Q1 2023 Nevro Corp Earnings Call

Good afternoon. My name is Lisa and I will be your conference operator today at this time I would like to welcome everyone to Nevertheless, first quarter 2023 financial results Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question.

This time simply press star one on the telephone keypad. If you would like to withdraw your question you May post star one again.

I would now like to turn the call over to Julie Dewey for introductory remarks. Please go ahead.

Thank you and good afternoon, and welcome to <unk> first quarter 2023 earnings Conference call. We appreciate you joining us and Julie Dewey Nemorous, Chief Corporate Communications and IR Officer with me today are Keith Grossman Executive Chairman, Kevin Thornell, CEO , and President and Rob Mcleod Chief.

Officer on our call today people introduce Kevin and Kevin will make some brief comments and then Keith will discuss our first quarter business results, Ron will conclude with our detailed financials and guidance and then we'll open up the call for questions. Please note. There are also slides available related to our first quarter performance on the <unk> investor.

Relations website on the events and presentations page.

Earlier today <unk> released its financial results for the first quarter ended March 31, 2023, a copy of our earnings release is available on our Investor Relations section of our website at <unk> Dot com.

Call is being broadcast live over the Internet to all interested parties on April 26, 2023, and an archived copy of this webcast will be available on our Investor Relations website before.

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 are.

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 annual report on Form 10-K filed on February 21, 2023 for a detailed presentation of risks.

We're 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 interest.

And noncash items, such as stock based compensation and depreciation and amortization as well as litigation related expenses certain litigation charges and credits and other adjustments such as restructuring charges. Please refer to the GAAP to non-GAAP reconciliation tables within our earnings release and now it's my pleasure.

I'll turn the call over to Keith.

Thank you Julie and good afternoon, everyone. We appreciate you joining us before I jump into our Q1 results I first want to introduce Kevin and just say how pleased the board and I are that our search resulted in his appointment as CEO .

Throughout his career Kevin's establish an excellent track record of leading medical device businesses that deliver strong growth in commercial excellence.

Ideal fit in every way for where <unk> is today and where I believe.

Leave it can go in the future and we just couldnt be more pleased that he joined the team.

Now I'll turn the call over to Kevin. So you can hear directly from him and since he's been on the ground here for just a little more than 48 hours I'll come back at a few minutes to review our progress over the last quarter and then we'll field your questions at the end of the call Kevin.

Thanks, Keith and good afternoon, everyone I'm pleased to be speaking with you today on my very first quarterly conference call as <unk> CEO will just two days on underneath my belt let.

Let me begin by saying how delighted I am to be joining <unk> at this time.

Took on this opportunity because I have great respect for <unk> history of delivering differentiated protected best in class solutions that are backed by strong clinical evidence that make a difference in patients' lives.

<unk> has truly disrupted the SCS market not only with its high frequency 10, kilohertz technology, which revolutionized SCS treatment, but also through its decisions to pursue rigorous randomized clinical trials to lead the way in developing new indications like PD in SPP.

As well as amassing an H FX cloud database that now powers, our new AI enabled H FX IQ system.

I was also impressed by the company's vibrant culture and with the team members I've had the opportunity to meet so far we're lucky to have such a smart and dedicated team of people who are passionate about our company's mission mission in our case to deliver comprehensive life changing solutions that continue to set the standard for enduring patient outcomes and chronic pain.

Treatment.

My top priorities will be to build on the significant progress. The company has made to power growth and to take advantage of the meaningful leverage opportunities, we have to drive towards profitability and deliver shareholder value over.

Over the next several months I'll be spending time with our leadership team employees commercial organization customers and key stakeholders to fully understand the business.

In addition, you should know that I, along with the rest of the leadership team will be focused on where we take narrow from here to continue to win in the SCS market and fully capitalize on the opportunities ahead of us.

One thing that won't change is supporting our customers and patients in ways that continue to set the standard in our industry, which I believe will enhance <unk> growth trajectory and further differentiate our leadership position.

I look forward to sharing more in the future earnings calls.

