Q1 2022 Nevro Corp Earnings Call
Invitations page.
Earlier today <unk> released its financial results for the first quarter ended March 31 2022.
A copy of our earnings release is available on our Investor Relations section of our website at <unk> Dot Com. This call is being broadcast live over the Internet to all interested parties on may 4th 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 of certain risks and uncertainties. Please refer to our SEC filings, including our Form 10-Q to be filed later today for a deal.
<unk> 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 nevertheless, ongoing business performance.
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 Alright, Thanks, Julie and good afternoon, everyone. Thank you for joining us I'll focus my comments today on our first quarter results. The current state of our business and Covid recovery and on the progress of our <unk> launch following my car.
Rod will cover the specifics of our Q1 results and our guidance.
Overall, Q1 was a quarter of solid execution and progress evidenced by revenue and adjusted EBITDA results that were above the high end of the guidance range, we communicated on our last earnings call.
Although both U S and international revenue were impacted by Covid related issues, primarily in the first half of the quarter. We were really encouraged by the level of recovery in procedures, which steadily improved throughout the quarter a trend by the way that has continued through the month of April .
We believe this is a positive indication that our market has started down the path of a more durable recovery.
One that we assume will continue in the months ahead.
Our excitement continues to grow for the PDL opportunity, which I will discuss in a little bit more detail in a moment as well as our recent FDA approval for a specific indication to treat MSR BP or non surgical patients.
All of this progress further differentiates our high frequency paresthesia free SCS technology, and we're confident that we've laid a strong foundation for attractive future growth and we're well positioned for a strong second half of this year and beyond as the impact and uncertainties of Covid on our market continue to subside.
Now, let's take a look at actual procedure activity <unk>.
Despite the significant omicron impact in January and into early February Q1, total U S permanent implant procedures increased 2% compared to prior year and 14.
<unk> percent compared to Q1 of 2019.
While trial procedures increased 10% compared to prior year, and 13% compared to Q1 of 2019 incur.
Encouraged by the recovery in trial and permanent implant volumes, we saw in the second half of the quarter and as I said that has continued in the second quarter to date.
Our data confirms to us that patients' willingness to engage in the therapy is still improving and importantly, the underlying fundamentals of the addressable market and the opportunity for attractive growth rates remain intact.
Based on this and the trend in procedures, particularly trials, we believe the SCS market has taken the first encouraging steps toward recovery and is positioned to return to solid revenue growth in the second half of the year as the funnel of trial procedures refills in the first and second quarters and this is reflected in our guidance that we reiterated today.
We're now nine months into our <unk> commercial launch and are very pleased with our progress and success on all fronts, including educating referring physicians, creating awareness with patients and increasing access to our therapy.
During the quarter PD and trials grew 47% sequentially compared to Q4, despite not only the omicron impact early in the quarter, but the typical downward seasonality that is generally seen in the SCS business from Q4 to Q1.
CDN trials represented approximately 11% of our total U S trial volume up from 7% of our total U S trial volume in Q4.
And improved throughout the course of the quarter.
As it relates to permanent implant procedures, PD and represented 7% of total procedures worldwide, which resulted in approximately $6 million in revenue contribution.
Based on the demonstrated success, we have seen today from our PD and referral sales team. We've moved forward with our plan to expand our PD on referral territories and hiring of additional sales reps is well underway.
We plan to have these new PD and referral reps trained and in their territories by the end of Q2 that will bring the total number of PD and reps to between 45 and 50.
Our existing SCS sales team, calling on our pain specialists is seeing tremendous interest among these physicians to reach out to referring physicians and their local communities to drive awareness for 10, kilohertz Hff's therapy for <unk>.
We mentioned on our last call the number of pain physicians that say they are proactively seeking PD on referrals has nearly doubled for before our PD on approval and that continues to grow.
Our new co marketing platform, which launched in January enables interested implanting physicians to implement their own local marketing programs to their referring physicians.
When pain physicians initiate local outreach and marketing we've seen the PD and can rapidly become a very meaningful percentage of their monthly patient volume.
For example, as we look at our top PDL implanting physicians, we've seen that for some PD one can quickly grow to 25% to 45% of their monthly trial volume.
Further up the patient demand funnel, our direct to consumer campaign continues to be a strong source of qualified PDL patient leaves more recently, we're now starting to see a higher percentage of PD patient trial procedures coming from our DTC efforts as our <unk> coaches and our sales team members continue to nurture these leads.
This process by the way typically takes months to quarters in our core market DTC efforts as well.
<unk> thousand 800 of these qualified leads have now been handed over to our field team and in the month of March 16% of our total U S. PD and trial procedures came from these DTC patient leads.
We're looking forward to participating in the annual American Diabetes Association or Ada scientific sessions in New Orleans next month.
We will be sponsoring a product theater presentation in the main exhibit hall on Sunday June 5th and I'm also pleased to announce that our late breaking scientific abstract detailing the 24 month data from the original 10-K arm of our sense of PD and trial was accepted for presentation and this will be the first time 24 month data will be presented for the 10 kilohertz arm.
