.
And finally, a comparative literature review of high versus low frequency SCS evidence, which is timely.
Both published in the journal of diabetes Science and technology.
These three important clinical data publications further expand the growing body of positive clinical evidence uniquely supporting the use of <unk> therapy for these <unk> patients.
Given the importance of clinical data to the referring physician and this community. We were also pleased to see our clinical compendium on the diagnosis and treatment of PD and published in late January by the American Diabetes Association <unk>.
Notably this compendium, specifically now mentioned high frequency 10, kilohertz spinal cord stimulation as a non non pharmacological therapy recommended for PDL, which we believe is an important endorsement of our therapy by the Ada.
This content compendium was distributed to over 40088 members and will be a valuable addition to our expanding arsenal of clinical evidence supporting the use of our high frequency paresthesia free therapy.
In addition to supporting physician referral decisions. We believe these data along with the durability as seen in the 18 months results that were presented at <unk> in January and our robust clinical dossier will help support expansion of payer coverage decision policies to cover our therapy.
Speaking of payer coverage, we were of course thrilled to see the positive decision by Unitedhealthcare early January to expand their coverage to include Ses for PDL patients effective on March one of 2022.
Unitedhealthcare is the largest private health insurance company in the U S with more than $39 million commercial health care members. So this earlier than expected decision is a major milestone that is expected to significantly increase patient access to the therapy.
And because United is so influential we also believe their decision will positively impact the thinking of other payers. Once it's effective on March one patient coverage will increase to approximately 35% of the addressable PGM population up from about 25% today.
We're continuing our work on outreach to the payer universe to expand market access and drive adoption, which of course is a process. It takes time, our two key strategies to achieve this are to develop positive coverage policies for PD and with these payers and at the same time use our hff's access team to insist with obtaining individual coverage on a case by case.
Basis.
We continue our payer outreach and direct engagement activities will provide updates on those payer decisions as they arise.
Our <unk> access team is continuing to support prior authorizations at the patient level and to date, we've seen a patient access rate of approximately 60%, which is approaching rates that we see in our core lower back and leg business keep in mind that this rate is only for those PD and cases that have come through our <unk> access group and.
And we also expect our payer coverage to increase gradually over time with a steady increase of positive coverage decisions occurring throughout the year.
Included in our 22 sales guidance is a $25 million to $30 million contribution for PDL and Thats up five times the contribution in 2020 one.
With broader penetration and a larger revenue contribution expected in 'twenty three and of course beyond.
The revenue ramp is expected to build gradually this year as patients continue to move through the referral the trial permanent implant pathway.
But also as awareness increases among referring doctors and patients and access with Payors expanse.
Despite the omicron challenges in Q1, and what is the typical seasonal drop from Q4 to Q1, we're encouraged by the continued growth of PD in volumes in Q1, 'twenty two thus far.
In summary, our launch is still in its early stages, but the first six months have reinforced our excitement about our PD an indication how impactful this will be for providers and patients and we're looking forward to continuing to develop this exciting growth platform.
We also received FDA approval of our PMA supplement to add explicit label claims for our proprietary therapy in the treatment of nonsurgical refractory back pain that happened at the beginning of January patients.
Patients, who suffer from intractable back pain without prior surgery have limited treatment options, if theyre not a candidate for surgery and this FDA approval marks another milestone in <unk> commitment to expanding access to <unk> and our SCS portfolio.
This approval is specific to programming that includes <unk> proprietary <unk> therapy and differentiates our solution is the only SCS system with specific labeling to treat both PD and as RVP patients and access to more therapeutic programming options.
Coupled with the publication of the 12 month follow up data of our MSR VP trial in the journal of Neurosurgery spine. This approval will be used to support continued market penetration and importantly market access initiatives to further expand payer coverage.
So in closing we continue to believe we're really well positioned to emerge from this pandemic with vigor and ready for longer term attractive growth a process that we're beginning to become more optimistic has at least begun.
We're a leader in three large underpenetrated SCS segments that should continue to grow for years to come.
We're uniquely positioned for recovery and renewed growth with our differentiated high frequency paresthesia free therapy with industry, leading outcomes and new indications in PD and MSR VP.
