Q2 2022 Nevro Corp Earnings Call
Please wait the conference will begin shortly.
[music].
Good afternoon, My name is David and I'll be your conference operator today at this time I'd like to welcome everyone to the <unk> second quarter 2022 financial results Conference call. Today's conference is being recorded all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer.
We ask that you please limit yourself to one question and one follow up if you feel your question has been answered you ever you may you may remove yourself from queue by pressing star one once again.
I would like to turn the call over to Julie Dewey or introductory remarks. Please go ahead.
Good afternoon, and welcome to <unk> second quarter 2022 earnings Conference call. We appreciate you joining us and Julie Dewey never as 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 second 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 second quarter performance on the <unk> Investor Relations website on the events and presentations page.
Earlier today never released its financial results for the second quarter ended June 32022, 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 August three 2022, and an archived copy of this webcast.
It will be available on our IR website.
Four 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.
Please refer to our SEC filings, including our annual report on Form 10-K filed on February 23rd 2022 for a detailed presentation of risks.
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-GAAP adjusted EBITDA excludes certain litigation related expenses and credit interest.
Texas and noncash items, such as stock based compensation and depreciation and amortization. Please refer to the GAAP to non-GAAP reconciliation tables within our earnings release, and now I will turn the call over to Keith.
Julie Good afternoon, everyone and thank you for joining us today I'm going to focus my comments on our second quarter results. The current state of our business and recovery and on the progress of our <unk> launch following my comments Rod will cover the specifics of our Q2 results and our guidance overall, we continue to move our business forward in Q2, evidenced by overall revenue that was in line.
<unk> revenue growth continues to impress us and adjusted EBITDA results that were above the high end of the guidance range.
Spite these results we continue to experience the lingering impact of customer facility and staffing issues that served to slow overall patient throughput, particularly a permanent implant procedures.
We believe our market is still moving down the path of a more durable recovery, though we believe the pace of that recovery may continue to be slower and more uneven than we'd originally anticipated at least in the near term.
There have been many encouraging elements of our progress today, we were particularly pleased with our revenue growth in the U S. In the quarter, which was 14% ahead of our pre COVID-19 pace in 2019.
We're also extremely encouraged by the progress of our PD and launch as we continue to drive patient referrals that have made continued progress with payers.
Also believe we've begun to build some early momentum with our indication to treat nonsurgical back pain patients and finally, as we announced on Monday, we were able to reach a settlement in our litigations with Boston scientific.
Now as part of that settlement never will receive a license to Boston Scientific's asserted patents a covenant not to sue for any features embodied in the current number of products.
Dismissal of all current litigations, a payment of $85 million in cash and a release of the 20 million dollar verdict Boston scientific was awarded by Delaware jewelry last November .
The release allows narrowed to reverse the $20 million loss liability that had accrued in the third quarter of 2021.
The resulting accounting is $105 million positive P&L impact to narrow in the third quarter of 'twenty two.
Please note that we've not licensed or compromise in any way, what we consider to be our core high frequency IP, which ranges from one 5% to 100 kilohertz the license to paresthesia free therapy, we granted to Boston scientific was limited to all frequencies below one five kilohertz, which is where Boston scientific has been competing.
We remain the exclusive provider of our unique best in class Hff's 10-K therapy.
The terms of the settlement agreement beyond what was stated in Monday's press release, and the 8-K, we filed a confidential so we'll not be able to answer many of your questions beyond what has already been publicly disclosed but of course, we're pleased to have this behind us.
Now, let's take a look at actual procedure activity for the quarter. Despite the staffing shortage and capacity impacts, particularly late in the quarter Q2, total U S permanent implant procedures increased 8% compared to prior year and 13% compared to Q2 of 2019, while trial procedures increased 14% compared.
The prior year, and 4% compared to Q2 of 2019.
Im encouraged by the increase in trial procedures, we saw in the quarter and while we now expect normal seasonality in Q3, we continued to see encouraging year over year trial growth.
Our data confirms to us that patient willingness to engage is still improving and importantly, the underlying fundamentals of the addressable market and the opportunity for attractive growth rates remain intact based on this on the trend in trial procedures. We believe the SCS market is moving towards recovery and is positioned to return to more attractive revenue growth rates later in the year as a funnel of true.
I'll procedures continues to refill.
Lingering staffing issue whoever put pressure on the scheduling of SCS procedures now while this includes trial procedures. It is particularly evident in perm procedures, which serves to lengthen our trial to perm or TTP conversion curve or the average time to convert patient trials to Perm and therefore revenues we.