We expect the complete 24 month data to be available in Q4, and our plan is to submit that data set for presentation presentation at NAND and January and then publish as soon as we can thereafter.
In terms of payer coverage, we're continuing our outreach to the payer universe to expand market access and drive adoption in the first quarter, we made significant progress with the position the positive decision by United Healthcare to expand their Ses coverage to include PD on patients as well as the Medicare coverage update by an iridium <unk>.
This now means that five of the seven regional Medicare area contractors or Max now provide access for <unk> patients. Both of these updates became effective in the first quarter, increasing formal policy coverage to approximately 43% of the addressable U S PD and population and Thats up from as a reminder, 25%.
At the end of 2021.
In addition, the Unitedhealthcare also recently updated its policy by adding explicit language requiring FDA approval for SCS devices that are used for specific indications, including PD and.
We believe this was united's intent all along but now they are policy very clearly states. This in that update to the policy will become effective on June <unk> of this year.
Overall, however, this will be a process that takes time as we indicated to you at the beginning some payers will make updates based on the 12 months data just as United Healthcare and Iridium did while other payers will wafer longer term follow up data or even increased patient and provider demand.
For example, Aetna and Cigna recently reviewed all of their coverage policies and Didnt include expanded coverage to include <unk> in this particular review.
As we published more and longer term data and more patients are presented for treatment. We will continue to work with these and other payers to make the right data back decisions. This is a pretty typical part of the process and I'm sure. Most of you have seen this process play out with other new products and indications.
Remember that almost the entirety of the payer universe covers SCS therapy for lower back and leg pain indications and we believe this will ultimately be the case for <unk> as well.
Also remember that coverage policy decisions are important but they are just part of our efforts. We continue to see individual patient coverage on a case by case basis through prior authorization procedures and the appeal of payer denials, including with payers, who don't have a specific PDL coverage policy.
For example, our <unk> access team has been successful in securing coverage for many PD patients, including those covered by payers like Aetna and Cigna and we do not expect that this will change going forward.
In fact for those PDL in cases that have come through our own <unk> access group, we've seen an approval rate of nearly 70%, which is approaching approval rates that we see in our core back and leg patients as well.
Our reimbursement team is continuing to work closely with commercial payers in the remaining regional Medicare contractors to expand <unk> coverage for our therapy.
And we believe our strong and growing body of published peer reviewed clinical and real world data will be the basis for further coverage decisions by other major health plans this year and beyond.
Included in our 2022 sales guidance is now a 27 million to $32 million contribution from PDL.
We're really encouraged by the continued growth in PD and volumes in the first quarter.
And as I've mentioned that continues into the second quarter. In summary, we just we couldnt really be more excited about the progress we've made so far in PD and how impactful. We think this is going to be for providers and their patients.
We're really encouraged by the high levels of interest among referring physicians and patients.
Early trial volumes and most importantly, the consistent and validating clinical outcomes in those patients who have already received their permanent implant and we're looking forward to continuing to develop this exciting growth platform in the months and the quarters ahead.
I'm moving now to MSR VP or nonsurgical back after receiving FDA approval of this indication in January we began commercial activities to expand access to <unk> therapy for this patient population, we saw sequential monthly growth and MSR VP trials during Q1 with these trials coming from both current and new users.
This is a large and underpenetrated market with approximately half a million patients annually in the U S who are not candidates for surgery, and who have limited treatment options available when less invasive therapy in medical management are not successful while MSR BP has historically made up around 30% of our patients.
Only about 5% of this large patient population are currently receiving SCS therapy.
To further understand the unique needs of <unk> patients. We conducted quantitative research in February of this year with 200 of these patients.
Similar to PD and this research validated our assumption that the patient and physician education and support will be key drivers of our successful commercial execution strategy.
There are a few important takeaways from our research, including these facts nearly 60% of these patients have been seen by patient special by pain specialists, rather already. So these are patients who are already accessible to our current customers.
41% of this cohort said they are not satisfied with their current treatment and 90% of these patients say they are constantly searching for ways to treat their chronic pain.
Only 48% of these patients have heard about SCS.
And two thirds of these patients believed that SCS as a treatment option would quote solve a problem or fulfill a need and finally, 81% said they would do in SCS trial. If it was recommended by their physician.
But given that we're the only SCS company with published long term outcomes data in a specific FDA approved label for MSR BP, We think we're well positioned to serve these patients. So our strategy not surprisingly is focused on the identification and education of patients at these existing pain practices, who have not had prior back surgery and who are not.
Candidate for surgery.
In addition to focusing the pain physicians attention on these patients we will work towards broadening commercial payer coverage for nonsurgical back patients by leveraging both our peer reviewed publish RCT data and our FDA approval.
Medicare through both national and local coverage policies currently has broad coverage for MSR BP and we've not experienced nor do we anticipate any coverage challenges as long as ses's use consistent with these policies on the commercial side, we estimate about 78% of covered lives are not explicitly covered for MSR VP.