We remain very bullish on our ability to continue to capture share of this market over time with better technology, better outcomes and solid execution.
So our fundamentals remain intact and I really believe we are well set up for 2022 and beyond so with that I'll pass the call over to Rod to provide further details on our first quarter results and our guidance Rob.
Thanks, Keith and good afternoon, everyone I'll begin with our worldwide revenue for the fourth quarter of 2021, which was $102 $8 million.
A 6% decrease decrease both as reported as well as on a constant currency basis.
Compared to $109 7 million in the prior year period.
And a decrease of 10% compared to the fourth quarter of 2019.
As a reminder, this quarter included the same number of selling days as Q4 2020 in Q4, 2019, and two less selling days in Q3 2021.
U S revenue in the fourth quarter of 2021 was $88 4 million a day.
Kris of 7% compared to $94 $6 million in the prior year period, and decrease of 10% compared to 97 9 million in the fourth quarter of 2019.
International revenue was $14 $3 million, a decrease of 5% as reported or 4% constant currency.
Fair enough 15, $15 $1 million in the prior year period.
And a decrease of 13% as reported or 17% constant currency compared to $16 $5 million in the fourth quarter of 2019.
Similar to the headwinds seen in the U S. International revenues continued to be impacted by COVID-19 related issues as well, including both patient behavior in healthcare facility restrictions.
Gross profit for the fourth quarter of 2021 was $69 1 million.
A decrease of 11% compared to 78 points year $1 million in the prior year period, and a decrease of 15% compared to $81 $3 million in the fourth quarter of 2019.
The decrease in gross profit compared to the fourth quarter of 2020.
Was attributable to decreased revenue.
Gross margin decreased to 67, 3% in the fourth quarter of 2021 compared to 71, 1% in the prior year period and 71.0% in the fourth quarter of 2019.
This decrease was primarily due to the impact of a targeted evaluation program that largely concluded in Q4 as well as the continued investment in <unk> Costa Rica manufacturing facility.
Both of which decreased margin by a combined 336 basis points.
We are still targeting shipping product from Costa Rica, and the second half of 2022.
Operating expenses for the fourth quarter of 2021 were $95 $3 million and 21% increase compared to $78 9 million in the prior year period.
And a 3% increase from $92 9 million in the fourth quarter of 2019.
Looking at operating expenses year over year. The increase was primarily related to personnel related costs legal fees and marketing and selling related activities and travel meeting and conference expenses, partially offset by management's continued initiatives to drive leverage throughout the business.
Litigation fees in PD and expenses accounted for $4 9 million a year over year increase in operating expenses and accounted for an additional $9 9 million in operating expenses relative to 2019.
Absent all litigation related and TVN expenses, our operating expenses would actually be less in 2019 by $7 5 million or 8%.
Legal expenses associated with patent litigation fees were $6 1 million for the fourth quarter of 2021 compared to $5 1 million in the prior year period, and $1 $7 million in 2019.
We will continue to defend ourselves and our ongoing disputes relating to spinal cord stimulation technologies and continue to protect our innovations and paresthesia free SCS therapy.
Net loss from operations for the fourth quarter of 2021 was $26 2 million compared to a loss of <unk> $9 million in the prior year period.
And a loss of $11 $7 million in the fourth quarter of 2019.
non-GAAP adjusted EBITDA for the fourth quarter of 2021 was negative $7 $5 million compared to positive $15 7 million in the prior year period and positive $1 $5 million in the fourth quarter of 2019.
The reduction in revenue and increased investments in PDL and litigation drove the unfavorable operating income results versus 2020 in 2019.
We believe that once we begin to recover post COVID-19 and with ongoing <unk> investments that roughly $110 million in quarterly sales is our breakeven point.
We continue to focus on cash preservation, while balancing the need to reinvest in the recovery process in our new growth drivers in PDL and MSR VP.
Cash cash equivalents and short term investments totaled $362 million as of December 31, 2021.
This represents a decrease during the fourth quarter of 2021, a $14 5 million, which was primarily due to cash used in operations.