We expect this to improve later this year and into 2023 in the meantime, even though trial performance continues to improve albeit at a somewhat slower pace than we plan. This lengthened conversion curve has much to do with how we're thinking about second half and particularly third quarter revenues.
Our updated guidance that rod will discuss in more detail later it takes us into account, though it's important to remember that this revised guidance still reflects total revenue growth for the second half of the year up 7% and 12% on a constant currency basis.
In July our team completed some market research with hundreds of implanting Ses physicians and chronic pain patients and we reviewed recent claims data as well in general. This survey work confirms that things are getting better if not at the pace. We had originally planned.
In our physician research, 55% of those surveys noted higher monthly trial volumes in the last few months as compared to last year, though not quite yet back to 2019 levels. The primary market dynamic that physicians told us was having an impact on SCS procedure volume with staffing challenges, though patient's financial concerns was also sided by some.
For the month of July 92% of physicians told us they continue to experienced staffing challenges such as office turnover in newer less experience office staff, which impact patient scheduling office efficiency, and importantly, or scheduling and therefore overall procedure throughput.
Fortunately, 53% of physicians noted they are also seeing an influx of new patients who delayed treatment due to the pandemic when they believe will be the drivers of market recovery.
Now in our patient research they told US they've had difficulty scheduling appointments with pain providers, which is of course consistent with feedback we received from the physicians I mentioned, a moment ago not surprisingly patients also expressed sensitivity around higher copays and deductibles now. This has always been the case, though we were certainly not surprised to hear in this current environment.
Encouragingly, 45% of patients say theyre seeing theyre paying doctor more than last year, and 88 patients who delayed or canceled a pain procedure in the last six months said they plan to have the procedure before the end of this year.
Now turning to claims data for actual procedure volumes in the U S.
Yes trials and Perm trends are consistent with that survey work based on the latest third party claims data for actual procedures U S. Permanent implant procedures for the total U S market in the first five months of 'twenty, two we're up one 5% compared to prior year, but are still down 4% compared to the same.
Period in 2019.
Nevertheless, perm procedures on the other hand, we're up 5% for the first five months of 'twenty two compared to the same period last year and up 13% versus the same period in 2019, and these data are particularly important because while revenue growth numbers can be impacted by a number of things including timing of shipments. These procedural.
Numbers are more accurately indicate what products are actually being implanted in patients and they are really good indication of share trends.
For the first five months of the year compared to 21% and 19 never outpaced market procedure growth rate by 350, and 7500 basis points, respectively. So we're confident that we continue to win competitively.
Remember these are actual procedures not reported revenues. So the prior year period Comparables are not impacted by things like Destocking issues from 2019 that some of you might remember for example.
Regarding our PDL performance, we've now passed the one year Mark for our commercial launch and we're really pleased with what we're seeing we've educated and driven awareness with thousands of referring physicians and patients and significantly increase patient access to the therapy.
During the quarter PD and trials in the U S grew 45% sequentially compared to Q1, despite the lingering market issues that I've been describing PD.
CDN trials represented approximately 14% of our total U S trial volume up from 11% of total U S trial volume in Q1, and the improved throughout the course of the quarter.
As it relates to permanent implant procedures, PD and represented 11% of our total procedures worldwide and that resulted in approximately $11 million in PD on revenue contribution and Thats, an increase of 83% sequentially compared to 6 million prior quarter.
We've now completed the planned expansion of our PD and referral territories, bringing the total number of PD and reps to approximately 50. These additional reps have been trained and they're all now in their territories.
Our existing SCS sales team, calling on our pain specialists continues to generate interest among our implanting physicians to reach out to referring physicians and their local communities and drive awareness for our therapy for these patients.
As we mentioned on our last call the number of pain physicians, who say they are proactively seeking PD and referrals has nearly doubled from before our approval and that continues to grow.
At the end of June nearly 60% of our implanting physicians had received one or more PD and patient referrals when.
When pain physicians initiate local outreach and marketing and.
And share individual patient successes, we've seen the PD and can rapidly become a really meaningful percentage of their monthly patient volume. For example, if we look at our very top PDL implanting physicians, we've seen that's for some PD and can quickly grow to as much as 25% to 45% of their monthly volumes.
Further up the patient demand funnel, we continue to invest in and strengthen our direct to consumer campaign in order to acquire and activate qualified patient leads the percentage of PD and patient and trial procedures coming from our DTC efforts is growing as our <unk> coaches and sales team members continue to educate these leads.
As a point of reference in the month of June 16% of our USP DN trial procedures came from these DTC patient leads.