Another 21% of covered lives have a coverage policy written such that patients. We believe our coverage on a case by case basis, and only 1% of this patient population or in a policy that where they are explicitly covered.
By the wording of that policy.
Even if a patient is not covered our patient access team is prepared to support case by case approvals through the prior off process just as we've done with these patients for years. So certainly know our case is much much stronger.
Over time, we expect <unk> will be an important contributor to overall SCS market growth for the treatment of back and leg pain as we and eventually our competitors continue to educate pain physicians that make progress on payer access initiatives.
So in closing we made encouraging progress in our core SCS and <unk> businesses in the first quarter and are seeing the first leg of what we believe will be continued recovery in our markets. We continue to believe we are well positioned for mid to longer term attractive growth and I am very optimistic as we think about the rest of this year.
We participate in three large underpenetrated SCS patient populations that should continue to provide growth for years to come.
And 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.
Over these last two challenging years, we've worked hard to dramatically improve our company's position.
We've introduced new products such as Omnia.
<unk> connect which included upgrades to omnia to provide first utility to remotely optimize patient care, especially when paired with our with our <unk> cloud database, our large team of <unk> coaches and our <unk> access team and finally, the introduction of a new smaller trials stimulator.
We have received FDA approval for two new and very large populations of patients in PD and MSR VP and of course, we've published lots of new data in support of those approvals.
We've strengthened our technology development roadmap and have very exciting things coming over the next five years with the next product platform coming towards the end of this year.
Organizationally, we kicked off and have now nearly completed our in house manufacturing capacity in Costa Rica, and we created a new commercial arm focus on the diabetes market, including a dedicated referral sales organization.
So while it was a tough two years for the SCS markets, we've been very busy as a company preparing for this recovery phase and as the market returns to normal levels of activity, we're set up well to drive growth this year beyond and with that I'll pass the call over to Rob to provide further details on our first quarter results and on our guidance.
Great. Thanks, Keith and good afternoon.
I'll begin with our worldwide revenue for the first quarter of 2022, which was $87 8 million.
A 1% decrease as reported and flat on a constant currency basis compared to $88 $6 million in the prior year period, and a 7% increase both as reported and on a constant currency basis.
<unk> to $82 1 million in the first quarter of 2019.
<unk> represented 7% of worldwide permanent implant procedures, which resulted in approximately $6 million in revenue in the first quarter of 2022.
As a reminder, this quarter included one more selling day in Q1 of 2021 in Q1 of 2019.
In addition, I'd like to point out that we do not have any revenue employee or supply chain exposure in Ukraine or Russia.
U S revenue in the first quarter of 2022 was $73 2 million a decrease of 2% compared to $74 7 million in the prior year period.
And an increase of 11% compared to $65 8 million in the first quarter of 2019.
Our unit average selling price declined approximately 200 basis points in the quarter versus prior year.
Similarly, driven by site of service mix in the U S with a greater number of shipments to ambulatory surgery centers duty due to omicron impact in hospitals at the beginning of Q1.
International revenue was $14 6 million, an increase of 5% as reported or 12% constant currency compared to $13 9 million in the prior year period, and a decrease of 10% as reported or 11% constant currency compared to $16 3 million in the first quarter of 2019.
Similar to the headwinds seen in the U S. International revenue continued to be impacted by COVID-19 related issues as well, including both patient behavior and healthcare facility restriction for these factors improved over the course of the quarter.
Now moving on to some detail below the sales line.
Gross profit for the first quarter of 2022.
Was $59 1 million, a decrease of 5% compared to $62 3 million in the prior year period.
Gross margin decreased to 67, 3% in the first quarter of 2022 compared to 73% in the prior year period.
This gross margin decrease was primarily due to the impact of Costa Rica manufacturing investments. We are making ahead of FDA approval of our facility. We're excited about Costa Rica coming online in the second half of this year and helping drive margin expansion going forward.
Operating expenses for the first quarter of 2022 were <unk> 91.
$91 9 million, an 8% increase compared to $84 8 million in the prior year period, and a 4% decrease.
Compared to $95 5 million in the first quarter of 2019.
Looking at operating expenses year over year, the increase was primarily related to personnel related costs, including stock based compensation, and PD and marketing and selling related activities, partially offset by lower litigation fees.
Excluding all litigation related in PD and expenses operating expenses would be less than the first quarter of 2019 by $9 5 million or 10%.
Litigation related legal expenses were $3 7 million for the first quarter of 2022 compared to $5 9 million in the prior year period, and $2 3 million in the first quarter of 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 first quarter of 2022 was $32 8 million.
Compared to a loss of $22 5 million in the prior year period, and a loss of $42 3 million in the first quarter of 2019.
non-GAAP adjusted EBITDA for the first quarter of 2022 was a loss of $14 million compared to a loss of $6 6 million in the prior year period, and a loss of $28 7 million in the first quarter of 2019, we.
We believe that once we begin to recover post COVID-19 and with ongoing <unk> investments.