Turning now to guidance, it's important to note that we will be using non-GAAP financial measures to describe our outlook.
For the business. Please see the financial tables in our press release issued today for GAAP to non-GAAP reconciliations.
Keep in mind that the guidance that we're providing today is highly sensitive to the company's assumptions regarding the pace and sustainability of COVID-19 recovery and its related impacts on patient willingness to seek elective care health care facility restrictions in healthcare facility staffing limitations all of which are difficult.
Predict it.
If these assumptions differ from the actual pace of Covid recovery and its impact on the Companys markets. Then the company may need to change or withdraw this guidance in the future.
As Keith mentioned earlier, the impact of Covid Omicron surge continued into the first quarter of 2022, while.
While the improvement in the search has already begun we expect first quarter of 2022 worldwide procedures and revenues will be strongly impacted by omicron and COVID-19 related issues and of course, even in normal years, we always see a seasonal decrease from the fourth quarter to the first quarter.
Given this backdrop, we are guiding the first quarter worldwide revenue of approximately $85 million to $87 million.
All of these market factors related to curb that Keith discussed apply equally to <unk> volumes as well.
However, we believe PDL revenues in Q1 will actually still be slightly ahead of Q4, given the underlying momentum in this indication.
We are projecting Q1, 2000 22022 margins of 66, 5%.
Margins will be a bit lower than our normal run rate due to the lower revenue figure as well as continued in planned investment in bringing our Costa Rica manufacturing site online.
These lower margins from Q4 2021 in Q1 2022 are short term in nature, and we fully expect to return to high 60% margins later in the year with a positive impact from our Costa Rica facility impacting 2023 and beyond.
Turning to operating expense, we expect Q1 2022 operating expense to finish at about $93 million with TVN and litigation expenses accounting for around $9 million of that spend.
We expect first quarter of 2022, non-GAAP adjusted EBITDA to be approximately negative $19 million to negative $20 million.
The full year guidance provided today is highly sensitive to the company's COVID-19 recovery assumptions, which include a measured pace of recovery to continue beginning in Q2 and throughout 2022 in the U S and key international geographies of.
Of course different coverage delayed or 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 than any or all of these factors can quickly and easily impact our guidance range.
With that in mind, we currently expect worldwide revenues for full year 2022.
Approximately $415 million to $430 million, which represents a 7% to 11% increase over the prior year.
This range assumes 25 million to $30 million in PD and revenue in 2022.
We expect full year 2022, non-GAAP adjusted EBITDA to be in the range of negative $8 million to negative $18 million, which compares to a non-GAAP adjusted EBITDA loss of $17 2 million in 2021.
For full year 2022 gross margin is expected to be approximately 69% as we will be incurring about 100 basis point impact to margins as we continued to build out operations in the Costa Rica plant this year.
We're very excited about the Costa Rica expansion and believe it will deliver gross margin expansion to mid 70% range over the next three to five years.
Operating expenses are expected to be approximately 378 million to $380 million for 2022, including combined litigation expenses and ongoing investment in PD and market development of approximately $40 million.
We do want to provide you with information on the expected cadence of our business to assist you in modeling our quarterly performance during 2022.
We expect very modest revenue growth in Q2 2022 over prior year.
The two quarters in the back half of the year are expected to have roughly equivalent revenue growth rates over Q3, and Q4 of 2021 as we assume we will benefit from an improving covenant environment. The recovery of the SCS market and accelerating progress in our PD and launch.
Finally, I think it's important to review our progress on our journey to drive growth and scale profitably in our core business.
For example, let's take a quick look at our operating expenses as a percentage of revenue.
Over the years operating expense expenses, excluding litigation and PD and had gone from 91% of revenue in 2019% to 83% of revenue in 2020% to 81% of revenue in 2021 are expected to finish 2022 and the high Seventy's.
Many of the changes, we've continued to invest and including our Costa Rica facility.
<unk> and the <unk> end market and Omnia upgrades to facilitate greater commercial productivity are designed to provide continued improvement in our financial leverage as we grow.