At this year's Ada scientific sessions in June we were excited to share for the first time in 24 month results from the 10-K or treatment arm of our landmark <unk> trial, which continue to clearly demonstrate the safety durability and consistency of pain relief and other outcomes that can be achieved with <unk> for <unk>.
While prior research has looked at the benefit of Ses for treating pain related to diabetic neuropathy. This is the first time that neurological improvement. After Ses has been studying our data showed a 72% neurological symptom improvement a 69% average reduction in sleep disturbance and an average improvement in quality of life that was <unk>.
Three times, the minimal clinically important difference.
No traditional low frequency SCS treatments have demonstrated such positive results in treating these patients and we believe theres a significant opportunity to expand this innovative treatment option to PD and patients who are unable to find relief with any other options.
We're also pleased to complete 12 month results from the centre PDL trial, which included health related quality of life outcomes published in the Mayo clinic proceedings in early July .
These results demonstrate improvement in several important health related quality of life metrics in patients with PD, and including significantly less pain interference with sleep mood and daily activities.
Fortunately at 12 months 10, kilohertz SCS treatment resulted in an improvement in overall health related quality of life that was $2 five to four five times higher than the difference that is considered clinically important.
We expect to complete 24 month data to be available in Q4, and our plan is to submit that data for presentation at <unk> in January 23, and to publish as soon as we can thereafter.
In the critical area of payer coverage a number of coverage updates among blue Cross Blue shield or BCBS insurers were announced to explicitly cover PDL. During this past quarter. These included updates from BCBS providers in Alabama, Hawaii, Idaho, The Pacific Northwest, Illinois, Montana, New Mexico, Oklahoma.
Homer and Texas combined these BCBS updates represent nearly $23 million commercially insured covered lives with nearly 50% of the U S of the addressable U S. PD and population now covered under a formal policy update for PDF, that's up from 25% as recently as the start of the year.
<unk>.
We attribute this recent momentum from these plans to our proactive engagement with evidence street their national Health Tech assessment arm evidenced streets June update of the SCS evidenced based review incorporated our clinical evidence of evidence on <unk>, which we submitted to them in January .
Remember the coverage policy decisions are important but they are just part of our efforts. We continue to see a high level of patient coverage on a case by case basis through the prior off process and the appeal of payer denials, including with payers, who do not have a specific PD and coverage policy for <unk> cases that have come through our own access group, our cumulative approval rate.
As of the end of June climbed to 84% up from about 62% at the beginning of the year.
Based on our strong <unk> performance in the first half of the year are 22 sales guidance now includes a 42% to $45 million contribution from PDL up from our original guidance of $25 million to $30 million at the beginning of this year.
Moving now to non surgical back pain after receiving FDA approval of this indication in January we began commercial activities to expand access to <unk> therapy for this population we saw sequential growth in NSP trials. During Q2 with these trials coming from both current and new users.
This is a large and underpenetrated market as we've discussed 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 NSP has historically made up around 30% of our patients only about 5% of this large patient population are currently receiving this therapy.
Our strategy focuses on the identification and education of patients already at these existing pain practices, who have not had prior surgery and who are not candidates for surgery and so far these customers are excited and receptive to our outreach and theyre actively looking for patients to treat.
We also continue to prepare for the launch of our next generation product platform. This new system will be the first significant step in leveraging the over 80000 patients and 20 million clinical data points in our <unk> cloud database to intelligently informed the delivery of our superior high frequency therapy.
We plan to begin a limited market release once we receive FDA approval, which we hope will come before the end of 'twenty two.
I will provide a lot more detail at that time, but we're really excited about the power of this platform and what it can do for us and our patients immediately and over time.
So in closing we made encouraging progress in our core SCS and <unk> businesses in the second quarter and while clearly the challenges of the last couple of years of resolving a bit more slowly than we hoped we're seeing the start of what we believe will be continued recovery in our markets as well as costs for real excitement in our emerging growth drivers.
And with that I'll pass the call over to Rod to provide further details on our second quarter results and our guidance.
Thanks, Keith and good afternoon.
I'll begin with our worldwide revenue for the second quarter of 2022, which was $104 2 million, an increase of 2% as reported and 4% on a constant currency basis.
Compared to a $102 3 million in the prior year period.
And an 11% increase as reported and 12% increase on a constant currency basis compared to $93 6 million in the second quarter of 2019.
PDL represented 11% of worldwide permanent implant procedures, which resulted in an approximately $11 million in revenue in the second quarter of 2022.
As a reminder, this quarter included the same number of selling days as Q2, 'twenty, one and Q2 2019.
U S revenue in the second quarter of 2022 was $89 million, an increase of 5% compared to $85 million in the prior year period, and an increase of 14% compared to $78 1 million in the second quarter of 2019.