Of that roughly $110 million in quarterly sales is our breakeven point on an adjusted EBITDA basis.
Just a reminder, that non-GAAP adjusted EBITDA excludes interest taxes.
Noncash items, such as stock based compensation, and depreciation and amortization as well as litigation related expenses and certain litigation charges.
Cash cash equivalents and short term investments totaled $323 6 million as of March 31, 2022.
This represents a decrease during the first quarter of 2022 of $38 4 million.
As a reminder, the first quarter of each year is always a high cash outflow quarter, primarily due to annual incentive compensation payouts.
Excluding these items uses of cash were in line with normal business operations as well as our internal projections.
We continue to manage our working capital with days sales outstanding and days in inventory down two days and 90 days, respectively from prior year, we're comfortable with our with our balance sheet to fund operations and still project positive cash flows in the second half of the year, assuming the business and Covid recovery.
Continue as I will discuss in our guidance.
I also wanted to point out that we adopted the accounting standard ASU 2020 O six on January 1st of the year, which simplifies the accounting for our existing convertible notes due in 2025.
For us the primary impact of the adoption of this new accounting standards is an increase of $34 $3 million of long term debt to reflect the full principal amount of our 2025 notes net of debt issuance costs. Additionally, we will see lower interest expense of approximately $2 3 million per quarter as we.
No longer will be amortizing the previously recorded debt discount to interest expense to.
So just to be clear the increase in long term debt on the balance sheet. In Q1 is due to the adoption of this new accounting standard and not due to the incurrence of any new additional debt.
Now, let's turn 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, we're providing today is highly sensitive.
The company's assumptions regarding the pace and sustainability of Covid recovery and its related impacts on patient willingness to seek elective care healthcare facility restrictions and health care facilities staffing limitations, all of which are difficult to predict if these assumptions differ from the actual case of Covid recovery.
<unk> and its impact on the Companys markets, then the company may need to change or withdraw this guidance in the future.
As stated in today's press release, we expect second quarter 2022 worldwide revenue of approximately $103 million to $106 million.
If foreign current currency exchange rates hold at current levels, we expect revenue in the second quarter will be adversely impacted by less than 1%.
This guidance assumes that the COVID-19 related impact will continue to steadily decline in the quarter, We believe PD and revenue in Q2 will actually still be slightly ahead of Q1, given the underlying momentum in the syndication.
We also expect second quarter 2022, non-GAAP adjusted EBITDA to be a loss of approximately $7 million to $9 million.
We continue to expect worldwide revenue for full year 2022 of approximately $415 million to $430 million, which implies an 8% to 12% increase on a constant currency basis over the prior year.
If foreign exchange, if foreign currency exchange rates hold at current levels, we expect.
Revenue in the full year will be adversely impacted by less than 1%.
This range now assumes 27 million to $32 million in PD and revenue in 2022, an increase from our previous guidance of $25 million to $30 million.
This guidance assumes the remainder of 2022, we will see a steady recovery, which includes no significant business impact from new COVID-19 variance or waves and near term improvement in healthcare facility restrictions and steady improvement in healthcare facility staffing limitations throughout the year.
Our guidance also assumes most of this annual year over year growth is driven by continued recovery in the second half of 'twenty, 'twenty, two which implies year over year growth in the second half of the year of 15% to 22%.
We are maintaining our guidance for full year 2022, non-GAAP adjusted EBITDA loss.
8 million to $18 million, which compares to a non-GAAP adjusted EBITDA loss of $17 2 million in 2021.
To assist you in modeling for the rest of 2022, we continue to expect the two quarters in the back half of the year to have roughly equivalent revenue growth rates over Q3, and Q4 of 2021 as we assume we will benefit from improving COVID-19 environment, the recovery of the SCS market and <unk>.
Salary and progress in our PD and launch our full year guidance also implies core back in late growth excluding TVN in the second half of the year of approximately 9% to 15%.
Regarding inflation to date, we are seeing some expected impact in areas, such as freight and cost of goods.
Cost of goods sold.
Our cost of goods, our supply chain and cost of sales has shown some modest increases that were anticipated and are expected to be more than offset by Costa Rica manufacturing cost reductions.
We're also seeing some inflationary pressure on certain operating expenses, such as compensation, which is already contemplated in our guidance.
We continue to manage our cost submit these pressures and expect that we will be able to drive leverage over the next several years and our income statement.
In closing we made good progress in the first quarter and remain on track to drive growth and scale profitably in our core business in the years ahead. We are in a great position strategically with best in class SCS technologies remaining share gain opportunity future growth opportunities in <unk>.
<unk> and NSS RVP superior clinical data and a strong commercial organization.
Overall, we're pleased with our start to 2022 and look forward to aggressively attacking the significant opportunities to drive the performance of the business the rest of the year.
That concludes our prepared remarks, and I'll turn the call back over to Julie to moderate the Q&A session.
Thanks, Rod in order to get through the question queue efficiently and take as many questions. As we can we ask that you. Please limit yourself to one question and a real quick follow up if necessary.