Finally since this is my first earnings call as <unk>, New CEO . It also means that this is Keith last earnings call I really appreciate all Keith has and will be doing in these early days of my tenure to ensure this transition is this movement and I look forward to continuing to work with him in his executive chairman role I'll now turn the call back over to Keith.

Keith to review, our first quarter results. Thanks, Kevin Let me say, it's just been a real privilege to lead this company over the past four years and extremely rewarding to work alongside the talented and dedicated people who are committed to narrows vision mission and values and I also want to thank the customers and clinical advisors, who have treated over 100000 patients globally with <unk>.

<unk> therapy for their confidence and belief in our clinical evidence.

As we move into the next exciting chapter of the number of story I have full confidence of Kevin and the entire narrow team and I look forward to supporting them in my new role.

Okay.

Let's turn it over to first quarter results and update on the business. We continue to move the business forward in the quarter, our revenue and adjusted EBITDA results, both exceeded our guidance range and U S procedure growth rates grew in the double digits.

I'm really pleased with the building blocks that are now in place for attractive growth and leverage going forward and is now becoming clear that the challenges to our market are improving and we believe they will continue to improve throughout this year and beyond.

There were lots of encouraging elements of our progress in the first quarter global revenue growth was 11% over prior year on a constant currency basis, while U S revenue growth came in at 12% in U S trial activity delivered 9% year over year growth PD.

<unk> continues to be a significant growth driver of course was strong first quarter growth of 160% over prior year.

In March we began the full market launch of our <unk> IQ system in the U S.

Since the launch we've received positive feedback from physicians and patients regarding the ability to deliver personalized pain relief using our big data back to <unk> algorithm.

Now more on IQ later in my remarks, but I'm really convinced this technology has the opportunity to further differentiate our competitive position in this space.

All of this progress builds of course on our superior high frequency paresthesia free SCS technology.

We continue to see encouraging growth in trials and permanent implants, and we continue to believe that the underlying fundamentals of the addressable SCS market and the opportunity for growth remain largely intact I think by the way that the recovery that is underway is unlikely to be linear in nature as we've discussed before.

As of today three of the four main market participants have disclosed their Q1 SCS results and in that context, we're very pleased with our growth, particularly in the U S market, where it's pretty clear that we continue to capture share.

I am equally encouraged by the fact that the SCS business for these other participants grew in the high single digits, which bodes well for total market recovery. As this is the second quarter in a row that it has continued to move in a positive direction.

In Q1, we completed another round of physician market research nearly all physician survey said they are satisfied with SCS therapy, and approximately 80% of physicians said they want to increase their SCS volume in 2023.

Additionally, roughly 60% said they expect their SCA volume SCS volume to grow this year compared to prior year.

Not surprisingly the majority of physicians also said they continue to experience lingering issues, such as staffing challenges and ongoing payer pressure in the payment space, but the actual impact that staffing challenges are having on volumes appears to be declining.

Yeah.

Remember SCS is considered a late or even last line therapy used to relieve patients through their chronic pain when surgeries and more conservative treatment options either don't provide optimal relief or just simply are not an option.

No from previous research that the pandemic and some of the lingering issues from the pandemic had slowed the pace at which patients move through that treatment pathway, but we have seen positive indicators of growth and recovery, including patients entering the pain treatment funnel.

<unk> told us that they are back and leg pain patient visits had improved in 2022 with approximately 87% of physicians, saying volumes were equal to or greater than patient visit patient visit volumes in 2019, the last pre pandemic here.

They also indicated this trend is continuing with just over 80%, stating their Q1 patient visit volumes had grown or stay the same compared to prior quarter in Q4 of 'twenty two.

We believe this level of patients returning to our customers' practices ultimately bodes well for continued recovery of the SCS market as patients to make appointments with their pain specialists and continuing to move through the treatment pathway. We're confident we'll see more patients who are ready for SCS and the market returned to historical growth rates.

Now turning to our PDL business PD in trials represented approximately 19% of our total U S trial volume.

And that percentage actually improved throughout the course of the quarter.

Up from 11% of our total U S trial volume in Q1 of last year.