International revenue was $15 2 million, a decrease of 12% as reported or 3%.
Constant currency compared to $17 3 million in the prior year period.
And a decrease of 2% as reported or flat on a constant currency basis compared to $50 5 million in the second quarter of 2019.
International revenue, particularly in the United Kingdom, and Australia continued to be impacted by Covid related issues. So these factors improved over the course of the quarter.
Now moving on to some detail below the top line gross profit for the second quarter of 2022 with $72 $7 million.
An increase of 4% compared to $70 million in the prior year period.
Gross margin increased to 69, 8% in the second quarter of 2022 compared to 68, 4% in the prior year period.
We continue to make investments in our Costa Rica manufacturing facility ahead of FDA approval of this facility, which we expect in the second half of the year.
Operating expenses for the second quarter of 2022 were $96 5 million, a 13% increase compared to $85 7 million in the prior year period, and a 7% increase compared to $95 million in the second quarter of 2019.
Looking at operating expenses year over year. The increase was primarily related to personnel related costs, PDL selling costs and meeting and travel costs, partially offset by lower litigation fees.
<unk> all litigation related <unk> expenses operating expenses would have been approximately flat compared to the second quarter of 2019.
Litigation related legal expenses were $4 million for the second quarter of 2022 compared to $6 6 million in the prior year period, and $4 5 million in the second quarter of 2019.
As Keith mentioned earlier, we reached a settlement in our living.
We reached a settlement in our litigations with Boston Scientific this settlement and all litigation between the companies, which will have a positive impact on our ongoing litigation related legal expenses.
Looking ahead for obvious reasons, we will not be able to answer questions about our enforcement strategies against other industry competitors.
However, we will restate, what we said before we will continue to invest in defending and enforcing our IP relating to spinal cord stimulation technologies, and particularly our IP related to paresthesia free SCS therapy.
Net loss from operations for the second quarter of 2022 was $23 8 million compared to a loss of $15 8 million in the prior year period, and a loss of $26 6 million in the second quarter of 2019.
non-GAAP adjusted EBITDA for the second quarter of 2022 was a loss of $4 5 million compared to a profit of $3 million in the prior year period, and a loss of $11 1 million in the second quarter of 2019.
Cash cash equivalents and short term investments totaled $310 8 million as of June 32022.
This represents a decrease during the second quarter of 2022 of $12 8 million.
The impact of the recent settlement with Boston scientific will be included in our Q3 results. We continue to manage our working capital and are comfortable with our balance sheet to fund operations.
Now, let's turn to guidance.
It is 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 healthcare facility restrictions in healthcare facility staffing limitations, all of which are difficult to predict.
As we've seen.
We're keeping a close eye on macroeconomic issues and their impact on patient behaviors, but for now our guidance does not assume a material impact from inflation or recession related impacts beyond any of that we are already seeing if these assumptions differ from the actual pace of COVID-19 recovery and its impact on the company's markets and the.
Company may need to change or withdrawn.
The future.
Earlier, Keith mentioned that the trial to Perm conversion curve has lengthened we track our trial to Perm curve very carefully in Q2, we saw an impact of approximately $3 $3 million due to the lengthening of the trial to Perm curves our guidance assumes that this trial to Perm cover remains.
At current levels for the balance of the year and doesn't improve or worsen.
We expect third quarter 2022 worldwide revenue of approximately $97 million to 100 $101 million.
Assuming foreign currency exchange rates hold at current levels. This guidance includes a negative currency impact of approximately $1 million.
Our growth of 6% to 10% on a constant currency basis.
This guidance assumes that the recovery will continue to steadily improve in the quarter.
Although <unk> is not immune to the staffing issues. We are seeing we believe <unk> revenue in Q3 will be slightly ahead of Q2, given the underlying momentum in the syndication.
We expect third quarter 2022, non-GAAP adjusted EBITDA to be a loss of approximately $6 million to $9 million.
We now expect worldwide revenue for full year 2022 of approximately $400 million to $410 million.
Which implies growth of 3% to 6% over the prior year with growth in the second half of the year of 6% to 11%.
Assuming foreign currency exchange rates hold at current levels. This guidance includes a negative currency impact for the second half of the year of approximately $2 million. This translates to second half growth of 7% to 12% on a constant currency basis.
Our guidance assumes 42 million to $45 million in <unk> revenue in 2022.
An increase from our previous guidance of 27 million to $32 million.