Then rejoin the queue and if time allows we will take additional questions operator, we're ready for Q&A instructions.
Thank you as a reminder, if you'd like to ask a question. Please press Star then one on your telephone keypad.
Our first question today is from Australia for along with Morgan Stanley . Your line is open.
Hey, Thanks for thanks for taking the question. This is Calvin on for <unk>, just two quick ones from me the.
The first one is you reiterate the full year revenue guidance and raised the PDL guidance by $2 million and with <unk> coming in slightly ahead of expectations. So is the read through that Youre trimming the core SCS outlook for the balance of the year is that just sort of stemming from the prudent as for the balance of the year, just hoping you unpack that a little bit.
Yeah, I'll I'll take that at a high level at least look I think we are.
Ben.
It's been a tough and somewhat unpredictable couple of years for the CFS markets relative to the Covid environment.
We're only one quarter ended the year. So I think you can you can safely assume that.
There is a bit of conservatism here, we really don't want to get out ahead of.
Our recovery assumptions until we see a little bit more.
And it really is nothing more than that.
Got it Okay makes sense and just quickly on the U S trial procedure mix between core and PD and it sounds like <unk> was 11% in PDL.
So where does this trend throughout the year and what do you think is the biggest drivers that could support a more meaningful step up and just volumes for PD and trials for.
For instance from outreach initiatives and others and thank you.
Well I'll certainly answer the second part of that question I think the things. We're doing now are the things that we believe will.
Continue to drive if your question was about PD one trial specifically.
If you look at the sequential growth that we had from Q4 to Q1 it was pretty dramatic.
And.
This despite the fact that we normally see.
Seasonality that goes down from Q4 to Q1 and included in that was a really tough January and early February there wasn't a lot better. So I think the things. We're doing now are driving a ton of growth.
In PD on trials and I think that will continue.
I think we're starting to feel a little bit of momentum.
And painting and it's early.
So I want to be a little bit careful using that word but.
But nonetheless, it does feel like.
More referring doctors are becoming aware of this.
Refers that a center patient are beginning to send more patients and more implanting doctors or are rolling out initiatives in their local markets to generate those referrals as well our direct to consumer activities are beginning to show.
Productivity and those take longer so we're just now beginning to see those beginning to come through in the trial volumes as well. So I think we feel really good about about PD, one trial volumes and where this is going.
And I feel like there's lots of upside there.
Thanks, so much.
The next question is from Adam <unk> with Piper Sandler Your line is open.
Hi, Rod Hi.
Thank you for taking the question.
Ryan on for Adam.
So I just wanted to start off with PD and obviously you guys saw.
Quite a bit of momentum, there and Q1 and that despite being a new entrant to the market place.
In general how do you think about your competitive positioning in the Pts segment.
Future share dynamics here and.
Software additional competition from legacy Sps players.
Okay.
Look I mean, we talked a little bit about this last quarter.
After one of our competitors came through with a surprisingly early approval for this indication.
We feel really good about it.
I think having additional competitors there is some upside we've seen this and you've all seen this in other medical device markets over the years that markets tend to grow faster. When there are multiple participants and this is a very large very underpenetrated much less underpenetrated.
Market. So I think we can use some help with educating patients and referring doctors on.
On the other hand, we look at our competitive position and we look at the data that's available with high frequency for these patients and it's rare that I think you get a competitive position that this differentiated base.
Basically twice the number of responders twice the average pain relief.
Two thirds of patients getting neurological relief relief of their neurological symptoms, where there are none reported and competitive data. So I think I think we feel very comfortable that we can differentiate ourselves with the referring doctors with patients with implanting doctors.
And frankly, even with payers.
So so far so good I mean, we're early on in this competitive.
Land escape, but.
I know our commercial team feels very good about how we're positioned.
And so far we really like the activity that's done nothing but increase.
In the short period of time since we've had a competitor.
Got it and then can you talk about PD and guidance specifically.
By about $10 million at the midpoint.
Why is assumed from a reimbursement coverage standpoint, do you anticipate that more large payers.
Our Maxwell issue positive policy, even better than that range.
Hey, this is rod.
We've stated this before that as we think about how the year plays out we don't have any anything specifically planned out in terms of when certain payers will come online from a coverage perspective.
It's too difficult to.
Planned out.
At what time of the year, they might come on in and in what order. So we.
We've had really great success, so far and being able to push through.
Reimbursement with with with a lot of our with a lot of our patients and will continue to work with with the payors as they're reviewing their policies throughout throughout the remainder of this this year and into next.
I don't view, our guidance as being contingent in this regard on on increases in excess of our coverage policies.
Got it Okay, and then if I could squeeze one quick one in there.
Yes.
Similarly, we've got time today, so can we move on now or in the next.
Okay. Thank you.
The next question is from Larry <unk> with Wells Fargo. Your line is open.
Hi, This is Nathan on for Larry Thanks for taking the question.
I just wanted to go back to the guidance in terms of the 15% to 22% in the second half how confident are you in this ramp.