We believe that with these investments we can create even greater leverage in the coming years. So please keep in mind that even including all of the invest investments I've just mentioned our total 2022 operating expenses will be about 4% higher than those in 2019.
In closing we.
We made good progress in the fourth quarter and remain on track to drive growth and scale profitably in our core business in the years ahead, we entered 2022 in a great position strategically with best in class Ses technologies remaining share gain opportunity future growth opportunities and PDL and SRP MSR.
Superior clinical data and a strong commercial organization, we continue to advance our operating margin expansion effort with programs such as Costa Rica, PDL and on the upgrades, which are all expected to provide continued improvement in our financial leverage as we grow.
That concludes our prepared remarks, I'll turn the call back over to Julie to moderate the Q&A session.
Thanks Rod.
I wonder to get through the question queue efficiently and take as many questions. As we can we ask that you please limit yourself.
One question only and perhaps one very brief follow up you can then rejoin the queue and if time allows we will take additional questions.
Operator, we're ready for Q&A instructions.
Thank you very much at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
And your first question today comes from Chris Pasquale Guggenheim.
Thanks for taking the questions I wanted to start with the guidance and a couple of points here one.
Back at the Tdm contribution it looks like it implies about 2% to 5% growth for the core business. So is that in line with how you are thinking about the SCS market broadly.
Given the easy comps, particularly in the back half of the year, maybe you could just speak to why that's the right level and then for TVN do you need any more significant reimbursement wins over the balance of the year to get to the 25% to 30 or do you think you can achieve that just about 35% of patients you have now thanks.
Yes.
Thanks, Chris I think on the <unk>.
Look on the on the core market the underlying implied guidance for the non PD and part of our business.
Sure it implies.
The lack of visibility you would expect us to have right now and maybe some resulting.
Conservatism.
As Rob described it also implies a very different trend in the first quarter or two that in the second so we expect the market to begin reverting to more interest in growth rates in the second part of the year.
But if the market comes back a little faster if pent up demand comes back a little faster in the core markets and certainly we think there is.
Potentially at least room for.
Before upside.
From our PDL standpoints.
No I don't think so I mean, we assume internally that will continue to get additional wins from a market access standpoint.
But the guidance that we've given today doesn't necessarily rely on on a specific outcome or any kind of heroic increase from from where we are today.
Alright. Thanks.
And the next question will come from Adam Nadir at Piper Sandler.
Great. Thanks, so much for taking the questions.
Maybe just to start wanted to ask for just some incremental.
Color on the Q1 guidance.
<unk> takes you know theres omicron their seasonality.
The guy to 85% to $87 million implies I think down 15% to 17% sequentially.
Versus Q4, 'twenty, one which appears to be a little bit less of a sequential step down versus what we've seen historically, so maybe just help frame that up for us and and broad strokes kind of how youre thinking about the month of March and what's needed to arrive at the Q1 got it. Thanks so much.
Yes.
I'll take it at a high level, then invite Rob to add anything else you'd like.
Anytime where we're sitting in the middle of the quarter and giving guidance for that quarter. The guidance is is more about the mechanics.
<unk> trials to date.
Some estimate of trials in the coming weeks, but much of the activity that will be driven by trials is already baked into into the trial performance. We've had up to this moment, so it's less about sequential or year over year growth assumptions and more about bottom up.
Mechanics.
In terms of the.
The impact.
We came into the omicron impact really sort of peaked in early January .
What we saw as an impact on trial rates in the second half of December and throughout most of January .
And that drove not just.
Some suppression of.
Trials, but it also drove some cancellation of cases now we will get those back of course, some this quarter some some beyond.
It also lengthened as we said that the.
<unk> from trial and conversion so that curve can sometimes get accelerated where youre catching up and it sometimes gets stretched out when you get hit with with something like this.
And again.
If its trials that haven't yet converted you typically get all or most of those back at a later point anyway. So that's kind of how we're thinking about Q1.
The impacts.
I will comment on the month of March, but Rob just anything else you want to add to that.
I think you've covered it well Keith the only thing that I would say it is hard to parse out.
What was.
What's the impact of Ami kron versus seasonality.
In the first 90 days of this year, but like a lot of other businesses, we've definitely been impacted.