Among our permanent implant procedures PD and represented 16% of the total worldwide procedures, resulting in approximately $15 $6 million and median indications sales and thats, an increase of 160% compared to $6 million in the first quarter of last year.

We attribute this in large measure to the PD and referral sales organization expansion that was completed last June our direct outreach initiatives to physicians and patients and the general enthusiasm enthusiasm regarding the compelling data and real world outcomes and these otherwise difficult to treat patients.

Our current plan is to continue to increase our <unk> referral sales team footprint to about 90 or so by the end of this year that's up from around 50 at the end of 2022.

We continue to see successes with our direct to patient marketing for <unk> as well in Q1, approximately 18% of our USP DN trial procedures came from leads generated by our DTC programs and in the month of March a record number of PD. One trials came from these DTC leads.

In addition to the existing payer coverage policies that are in place for <unk>. We continue to see a high level of case by case approvals through the prior authorization process and the appeal of Payor prior Austin items, including with payers, who don't have a positive PDL coverage policy in place.

For those PD and cases that have come through our own access group, our rolling 12 month approval rate at the end of Q1 continued to trend around 75% and that was up from about 62% at the end of 'twenty one.

In the case of prior off denials, we're able to leverage our published clinical data are FDA approved PD indication that inclusion in various society guidelines, making strong evidenced based arguments for patient approval, resulting in success in over half of denial Appeals, we submit through our patient access group.

<unk>.

Earlier this week Dr. Erika Petersen presented at the complete 24 month <unk> RCT data at the American Academy of Neurology Conference in Boston.

These results confirm the long term durability of pain relief as well as clinically meaningful improvement in neurological function and quality of life achieved with <unk> therapy.

We were honored that our 24 month PD and data was selected for a merit of distinction by the AAN and congratulate Dr. Peterson and all of the sense of PD and investigators who participated in this landmark trial distinct.

Distinction is awarded to the top rated abstract in each topic category based on the quality of study and interest to the neurologic community.

We expect to submit the complete 24 month PD, an RCT data in this quarter for publication.

In addition, we enrolled our first patient this quarter in our new PD and sensory study, which is the first prospective RCT specifically powered to assess restoration of neurological function as a primary endpoint in patients with intractable PVM.

Diabetes, and peripheral neuropathy pose a staggering socio economic burden and there is no available disease modifying treatment option available for patients with PVM.

By restoring sensation in the feed 10, kilohertz SCS therapy may alleviate this tremendous disease burden prevent amputations and enable patients to be more active all of which would improve overall health and quality of life and of course reduce healthcare costs.

Youll recall that the observed neurological improvement we saw in the original <unk> study are unique to 10 kilohertz SCS therapy.

<unk> been reported for any other competitive low frequency.

<unk> therapy.

Now before I leave PDL, let me add that it has made sense for us to breakout PDL in the critical first stages of the commercial launch move.

Moving forward, Kevin and the team will be further evaluating if this reporting approach continues to makes sense. After all we now have two other PD and on label competitors, who do not segment, our SCS business at all.

And I'm not sure disparate levels of disclosure here serve us well competitively.

Remember that each of our competitors have different unreported segments and their business, whether it's lagged versus back pain, or even upper limb and neck neck pain primary cell replacement volumes.

And volumes NSP, even some PFS or peripheral nerve stim utilization DRG implants et cetera.

All of which are not broken out in our simply reported as part of their Fcs share.

And the truth is all of the all of these FCS indication to use the same technology are sold and serviced by the same organization and are deployed by the same implanting physicians to treat chronic pain.

You said in driving overall market share gains and company growth period, and we're doing just that.

Moving now to non surgical back pain, we've submitted the two year data from our <unk> trial for publication. This data included clinically important and stable pain relief in patients treated with 10, kilohertz SCS as well as strong durable improvement in reported function and a significant quality of life improvement.

These results were seen in patients with refractory chronic low back pain, who were evaluated by a spine surgeon for surgical candidates and who had exhausted all appropriate non operative medical management.

We expect to see these data published in the second half of this year.