This guidance assumes the remainder of 2022, we will see a steady recovery, particularly in Q4 and includes no significant business impact from new Covid variance or waves and near term improvement in healthcare facility restrictions and steady improvement in healthcare facility staffing limitations throughout the year.
<unk>.
We are also updating our full year 2022, non-GAAP adjusted EBITDA guidance to be a loss of 19 million to $25 million, which compares to previous guidance of a loss of 8 million to $18 million and our non-GAAP adjusted EBITDA loss of $17 2 million.
In 2021.
The med Tech space in general continues to face macro challenges, including FX and inflation.
Which together with Covid disruptions presented a more challenging near term environment.
Our updated revenue guidance assumes foreign currency exchange rates hold at current levels.
Regarding inflation as we said on our last earnings call to date, we are seeing some expected impact in areas such as freight and cost of goods, our supply chain and cost of sales have shown modest increases that were anticipated and in time are expected to be more than offset by Costa Rica manufacturing cost reductions we are.
Also seeing some inflationary pressure on certain operating expense expenses, such as compensation, which is already contemplated in our guidance. We continue to manage our costs amidst 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 second quarter and remain on track to drive growth and scale profitably in our core business in the years ahead, where we are in a great position strategically with best in class SCS technologies remaining share gain opportunity future growth opportunities and PDL Nenets BP.
Superior clinical data and a strong commercial organization, we look forward to aggressively attacking the significant opportunity to drive the performance of the business the rest of the year.
That concludes our prepared remarks, 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 quick follow up.
And then rejoin the queue and if time allows we will take additional questions.
Operator, we are ready for Q&A instructions.
Thank you 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. We will take our first question from Larry <unk> with Wells Fargo. Your line is now open.
Good afternoon, thanks for taking the question.
And Keith.
Keith Congrats on a good quarter here.
Can you hear me okay.
Okay and Larry. Thank you, yes, great. So Keith overall, it was an encouraging quarter youre clearly doing well with TVN.
<unk> Ses is still is still weak how do you think about the trade off between PDL and core SCS in and how you can better leverage <unk> to drive core SCS sales.
Yeah, well I think if I look at if I look at our results I think that to some extent it actually has.
If you look at U S. Total U S perm procedures without PDL for.
For the total market in the first five months of the year, they were down 4% and 13% compared to 2019. If you look at our Perm procedures again without PD and they were up 1% for the first five months compared to last year and they were down only 3%.
2019, so I think what we're seeing is there actually has been and I think there will continue to be more.
<unk> draft on our core business from PJM I think what we're dealing with here is just a larger.
Is a larger market issue where were seeing positive things happening, they're just not happening at the rate. We originally plan and we think thats, particularly true here over the over the summer months. We continue to think we're headed to the same endpoint as just maybe a little bit of difficulty of predicting the shape of that curve.
That's helpful and just for my quick follow up the second half guidance of 7% to 12% constant currency.
By our math, it's over 10% growth in Q4 could.
Could you put that into context for how we should be thinking about 2023, and what kind of contribution we could expect from the new product. Thanks for taking the question.
Well, obviously, we don't have any guidance in place for 2003, I will tell you that as we as we think about at least the <unk> portion of our business. It has it has met or in most cases exceeded.
Our internal expectation so far this year and we think it will for the rest of the year. Thus.
The revised guidance I would expect that trend to continue through 'twenty, three but we haven't quantified that yet of course Larry.
That's also true for the core business will obviously have a much better feel for that as we see the fall months kind of unfold here.
Alright, thanks, so much for taking the questions.
Yes.
Next we'll go to Cecilia furlong with Morgan Stanley . Your line is open.
Thanks for taking the questions. This is calvin on for <unk>, just two quick ones for me.
First I wanted to ask about just PD and traction versus the macro environment.
From the standpoint of any potential limiting factors to your initial PD and momentum between kind of market development referral channel build out and staffing shortages I'm just curious whether staffing shortages has been a real kind of headwind against your strong stronger demand, where perhaps have you seen a case, where patient volume and demand have been strong, but your pds numbers are some.
How constrained by staffing bandwidth and patients may need to be turned away or rescheduled is that the case at all so far or is market and kind of referral development. The more prominent driver for your European numbers so far.
It's actually an interesting question Calvin because I think despite despite the performance in the PGM sector and how encouraged we are by it. There's no question in our mind. The PDL has been impacted over the same period of time by the same factors and would have in the absence of those factors Ben better yet.
We don't think the trial to Perm conversion curve issue is as much of an issue with <unk> and patients which is very interesting to us I think there is there is an incentive on the part of our trading customers and frankly on the part of our patients to move through as quickly as possible and so we don't see quite the same <unk> conversion.