By some of the headwinds that Omnicom omicron created a special especially in January .
Got it thanks, so much Keith and rats for taking the questions I'll leave it there.
Okay.
Thank you. We'll go next now to Larry Big Olson at Wells Fargo.
Hey, good afternoon can you hear me okay.
You bet.
Hey, this is baked in for Larry Thanks for taking the question maybe two for me I guess the first one is how do we will disproportionately benefit from the Pn indication now that the FDA has granted PMA based on small studies and.
And payers like United are granting broad coverage and the second question I had was just wondering if you could put a finer point on the cadence for the rest of the year I think I heard you mentioned modest growth in Q2 does that imply improvement from Q1 revenues.
And then maybe a bit more color on the back half of the year. Thanks, So much.
Okay.
But I take on the studies and the Payor.
Decisions and I'll, let Rob talk about cadence.
First of all I don't know that.
Look I would stop short of saying FDA has made some sort of broad.
Policy decisions about how they are going to make approvals in this indication or any other going forward I think they evaluate every submission on its own we may find that the next one is different.
Or not.
Just don't know, but look our expectation given this given this approval is that.
Our competitors will probably think very hard about doing the same thing about submitting old data.
They havent thought about submitting before either because they didn't think it was complete enough or good enough for both.
They may rethink submitting that if they believe they have a chance so.
Our fundamental assumption is that we could have more of these kinds of approvals.
And I'll come back to that sort of what that means for us and how we how we think.
Think about differentiating ourselves. So I think I think most of you probably understand the answer to that already from a payer standpoint.
Look we've got one significant payer decision. It was done quickly we think we said in the last.
In the last call we were.
Really pleased by how fast it came on who it came from we were probably a little bit disappointed in the wording.
Of that in a couple of ways and we will continue to work with United on that issue, but.
We think from a payer standpoint, there there are precedents out there in other segments of Med Tech, where commercial payers have begun to make differentiator decisions and decisions based on data superiority and we think we haven't seen a better justification for that treatment than the one where current.
Living right now so we're going to be making an already are making a very strong case with not just united but but other payers about how they should be trading category versus therapy versus specific therapy.
Approvals and payer decisions. So I think that I think the jury is really out there, but regardless of what happens in the FDA approvals and the payer decisions what we want is.
<unk>, an open playing field we want.
Access to these patients based on the indication and based on the data and their lack of options.
And as long as we have that.
If you look at the difference between our high frequency data and paresthesia or low frequency data. There theyre just not close these arent really very colorable arguments on the other side and they're.
They are not new ops I mean, they are really apples and oranges. So I think we're going to find and we tried to we tried to make this clear in our remarks today.
That's a message that will resonate and is already resonating with our customers our competitors customers and I think it will resonate with payers as well.
So does it mean, we get.
Or could it mean, rather we get a smaller percentage of our larger market with other competitors maybe that's.
As possible and this is such a large market that may not be about outcome.
But we will see how those things shake out over time, regardless, we think we've got a <unk>.
Really phenomenal opportunity based on what we're seeing so far and Rod do you want to do you want to talk a little bit about the cadence in the rest of the year Yeah sure. Thanks, Steve Yes, so so well.
Well, we said in our comments was that 2022 second quarter.
We're anticipating modest growth.
<unk> Q2 of 2021 on a worldwide basis.
And Q3 and Q4.
Second half of the year.
We're thinking about the growth in those two quarters versus the.
The prior year's Q3, and Q4 that the growth rates will be rough roughly equivalent.
In Q3 2022 in Q4 2022.
Thank you we'll go next now to Robbie Marcus at Jpmorgan.
Okay.
Hi, This is actually Lili on for Robbie Thanks for taking the question.
I have two quick ones.
Call you had said that you had cleared much of the backlog that had been built up.
Do you think that that's grown substantially in recent months with Amazon and what are you thinking about.
Your ability to recapture those procedures in 2022.
And then second on PD and I know, it's still early days, but have you seen or do you expect to see any sort of halo effect in the core Bakken light business from this long question do you see the top when you get into any competitive accounts at all thanks.