Once published this will enable us to more fulsome engage with commercial carriers about the benefits of <unk> therapy for NSP.

On the new indication coverage front, our PDL coverage continues to grow to additional Blue Cross Blue Shield commercial carriers added coverage in the first quarter, bringing us to nearly 60% of pediatric patients with health plans offering coverage for PDF.

Assuming <unk> and first coast the last two Medicare administrative contractors with pending local coverage determinations finalize their proposed coverage total coverage will increase to just over 70% of PDL covered lives.

With regard to NSP to date, we have not experienced any noticeable impact on our revenue from any health plans not specifying coverage for NSP peak patients the approval rates on a case by case basis for SPP remained consistent with other indications such as PD and traditional back and leg pain and failed back surgery patients.

Now I'd like to turn to our new <unk> IQ system in March we initiated the full market release of <unk> in the U S and it's been really well received IQ is the first big data back AI powered spinal cord stimulation system that gets smarter over time by learning from each patient's pain experience.

And that patient interaction with the device and the therapy.

This combination of really big real world clinical data.

And direct patient engagement and input is intended to optimize and maintained pain relief on an individualized basis and.

Engaging patients in their therapy, and giving patients more control over their relief based on their personal experience and at a time that suits them.

IQ is a powerful supplement to our field team are hff's coaches and our cloud database that provides physicians with both detailed and summary outcomes data.

We believe that IQ will lessen the burden on our patients and our customers and expect this launch to support our growth prospects in 'twenty, three and well beyond.

As we've pointed out before the IQ product line is also a logical step in allowing us to drive a more attractive cost of growth as it enables our existing team to scale over a larger base of patients and revenue going forward.

I think that this combined with the ramp up of our Costa Rica manufacturing facility is really going to help us with earnings productivity on our revenue growth in the coming years.

Although still early days in the full launch anecdotal feedback on IQ from current customers as well as physicians, who use competitive devices has been quite positive during our earlier limited market release, 95% of physicians surveyed indicated theyre satisfied using the <unk> system in treating their chronic pain patients and 95% of patients.

<unk> answering the daily questions through the <unk> App very easy to do.

98% of patients also agreed to achieve personalized pain relief their input was required.

Not only does <unk> give our sales team the opportunity to discuss an exciting new product with their customers, but it's also changing the narrative around how <unk>, how SCS therapy can be delivered optimize and maintained using our AI enabled treatment algorithm to provide relief to patients.

<unk> positioned reasonably summed up IQ by saying that he felt it harnesses the power of all the programming experience and clinical outcomes from tens of thousands of patients and put all of that into the palm of a patient's hand.

As with any new digital product launch will continue to optimize functionality and add new features over time that improve the patient experience with the app.

In Q1, <unk> already accounted for about 11% of our permanent implant procedures now with the full launch of Hff's IQ underway, we expect a meaningful shift in mix to the IQ product throughout the rest of the year.

In summary in the ICU reflects our continued commitment to deliver a comprehensive life changing solutions for patients with chronic pain and it keeps nemoral firmly at the forefront of innovation as we continue to bring new technology, new data and new indications to our customers and to our patients.

So in closing we made what I think is very encouraging progress in the first quarter with what we believe will be continued recovery in our markets important new products like the <unk> IQ platform entirely new patient population, such as PD in SPP and the opportunity for attractive operating leverage on future growth.

As a result of our intense focus on the scalability of our expense structure I.

I think the outlook for <unk> is increasingly bright and our best days are ahead of us.

And I wish Kevin and the entire narrow team all the best going forward.

And with that I'll pass the call over to Ron to provide further details on our first quarter results and our guidance. Thanks.

Thanks, Kevin and Keith and good afternoon, everyone I'll.

I'll begin with our worldwide revenue for the first quarter of 2023, which increased 10% as reported and 11% on a constant currency basis compared to the first quarter of 2022.

PD and represented 16% of worldwide permanent implant procedures, which resulted in approximately $15 6 million in pn indication sales in the first quarter of 2023.

And just as a reminder, this quarter includes the same number of selling days as Q1 of 2022.