What is assumed in the ramp and then is that a good starting off point for how we should think about growth in 2023.
Well listen we're not.
We're not guiding for 2023 at this point.
<unk>.
That's a bit different for us probably comment on but Rob maybe you want to talk about second half of the year got it.
Yes, So I think couple of things to keep in mind Nathan one we are assuming that the markets continue to recover that COVID-19 continues to subside.
And that patient willingness staffing all of those sorts of issues that have plagued us and been issues with COVID-19 over the last two years.
To become less and less of an issue in that patient willingness to return to therapy continues to increase.
Also remember that our comparable from last year are a little for Q3 Q4 are a little bit on the.
The software side and so.
Where we stand right now we're seeing trialing activity that is in line with how we were thinking the year would play out we still got a lot of work to do we have.
The summer months ahead of us, but right now I'd say that we feel confident in our ability to be able to deliver a strong second half.
Great. That's very helpful and for my follow up just around the core SCS market, it's continued to be weak.
Is there any update you can provide for us like what is driving this are patients still on the sidelines due you see them coming back.
<unk>.
Yes, we do see them coming back I mean remember.
Remember that the.
The lead indicator here is trials and we talked a little bit about trial growth as you compare it to prior year, but importantly that 2019, which is sort of the last unaffected.
Year, So we do see patients coming back I will tell you anecdotally, we see this in a big way, we just had a.
U S national sales meeting.
Over the weekend and <unk> got a lot of input anecdotally on what's happening in our practices around at least the U S market.
But but our trial volumes suggests that patients are coming up the funnel is being refilled.
And and we.
We think that bodes well.
Great. Thank you.
The next question is from Robbie Marcus with Jpmorgan. Your line is open.
Oh, great. Thanks for taking the question.
Maybe you can walk me through you mentioned in the call and you reiterated this in the guidance about a pretty big step up in third and fourth quarter.
Both on a year over year basis, and on a dollar basis in.
So maybe just walk us through what gives you the confidence today to be able to make that call what youre seeing what youre hearing from doctors and you mentioned Phil on the pipeline just.
Any more details around that you could add thanks.
Yeah, Hey, Ravi this is rod so I'd say a couple of things and then Keith Ken.
AD <unk>.
One we are seeing good traction in <unk> and we do anticipate that as we go throughout the year PD and we will continue to.
To grow and become a more and more meaningful part of our business and so obviously that creates a strong year over year comparable when we just started out with it in July of last year.
Secondly, as I as I.
Just kind of mentioned.
We're seeing the recovery in line with how we were thinking it might play out not as still as I mentioned there is a lot of work ahead of us.
Recovery ahead of us, but we are seeing the trialing and the perm activity.
With how we thought that the year would play out and if we can see that continued to improve as we go throughout the year with patient willingness.
Turning to improve.
Daphne shortages.
Turning to be mitigated or minimized.
We feel good about our opportunity to.
To deliver the numbers that we've guided to in the second half of the year now know Keith if you want to listen I don't I don't think its <unk> I mean, we triangulate.
From.
A few different areas of data points, one is our trial activity, where we think it is right now.
Where we projected going over the coming three to four months because those will inform those months of activity will all informed the second half of the year.
We look heavily at at our market research and what we're being told by our doctors by a referring doctors by patients.
And we look at where we think the market is kind of going from a top down basis post recovery and we've got some internal models that allow us to kind of think about.
The level of pent.
Pent up demand activity in that kind of thing and I think for us as we look at our guidance for the second half of the year, we look at our trial volumes, where they are right now where we believe theyre going in the next few months.
Out where we think we're headed on TVN in that contribution and we feel like.
We feel like it's a very reasonable.
A set of guidance expectations for our core market growth in the second half of the year.
Great I appreciate that and then maybe one on expenses.
You can tell you continue to build the sales force in PD and here and Youre spending to grow the top line, how do you think about.
What what future spending looks like if revenues stay where they are and how are you thinking at least.
As you sit here today, and hopefully with the recovery in the back part of the year about where potential breakeven on.
On net income might be thanks.
Yes.
From an adjusted EBITDA perspective, we anticipate that we hit that breakeven around around $110 million in quarterly sales.
And we.
As we as we look at the at the year and particularly the second half, we're anticipating that we're going to going to be a positive adjusted EBITDA territory in the second half. So we're continuing to manage our expenses, we're going to have a bias towards investing in future growth whether that's the <unk>.
<unk> opportunity MSR VP building.
Building, our product pipeline, but we're also doing that with a really strong eye towards driving leverage organizationally and watch and watching our spend.
So, we're really kind of targeting about $110 million figure as we.
As we move forward from an adjusted EBITDA perspective.
Got it thanks a lot.
Sure.
The next question is from Danielle <unk> with STB Securities. Your line is open.
Hi, good afternoon, guys. Thanks, so much for taking my question.
Keith I wanted to ask if I could get a little bit more color on exactly what <unk> could look like for you guys. This year and I would love to hear them.
A little bit about what part of the message is resonating with.