Okay.
Yeah, all right I'll, let you take the first part and I'll take the second.
Sure with regards to backlog.
Well, we did see some cancellations if you remember Amit <unk>, starting to really hit and kind of the midpoint of December the latter part of Q4.
So we anticipate that we will be able to recapture.
A significant number of those are team historically has a great track record in.
<unk>.
Working with the patients and getting getting them reschedule, so whether that all falls in Q1 or Q2.
It remains to be seen but we do anticipate that we should be able to capture a fair number of those number of those patients that were impacted.
Late in December and early in 2022.
On the.
On the <unk> question, Yes, we do expect it we've talked a little bit about this in the past slowly we do expect it to have.
A halo impact I can tell you anecdotally that's already happened.
We've had an active program over the last quarter or more to.
To really make sure not only our own active customers.
Customers understand the PD on opportunity of what they should be doing but also customers that have historically not been our customers.
For lower back and leg pain.
Had a lot of interesting progress I think with that latter group so.
We expected it would help us with our core business I think we're seeing that it has helped us and I think that will I think that will continue.
Great. Thank you.
Okay.
Thank you well go next 19, Matt Taylor of UBS.
Hi, This is Mike Sarcone on for Matt Hope you guys are doing well.
Just had a quick question on another one on guidance do you think you could parse out how you're thinking about the differences.
Recovery through 2022 between the U S and O U S.
Market.
Sure, Mike I can take that where we're largely thinking about them recovering.
In a similar fashion, namely that Q1 is being impacted by by omicron and a little bit of seasonality.
We expect to start to see a little bit of a recovery in Q2, and then more of a recovery in the second half of the year and the way we're thinking about that both the U S and the international markets is that there they're going to largely follow along those broad.
<unk> for market recovery with Covid.
Okay, great. Thanks, and just one quick follow up I believe you had mention staff shortages.
Sensor capacity constraints, you think they are likely to improve through the rest of the year. I was just wondering if you could comment on the visibility you have into those trends.
Yes, well I think in terms of the first one we have a lot of visibility. So we in fact, we literally track it.
Our center.
At a time and so we know exactly how many centers were closed in our in our core group of customers.
On the second of January versus the <unk> of January .
And we keep track of those and I would say that number that number of centers that we're restricting or completely closed to electric procedures probably peaked around.
The middle of January .
And it is that we still have some centers that are that are restricting or or closed for electric procedures, but not many I think its probably.
20% of the original number.
A month ago.
So we track them, we have a lot of visibility and and we're down to what is at least as of today, a very small number of centers and I expect that will go close to zero here in the next in the next week or two based on what we're seeing.
In terms of staffing we have we have less of a crystal ball there.
Our expectations are formed and our market research, our discussions with administrators and doctors.
They are directional in nature.
And we read some of the same things that you read in terms of what's happening from a macro standpoint so.
Our assumption is that that does get better over the course of the year based on those inputs, but we don't we don't have a unique data source other than what I just said on that one.
Yes.
Got it thanks very much.
You bet.
Thank you and just a reminder, if you would like to ask a question Press Star then the number one on your telephone keypad will go next downturn, Danielle and healthy SBB Leerink.
Hi, This is danielle thanks, so much for taking the question.
Just a quick one on NFL IBP.
I know you mentioned that Youre seeing.
Hello effect from PDL, just wondering if you're seeing a similar trend from MSRP pool.
Got it.
And if theres any kind of Paul trail from that indication the car market. Thanks.
So a good question, but I think it's probably a little too early to give you much of an answer.
What we said was that we really needed the data we need to publish that and we would like to have an FDA approval to go alongside it.
Gotten all those things, but we've gotten them fairly recently.
So I think it will take some time to really impact payer policy payer decision, making.
And so we probably need another couple of quarters to answer that.
With any clarity.
We've also said from the beginning this is more of a sector effect that we kind of expect this because.
There was really not a bright line between approval and non approval are on label off label for this particular claim among all of our competitors.
So I would suspect that more payers did not we'll make decisions that are not specific to technology that we will certainly try to influence that.