U S revenue in the first quarter of 2023 increased 12% compared to the first quarter of 2022.

International revenue in the first quarter of 2023 decreased 4% as reported and 1% on a constant currency basis.

Now, let's move to some details below the top line.

Gross margin was 67, 1% in the first quarter of 2023 compared to 67, 3% in the first quarter of 2022.

The full market release of the <unk> IQ system continues to progress well and the company anticipates a meaningful shift in mix to the HFF Hff's IQ product throughout 2023.

Which combined with the ramp up of our Costa Rica facility is expected to benefit gross margin beginning in the fourth quarter of this year.

Looking at operating expenses year over year, the increase was primarily related to personnel related costs.

And travel conference and meeting expenses as we've seen historically Q1 always experiences a disproportionate amount of annual expenses due to the NAND conference our global sales meeting as well as certain other Q1 heavy expenses, such as payroll taxes, and 401, K matching that reset in the new.

Calendar year.

This year's Q1 expenses are in line with our normal Q1 case as a percent of total spending for the year. They also represent a bigger difference over prior year because of our global sales meeting, which does not have a Q1 comparable from prior year and our robust NAND presence, which was more subdued in 2022.

non-GAAP adjusted EBITDA for the first quarter of 2023 was a loss of $17 1 million compared to a loss of $14 1 million in the first quarter of 2022.

Cash cash equivalents and short term investments totaled $341 8 million as of March 31, 2023. This represents a decrease during the first quarter of 2023 of $32 6 million.

As a reminder, the first quarter of each year is always a high cash outflow quarter, primarily due to annual incentive compensation payouts 401, K matching and other beginning of the year payments that are amortized the remainder of the year such as insurance. Excluding these items uses of cash were in line with normal business operations.

Keep in mind that the guidance, we are providing today assumes the full year of 2023, we'll continue to see steady improvement in provider capacity impacted by health care facility staffing challenges as well as no changes in macroeconomic factors that would materially impact our patients' willingness or ability to seek elective care.

We expect second quarter worldwide revenue of approximately $110 million to $112 million, which represent 6% to 8% growth on a constant currency basis.

PDL indications sales are expected to grow sequentially in Q2, and each quarter for the remainder of 2023, given the strong underlying momentum in the syndication.

We expect second quarter of 2023, non-GAAP adjusted EBITDA to be a loss of approximately 4 million to $5 million.

We continue to expect worldwide revenues for full year 2023 of approximately 445 million to $455 million, an increase of 10% to 12% over prior year on both an as reported and constant currency basis.

This full year 2023 guidance includes approximately $75 million to $85 million at Pn indication sales and.

An increase of 56% to 77% over prior year.

We continue to expect full year 2023, non-GAAP adjusted EBITDA to be in the range of negative 5 million to negative $10 million, which compares to a non-GAAP adjusted EBITDA loss of $23 8 million in 2022.

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 Ses technologies.

Remaining share gain opportunity future growth opportunities in PJM, and SPP and our new <unk> IQ platform superior clinical data and a strong commercial organization, we 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, I'll turn the call back over to Julie to moderate the Q&A session. Thanks.

Thanks, Rod you know, we're going to get through the question queue efficiently and take as many questions. As we can please limit yourself to one question and a brief related follow up.

And then rejoin the queue and if time allows we will take additional questions.

Lisa we're ready for the Q&A instructions.

Thank you at this time I would like to remind everyone in order to ask a question you can press Star then the number one on your telephone keypad.

We'll pause for a moment to compile the Q&A roster.

Your first question comes from the line of Larry Nicholson with Wells Fargo.

Good afternoon, Thanks for taking the question and Keith.

Congratulations on your retirement.

Wish you well and Kevin welcome.

Let me start Kevin with a question for you can you hear me okay.

Yes.

Oh great.

So Kevin can you just talk about your priorities in the first year and or this year and then never have reiterated the guidance.

In your announcement in today, so how did you get comfortable with the guidance in such a short period of time, we usually see new Ceos lowering the bar to set themselves up for success.

Can we be confident you won't do that thanks.