Curve delay with our PD and patients that we see with our core patients.
But the rest of the friction in the system with regard to staffing and block times at hospitals for different procedures and other issues those all apply to <unk> as well and I think that's why we've been really particularly impressed with how well that's gone thus far.
Got it that's very helpful. A quick follow up just can you comment on the progress on your PD and sort of referral sales team build out and the outreach initiatives I think in the quarter. You. Previously noted you plan to expand this team by about 50% throughout 2022. So just wondering how that's tracking what's the what's.
What's the progress here and perhaps any associated opex impact and thanks, so much.
Yes.
We actually mentioned during the remarks, those that expansion taking that referral sales organization up to 50 reps is done those reps are trained they're in the field and they are actively calling on referring accounts now and I will tell you that I think we are in the first wave we have learned a lot about where to put these.
Reps, where we hire them from how we train them, how we make them successful. So I think where we're seeing probably a shorter learning curve with this second wave of reps, but I think we're actually really happy with.
The traction that we're now starting to see on on direct to consumer activities and.
The productivity, we're seeing and continuing to see from our pediatric referral.
Sales force and then finally the.
The results in the areas, where our pain physicians have really.
It really grab control of their local referring.
Our base and have really educated that referral base themselves and that makes a huge difference. So I think those are the three buckets of things that continue to move the needle and we're actually pretty happy with how they are going.
Great. Thanks, so much.
Next we'll go to Adam Maeder with Piper Sandler Your line is now open.
Hi, Good afternoon. This is Damon on for Adam Thanks for taking the questions.
So maybe just digging into the dynamics that you mentioned and the broader SCS market.
Have you noticed any fundamental shift in patient demand.
Is the pace of recovery, primarily constrained Q and.
All of these macro headwinds because I guess, what I'm trying to get to is how much potential backlog could there be to work through and do you see that playing out in Q4 and into 2023.
Yes.
We haven't noticed anything in all of our work and we've done a lot of it is you know.
Indicate that there's any fundamental change in in patient demand.
They're towards doing nothing or doing something different or or some sort of resolution of their problem. All of those things continue to point to the same direction and all of our work with patients continues to indicate that they plan to continue to seek treatment. We gave a little bit of data in the in our comments about about what was what we heard in both our pace.
<unk> and our physician research.
But I don't think we see any real fundamental change in patient demand for pain therapy generally are for SCS therapy, specifically now having said that trying to quantify the timing and impact of any pent up demand has proven to be.
A really really tough task and so while we know that our doctors are saying they are seeing patients come back who are who claimed to be patient. So that canceled their plans during the pandemic, that's encouraging but trying to quantify how many patients are out there if when and at what peso comeback has proven to be pretty difficult, but I will tell.
Are you that in our guidance that is not a fundamental assumptions, we're not assuming some some bucket of patients out there that we're not seeing who are going to magically come back we're looking at fundamentals like trial rates.
And some of the input we're gathering in our market research.
Okay perfect.
Maybe just a quick follow up can you expand a little bit about the international business.
What kind of trends youre seeing in the.
The market there.
Yes, I think in general the I think from the beginning.
In most quarters since the beginning of the pandemic our international business has probably been more severe.
Severely impacted by the pandemic and related environment.
The U S business. It was for the most part not every month or every quarter, but for the most part hit harder and has recovered a bit more slowly and we called out two country markets, where we think thats been.
The case more than others, and that's the U K and Australia.
We believe in the case of both of these markets. They will come back. We also think it will be somewhat slow and for a different set of reasons.
But we think that the incentives the healthcare economics and those systems are different from one another but also different from the U S. And we think they'll just both return to pre pandemic how slower than other markets.
Perfect. Thank you.
Okay next we'll go to Robbie Marcus with JP Morgan Your line is open.
Yeah, Thanks for taking my questions.
Maybe to start on spending adjusted EBITDA guidance is is moving lower.
How do we think about.
The current level of spend Youre building out <unk>, and <unk> is doing well and ramping nicely, but the rest of the businesses. As you just responded slower how do you think about what the right level of spending is and maybe if youll opine, where you think you see the intersection of expenses and profits.
Turn to positive.
Net income thanks.
Why don't I take the first part of that and I'll, let I'll ask rod to take the second part I think how we think about it in general in general is that we're working pretty hard to control spending where it is absent those areas, where we feel we really need to invest in either growth or structural changes in the business for example, the PD.
Commercial effort, that's not something where we're really watching the wallet. We believe that's a very large market opportunity.
It's beginning to show and has the opportunity to drive a lot of growth I think thats going to continue and we want we want to fuel that.