With referring endocrinologists and sort of.
Exactly how youre going about building that network and where you think you are in the adoption curve sorry that was a lot of questions. So I'll just leave it at that I want to ask a follow up.
Yes.
Well I think I think we're pretty happy with our the traction we've gotten with referring doctors and we said this almost from the first month of commercialization on that that the story has resonated with referring doctors just as we thought it would there really arent any huge sticking points I think there are occasionally.
There are some doctors, who don't have any familiarity with SCS therapy.
And maybe have a misunderstanding about what SCS therapy is.
Don't understand whether or if they'll get their patients back following the referrals. So they need to understand that this doesn't affect their management of the patient.
They need to get to know the population of pain physicians in their area.
To whom they're referring these patients but these are all sort of the things that you would expect all the obstacles you would anticipate we would get over with a new referring doctor for a new therapy.
I don't think theres been any element of that that's been problematic thats been more sticky than we would've thought I will say the response to the data from our from our trials on all of our publications has been overwhelmingly positive from referring doctors because they've been dealing with these patients for a long time and haven't had much.
To do with them.
To do for them. So I think once they realize what the therapy is how good the results are particularly those that are referred a patient and have gotten a really good outcome.
And we always close that loop with the referring doctor to make sure they know that.
It's been a path that with each one of these referring doctors has gotten better over time not tougher.
Remember that the referring universe doesn't include just endocrinologists.
There are other important doctor groups that are very receptive to that are managing these patients that are very receptive to referring them in terms of Ada I think what we want to talk about.
As generally what you would expect who these patients are how to identify them.
How we triage these patients in terms of inclusion into their clinical trial, what that means about how they think about their patients the clinical data et cetera, we're going to have a product theater, there and we're going to be as I've said, we're leasing our 24 month follow up for the test arm from our <unk> trial.
So I think I think so far the reception from the referral audience not just under Chronologist has been really positive.
With the kind of the normal hurdles that you would expect to have to get over in this situation with the new indication.
Thank you.
The next question is from Joanne Wuensch with Citi. Your line is open.
Good evening and thank you for taking my question.
Two of the same.
Could you just give us a highlight of what's going on in the international market.
That refers to sales and for my second question, how youre dealing with some of the expense.
Headwinds that are outside the U S.
Thank you.
Yes, I'll on the expense headwinds.
I assume maybe.
Some of the currency issues, though I'm not sure I'll, let I'll, let Ron handle that in terms of.
The condition of the international markets there really.
They are very different we've seen really encouraging recovery in activity for example, in our Australia and market.
Where we had struggled for the last couple of years, we've seen some really good results.
Our results starting to come out of Australia.
I would say, we're starting to see some nice recovery.
In volumes coming out of the German market. The UK market has been probably at least recently probably our most challenging.
International market and I think it's a general as a general state of elective procedures and healthcare recovery healthcare market recovery in the UK that is a little bit a little bit tough to get back to normal level. So I think we've seen a little bit of a struggle in the UK market.
But.
By and large I think the international markets did reasonably well this quarter, we're comfortable that recovery is going to impact them justice its impact in the U S and I think maybe the one the one watch out for US now as we're keeping an eye on the ability of the UK market to recover elective procedure volumes Raj you want to take the other part of that yes, you answered if you're talking about.
Current Sam we're obviously keeping an eye on that.
Like everybody else out there, we don't have a huge amount of exposure at this point as we mentioned it's less than 1%.
But.
As we go along here, but we'll definitely keep an eye on that.
<unk>.
And you stay close to it if it if it continues to change.
Perfect. Thank you so much.
The next question is from Suraj Kalia with Oppenheimer. Your line is open.
Good afternoon, everyone, Hey, Keith I'll throw in both my questions.
Together.
So.
For FY 'twenty two.
Implied outlook for PD and what.
What percent are from your existing PD and trial sites.
And the subpart to that question Keith the 45 to 50 reps you reference.
Are these new hires predominantly from the Ses eurobond space or your.
More focusing on endocrinology relationships. Thank you for taking my questions.
On the percent of the PD on volumes and where they're coming from I don't have that actual number off the top of my head.
I would say the the PD and volumes probably come.
Not surprisingly disproportionately from our existing customers, but there's a.
There's a very meaningful sector. It's not this isn't 10% that's coming from practices, where we've done little.
A little volume over the next over the last couple of years or maybe or maybe none.
So the PD and indication has enabled us to get into sites, where we have either reduced activity.
<unk> or none over the last couple of years I'm, sorry, Suraj I, just don't know what the percentages are.
At the top of my head on the new hire for the PD on referral.
<unk>.
That typically is not that group is not populated by people with prior SCS.
Experience.
They oftentimes have very relevant experience in diabetes.
And in endocrinology, although not necessarily they almost certainly have.
Experience in calling on the generalist population, but these are not usually.
These are not usually that have deep experience in med tech or necessarily even experience in FCS that's training they get from us.
Thank you.
The next question is from rich <unk> with <unk> Securities. Your line is open.