My first priority is really to learn from this amazing team obviously those people who've been here for a long time that have had a lot of success. Both on the clinical side commercial side, all around and I'm going to spend the first few weeks not only here in Redwood city to meet everyone, but also out in the field and with our customers here really soon and the Kols.

Here as well.

Do have some experience in this space with the prior organization and I know a lot of these kols and I know a lot of the reps are actually out in the field for us here at <unk> and so I look forward to learning from those closest to the customer, which typically is where you have the best insights and learnings from as.

As far as the guidance actually got comfortable with it because if you look at all the things that Rob just mentioned that we have going for us obviously with the new product launches all backed by superior clinical evidence.

And with the opportunities to grow into new indications, the PD and momentum and obviously the <unk> IQ launch.

That's a lot of good opportunities that we have do we have to execute on.

And then also when you really think about the factors the account in setting our guidance range along with other factors competitive introductions and now hearing from three of the four competitors in the space.

That's what gets us comfortable with our guidance.

Alright, thanks, so much I'll leave it there good luck in the new role Kevin.

Thanks, Larry.

Your next question comes from the line of Bill, Quebec, Nick with Canaccord.

Great. Thanks for taking my question and I Echo Larry's comments.

For both.

Keith and Kevin.

Just Mike My question is really going to be more on market share. Yes, we look at this Keith and Rod just on the on the numbers.

It looks like the U S spinal cord business was flat, which is a great improvement when you strip out the pds, but.

I'm just curious when you can use your commentary that you think youre taking share when the other players are reporting pretty solid numbers.

That would imply that theyre seeing flat in SCS too and I don't think the commentary you said that so I just kind of wanted to maybe get a little better understanding you said, we're seeing the U S lagging.

Flagging back SCS grow or at least starting to flat line, which is a huge improvement, but I kind of doesn't match up to the share shift.

So that's my quick yes, so we track this.

Very carefully on a very detailed fashion now some of this.

Information, obviously just came out as recently as even this morning, but I think our fundamental differences.

Think based on what you've said and the way you phrase. Your question is youre carving out <unk> and.

And we just don't do that.

Look we have higher we have a higher back pain percentage than our competitors, who have a higher leg pain.

Percentage, we don't track them differently.

All always treated some portion of nonsurgical back pain, but at different levels, we don't track that.

We are using were used at different levels for upper limb and neck pain, that's not something we breakout and track at least one of our competitors gets used at least with some frequency for peripheral nerve stem indications, we don't break that out another of our competitors.

A big portion of their volume is just simply replacing.

They're non rechargeable batteries when they die.

And Thats, a new procedure at a new device that gets sold they don't break that out we don't track that separately either so.

Look we are we view it very clearly in terms of our growth our total growth versus the market total growth and if one exceeds the other we know were gaining share revenue share.

So I think the difference is how your how youre viewing PD and total SCS market growth. We just don't see it that way on a rod if you want to add anything to that Bill just one thing to add so our U R. U S. Gross all in was was 12% and we think thats definitely at the front of the pack when Youre looking at the U S SCS space.

Okay.

Okay, and then related to that is I think it surprised us last quarter.

Interesting that we saw even the PD and down sequentially, but I just wanted to be clear with your comments that you expect the PD one component to grow quarter over quarter through both Q2, three and four of this year is that correct.

I would I would expect that Q3 will have some seasonality impact.

Relative to Q2.

Just because of the.

Hi, This is Allen on for Robbie just wanted to congratulate both.

Outgoing and incoming CEO and been a good run and hopefully keep it going for a little while longer.

But I guess, when I think about <unk> market dynamics again.

Obviously quite a bit going on with the new product launch you've got some lingering challenges from COVID-19 back on the staffing getting better so when I think about the trends that keep you bullish on hitting your full year guide.

What trends are you seeing a continuing into April that gave you that confidence.

And can you.

You gave some color in the guide, but how should we think about that generally trending through the balance of the year.

Yes generally speaking.

I'll ask rod to.

Two joined in with some some color as well.

I mean generally speaking we have a we have a very specific and detailed view of how we think the year progresses month to month quarter to quarter and.