So and that's so that's an area, where we're trying to reasonably aggressively fuel that growth curve, we're making some investments in Costa Rico, why because we think thats a big improvement in the position of our business and in our gross margins over time, and Ross has talked a little bit about what that can mean.
In the past and of course, we've we've spent.
Pretty liberally to defend our IP in the past and while we expect that spend to go down based on the settlement, that's an area, where we've been pretty aggressive in our spending and we think we think for good reason outside of those areas. What we've tried to do is maintain the organization. We've never felt like the impact from the pandemic with <unk>.
Imminent.
As difficult as its been to predict we've never felt that it's been permanent and we still don't so we never wanted to degrade the case.
Capabilities of the organization.
<unk> growth going into the future.
That's still where we are if we were to reach a different conclusion about the core market.
Then I think we would view our expense burden very differently NOI would.
But I think we've been pretty consistent internally on that we feel like we've got the market.
The market logic and the balance sheet.
To support that.
Maybe you want to talk a little bit about how we're viewing leverage and whether or not its changed yes, Ravi I agree with everything that Keith just mentioned and also reiterate the changes that we've made in our sales.
Our sales channel in terms of patient support and delivery as well as.
Product changes that we've made over the last number of years.
Sure.
We believe that we're in a position to scale the business well.
And we still believe that when we get into that kind of a $110 million in quarterly revenues that we're going to be right around that data adjusted EBITDA breakeven, even point and and and we still stand by that.
Some of these as this recovery continues we believe we're in.
Very good shape to be able to generate more leverage on the P&L.
Rod maybe I'll use my follow up question here to that last point, I mean, youll be pretty close to that in the fourth quarter, yet adjusted EBITDA guidance is moving down so what's the delta in between those two statements.
Thanks, a lot.
Yes, well I mean, we're we're.
We're showing a loss in the first three quarters and.
I do I do think that we're going to be in pretty good pretty good shape and obviously the spending depending on particular, some some areas live.
PDL in some other parts of the business they might they might fluctuate a bit from quarter to quarter, but.
When we get above that $110 million, we should start to see.
Hitting that breakeven in getting some drop through above that.
Great. Thanks, a lot.
At this time I'd like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad next we'll go to Joanne Wuensch with Citi. Your line is now open.
Hi, This is Anthony on for Joanne Thanks for taking our questions.
My first is I know you talked about that sort of trial to perm curve lengthening through the quarter are you seeing maybe higher rates or drop out sort.
Between when a patient doesn't trial and what they when they get permanent procedure.
Yes. So we are so far we're not seeing any any.
Any degradation in overall conversion in other words, if you were to expect say two thirds somewhere between two thirds and 70% of your patient trial patients will ultimately convert.
Firms were not seeing any change in that what we're seeing is just a flattening of the curve. So instead of say 50% of those patients converting within the first 90 days post trial, it's something less than that.
But we're not if we look back over 789 10 months and we look at the patients that ultimately do convert those numbers seem to be holding where they are.
So at least so far we're not seeing any permanent drop out we're just seeing a shifting based on kind of what's happening currently and we think that means that it will that will snap back.
At some point.
Okay, and then my second.
Just back to <unk>.
What is sort of the back half of the year guidance assume in terms of reimbursement when can you hit that number with the covered lives you have now or even some maybe some more substantial ads in the back half of the year.
Yes.
It's really really hard to predict.
Sometimes we're surprised when these.
These commercial payers show up with their decisions I think in the long run we don't expect the the total coverage for these really to be any different than our traditional lower back and leg patients which is extremely high.
It's 90, 95% plus of commercial patients who are in a plan where they have <unk>.
Blissett coverage and I think that's where we're moving with PD one.
We will be at the end of the year really hard to say I think we're really happy we've gone from 25 to 50 in the first two quarters of this year.
But it's impossible to extrapolate a certain pace and covered lives over any particular timeframe. So you'll have to you'll have to bear with us on disclosures there.
Yes.
So we have an excellent.
Okay.
Our next question rich new litter with Truest Securities.
Hey, this is <unk> on for Ed Thanks for taking the questions.
First from from US just around the dynamics in the core Sds Mark I mean, I think you mentioned that some of the top PDL and playing conditions are seeing anywhere from 35% to 45% of our volumes coming from PD and so do you think.
If at all either from a volume perspective, or maybe just internally from the sales force is focused on core versus the PD entails if at all.
Kind of growth and success Youre seeing with MTN is having an impact on the underlying core SCS volumes.
Yes.
Think I know, where youre going with that.
Earlier in the Q&A session, we had a question and I read through some.