Hey, this is David <unk> on for rich thanks for taking the questions.
First for me I guess I think if I heard you correctly, you mentioned, a new product platform for the end of the year.
Could you just touch on maybe what we should expect from this product and really how youre thinking about the launch of this.
With regards to the share positioning, especially from some newer waveforms or alternative therapies coming to market.
I didn't hear the lateral part of that but I gather your questions about the new product platform.
Coming at the end of the year, we havent set a whole lot about that.
As you know we typically that's one of the few areas, where we're just not.
We're not that transparent till we get much much closer for competitive reasons, but.
This is a this is a platform that I think will kind of better connect all of our various strengths and capabilities with high frequency therapy.
To better improve outcomes.
Quick reprogramming and responsiveness.
Two the patient for for.
For optimizing those outcomes.
And the ability of the patient to play a larger role in connecting changes in programming to improving their own outcomes. So.
No that sounds all very bag, it was supposed to but but.
But we think it's really a significant new platform for us that will allow us to do things over time with our therapy and with the ecosystem around our therapy that we just can't do right now.
In terms of the launch will start out as we as we always do with some form of limited market release and moved from thereafter at an appropriate period of time to a full market release and.
I think your expectation should be towards the end of the year fourth quarter kind of timeframe.
Okay, that's helpful and I guess.
On <unk> you mentioned, some some commentary kind of around the contribution there.
I guess or provide some color around what may be a typical pediatric count looks like I mean, they typically kind of never heavy users high volume academic centers.
Sure.
Like we still obviously pretty large new greenfield opportunity, but I guess do you have a sense at this point, whether or not you are even seeing competition. In this space are up four patients or is it still pretty new and large at this point.
Okay again for whatever reason I don't know if its a connection or my bad hearing, but having a little trouble with some of the details of that question, but I will tell you that the.
The nature of the implanting doctors that are driving the Pete the early PD and volumes. Thus far is difficult to characterize as one particular subsegment I think they are all over the map.
They are implanting.
Interventional pain management doctors they are implanting neurosurgeons they are in both academic and private practice their implanting in both hospitals and afcs.
And they are spread rather evenly around the country. So I think what we're seeing is a pretty broad adoption there really there isn't a subset of.
At least in our anecdotally or in our research there isn't a subset of implanting SCS doctors, who don't want to participate and TVN.
They have acted with different levels of aggressiveness and getting out there and trying to drive referrals themselves.
There are obviously some that are in wait and see mode. Some that are really aggressively out there marketing their practice.
Through this referral base and to this patient population and a big bunch in the middle.
But I don't think Theres, a lot to take away from the.
The early adopters in PD and Theyre really spread.
I think pretty.
Pretty randomly across the various segments of our users.
Okay. That's helpful. Thanks for taking my questions.
The next question is from Margaret <unk> with William Blair. Your line is open.
Hey, guys. This is maggie on for Margaret today.
Just wanted to ask one on MSR BP, while I can appreciate it's still in the early.
Early days you guys, obviously now have FDA approval and the clinical data to back it up and are working on market development. So how are you thinking about.
<unk> contribution to growth within your 2020 guidance at all and then what the ramp up looks like for growth in 2023 and beyond within that market. Thank you.
But we've opted not to break that out as a segment of our guidance.
It's a little bit the difference between the MSR VP patient population in a failed back.
Back in like patient or is a little grayer than the distinction with PD and patients.
Not always as easy for us to capture the difference between those two patients and so we've been a little bit reticent to call. It out the way we have <unk>, which is which is much more we have much more visibility to the differences in those patients as they present themselves.
We've always thought that it would be kind of a slow and gradual process that the.
<unk> of the data the receipt of the FDA approval would give us a much stronger case to do.
<unk> these patients as they come into the prior off process with existing payers.
Remember about 30% of our patients are already in this category. We just get we have always gotten more frequent denials of care for these patients because we didn't have the data and we didn't have an FDA claim. So I think a lot of this will just be a higher and higher success rate with payers both in their coverage policies and on a patient by patient basis and that will build over.
Time.
I think this has always been an area, where we assumed that our competitors will will follow with data and maybe even with indications and will help us develop this patient population but.
To the core of your question, we just haven't broken it out we do think that it provides a little bit of tailwind to market growth rates. So if I think about the next three years and I take out <unk> and I just look at the core lower back and leg pain market to me. This segment of population of this population of patients represents.
A tailwind overall growth rates for the market. Once again, we haven't broken out was that what does that mean as at one 2% or five percentage points to market CAGR. We just we don't know yet first of all and we certainly haven't guessed, but but I do think it's positive uplift.
A market that'll be reverting to growth.
Makes sense. Thanks, so much.
We have no further questions at this time I would like to turn the conference back to Mr. Grossman for any closing remarks.
Okay. Thanks, everyone for joining us today I'd say.
It's a really positive quarter and a good step in the right direction for us and we'll look forward to updating you after the second quarter and each quarter the rest of the year with the.
With hopefully the trajectory that we think is coming thanks again.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Okay.