We've always thought this is more of a sector impact.
And not just to narrow impact.
So.
I think this will take some time will there be a halo effect, there probably will be in some cases I would expect the halo impact to be a little bit smaller what I do expect for MSR VP is that over time.
It provides a nice tailwind to just overall market growth rates. Because this is a really untapped untreated patient population and if payers are finally looking at the data and making.
Positive access decisions.
Going to make a difference.
That's the impact I think it will have but I think it will take time to play out.
Okay, great. Thanks, so much.
But.
Thank you we'll go next to David <unk> at <unk> Securities.
Hey, guys. Thanks for taking my question I guess first one from us.
I guess not.
And as a repeat and pn are bolt on labor.
In the past you've commented on kind of what your thoughts are on the size of those markets or what's the thought of those markets are as a percentage of the existing GSM plant. So I guess now that both of these are on label do you have any better insight as to as to how large a segments. Currently are or are they sort of any different from what you've been thinking about in the past.
Yes.
No I don't think so I mean, we've sized we've been pretty careful in the way we've we've sized the Tam.
Think there's anything about the current approval the labeling the data anything else that changes our definition of the Tam so the potential market.
I think remains as we've defined it in terms of the actual market growth. The Tam penetration that we see first of all MSR VP is just simply way too early for us to really.
To start to put some numbers around that and.
And in the case of <unk> I guess, I think I would say, that's probably a little bit too early as well I know our competitor stepped in with a very specific.
Market number for a few years out.
We'll see but it's certainly a market that we think is going to get very large we think it's going to become a significant part of the SCS market.
Globally.
But in terms of trying to predict.
What's the PD market going to be in.
In 2025% or 26, I think we'll leave that to others to others until we get a little bit more experience.
Okay. That's helpful.
Just on and is a repeat as well it's early days of expansion here, but do you have a sense for where the incremental growth or if there has been incremental growth from that segment have come from I mean is it.
From from newer physicians, who are now picking up now.
Now doing implants.
This therapy furnace or maybe patients or is it essentially just a <unk>.
<unk> and coverage denials for patients who previously may have gone.
Denied coverage.
Just given the absence of a label there specific label. Thanks.
And David you were talking specifically about MSR BP.
Yes.
Yeah, So I mean broadband pn as well.
Oh, okay.
Well I would expect them to both pretty much mirror the existing.
Existing population I don't I don't think Theres a identifiable segment.
The interventional pain community that say will involve themselves in one indication and not the other or skip both and just stick with traditional failed back surgery patients.
Certainly with the case in the case of MSR BP.
These are patients that would kind of come through the same funnel. They would they would probably come from the same.
ACP or surgical referral.
Pathway their patients that they see anyway.
Probably would be more.
More assertive about trying to get a stream of referrals in this category and and trying to get patients approved knowing that they can now talk to payers and give payers what they want so.
It's really just kind of amplifying the funnel of patients that already exists in the case of MSR VP and I think it applies to all of our customer base.
In the case of PD and I don't think there are many pain physicians that don't believe in the potential.
I wouldn't like to see more of these patients and treat them. These patients do really well on high frequency therapy there.
Actually pretty predictable and their outcomes.
Theyre good patients to treat for a lot of reasons. So I think there are I think this category patients treated with high frequency is a really interesting stream.
Ah patients.
Not just for from a quality of care standpoint, but for a lot of reasons. So.
I don't think theres going to be any segments of our customer base that don't want to participate.
In this area demographically, I think it's going to be pretty much across the board.
Okay. Thanks for taking the questions.
Okay.
Thank you and there are no further questions at this time I would now like to turn the conference back to Mr. Grossman for closing remarks.
Okay right on time. Thank you everyone for your for your time with US today, everybody stay well, we'll look forward to updating you again next quarter.
Thank you. This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
Yes.
[music].
Yes.
Yes.
Sure.
Okay.
Okay.
Okay.
Okay.
Sure.
Okay.
Okay.
Yes.
Yes.
Yes.
[music].
Sure.
[music].
Okay.
Okay.
Okay.
[music].
No.
Yes.
Thanks.
[music].
Yes.