Some market data that excluded our PDL volume of where we still think we're doing better than the market did better than the market. So I think in the macro no thats not happening.
We've had the question expressed differently, which is is it possible that in any particular case, a doctor might be in giving you their PD and patients given one of your competitors. They are back and leg patients. We haven't seen that in a in any large sense and the data as I mentioned, just don't bear that out occasionally we see it on in India.
Digital practice spaces.
We're a doctor has two or maybe even three incumbent providers and they are giving us more volume for PGM and they will begin to give a competitor more volume in back and leg.
But over the over the whole market, we've not seen that.
So I would say is in general is a trend that's not happening we think theres actually been the opposite we've got a little bit of an updraft in our back and leg.
Paint growth.
Due to PDL.
Okay. That's helpful. And then I guess just around the around within I guess, the whole around kind of some of the pricing I mean is.
Is pricing have you seen any change in either competitively or within your own kind of market.
<unk>.
He is having a negative impact from pricing.
The pricing erosion, if at all that could be a strategy as a way to gain share in the U S market links going forward. Thank you.
Yes, I'll take I'll take that.
So we continue to price our product set at a premium and are happy with the.
The pricing in our in our products and our sales channels.
<unk> been able to garner.
With that said similar to previous quarters, we were in a competitive environment. We do continue to see some pricing pressure.
And at times, depending on the account, we may go and matcher or moving moving that sort of direction.
Year to date, we're seeing somewhere around 100 150 basis points in the U S from <unk>.
Pricing pressure standpoint.
And it's something that we monitor we manage pretty closely.
Let me just add one thing to that I think I think quite a lot of debt that we've seen year to date is due to a mix shift of site of care from hospital to afcs and we've seen we've seen that throughout the <unk>.
<unk> and <unk> typically bring a little bit lower.
Our price point than hospitals, and so as the mix shifts from hospitals ASC is you see a little bit of overall ASP pressure.
Alright, thanks for taking the questions.
Next we'll go to Margaret <unk> with William Blair. Your line is now open.
Hey, guys. This is Matthew bouley on for Margaret today, Thanks for taking our question.
Wanted to start.
Digging in deeper to that core STS market. So.
As you think about the future and what growth could look like and obviously you can appreciate that's hard to predict now with staffing shortages.
That making the road to recovery at that longer but how soon do you think that we can see that full return to market growth and then.
Included in those assumptions what are you assuming for.
On potential new entrants into the market as well thank you.
Yeah, well, we've always been a little bit careful at least in the last few years about about market growth and trying to.
To do too much prognostication there.
I do think look we still believe.
And underlying market growth rates.
Coming into the pandemic will be roughly the same going out we think theres a normalized growth rate for this market, particularly with the NSP indication that we think will be market expansive.
That is at least I think the conventional wisdom among our competitors as they've been asked this question publicly has all been sort of in the in the mid to high single digits range and I think that continues to make sense to us as well.
As we look at the market now in terms of when the.
Back and leg part of the market gets back to that growth rate.
I think we will probably probably shy away from making that prediction today I think as we get to the end of this year.
We all believe if the market plays out the market backdrop plays out the way, we think it will as contemplated by our guidance that we'll be approaching market growth rates that are that are pretty interesting and pretty sustainable by the end of the year and then coming into 'twenty three.
Got it that's helpful. Thank you and then.
This is a follow up obviously.
Darren to the TVN launch at this point and things are going well.
How are you thinking about the growth of that business.
Going forward and obviously.
And I can understand that.
That's growing right now hard to parse out but wanted to see what you guys are thinking about that.
Yes.
We've tried to quantify the addressable market opportunity before and I don't think Thats changed one of the things, we've learned and being in the market a year oftentimes you're you enter a market and you begin to uncover market segmentation you really didn't think about before and I don't think we've seen that here.
I think that there are no segments that are not reachable that are.
That are less of a candidate pool for this therapy et cetera, I think the Tam that we've defined.
Coming into this market as the Tam that we've defined after being in the market for a year. So I think we're really encouraged by where this could go give us a little bit of time here I think when we're when we're giving guidance for 'twenty three we'll be in a better position to talk maybe a little bit more about where we think the total market is going.
Over time, which is a little bit early for us to do that now.
Other than just to say, we are pretty happy with the way, it's going and it certainly is ahead of our of our plans.
Got it thank you.
There are no further questions at this time I would now like to turn the conference back to Mr. Grossman for closing remarks.
Okay. Thanks, everyone for joining us we appreciate it we've given you an awful lot of information and data today.
No you'll let us know as you have questions and we'll look forward to updating you next quarter.
This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
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