And and how that seasonality looks relative to prior years, what impact, we think new product introductions ASB changes competitive entries.

And we evaluate our results not only our results, but our competitors' results against that plan.

As we as we sit here in late April we we feel very good about what we've seen to date and the indicators for what's coming ahead of us in terms of that sequential breakout for the first quarter versus the second the first half of the year versus the second half of the year, how that compares to prior year as the impact that we think PVM.

Growth rates and IQ impact, we will make and.

And then we've seen our competitors results, which speaks.

What we believe is happening and what we thought would happen in the overall market. So all of that gives us comfort that we are at least on track.

With the view that framed our guidance for the year and just as a maybe a general introduction rod if theres anything in particular, you want to add to that.

Yes, just to add a little more color. Obviously you have you have Q1, you have our Q2 guidance you have our full year mathematically youre going to find Q3 and Q4.

To drive to the full year numbers are going to be in that 11% to 15% growth range.

As Keith mentioned as we've as we've modeled this out we're looking at roughly a first half of the year.

Constant currency growth of 8% to 9% and we look at that second half second half of the year of 11% to 15, we think we're really well positioned for that with the IQ launch both from a volume as well as the pricing perspective, and the <unk> expansion opportunity that we have in front of us and then Mike.

By Keith mentioned.

Certainly nice to see some of our competitors posting some growth which adds to the story that the recovery does look like it's starting to happen.

Got it and then just thinking about the competitive landscape.

There was a little bit of a flurry of innovation over the last few years and your competitors has quieted down a bit now you are the one and now with the new product.

In terms of Hsn's Ecu.

Is there anything that youre seeing competitively on the horizon any innovation that you are keeping an eye on thank you very much.

Not really from our I am sure everybody will continue to innovate and broaden and deepen their stories.

I think we have we have now another new on label competitor in the PD end market, Yes, certainly there's been no real fundamental change in that market since our approval because of its recently.

And we don't expect it to have a really dramatic effect certainly anytime in the near term.

But we've got an eye on that situation, both both of our competitors in that space.

To see what they do to help us develop that market and to develop awareness among that referring in patient.

Our group.

Beyond that I think at.

At least for the remainder of this year any likely competitive change is I think probably more likely to come from.

New small entrants who are trying to break into this market and we think that's likely to be frankly, if if if any the impact is likely to be much more in 'twenty four.

And then anything we expect to see in 'twenty three.

And our next question comes from the line of Richard <unk> with <unk> Securities.

Hi, This is Sam on for rich. Thanks for taking our question I wanted to ask both of ours upfront one.

You can give us any any color on what youre seeing in terms of volume trends in accounts that have had access to IQ so far.

And then just through the year can you tease out at all for us.

The sequential ramp of <unk>.

And it's a mix of overall end plans should we expect <unk> to be close to 100%. Thank you.

Yeah, I'll answer the first part of that and let Bob take the second part I think it's too early I mean, we just we've just launched the product in March.

I think.

It takes a little bit of time, I think for account for doctors and for patients who really understand the technology to figure out how it fits in.

We reported what we thought we could at this point in terms of the percent revenue contribution and the overall enthusiasm about about the product in a little bit of anecdotal reaction, but give us a little bit of time I think this team will come arm to the next earnings call, probably with a bit more color in a bit more deep.

Tail on market uptake in reaction to IQ anecdotally I will tell you it's been it is.

Been everything we hoped it would be it's a very very attractive product with a with a really interesting value proposition for our customers and for our patients and frankly for the company.

Rob do you want to add anything sure part of that share.

On the IQ mix and we've we've talked about this in the past what we're anticipating is as similar.

Ramp and mix to what we've seen in other products and that usually takes in that six to nine month range to get to about 75% of of mix of the new product.

And we think Thats a pretty good proxy for.

For the IQ and just one other note.

Even with the Omnia that probably maxed out and about that 85% to 90% mix.

12 plus months.

After product launch so you never really get to a 100%, but it's easy to get into kind of the high eighteens once once the product is well adopted and stabilized in the market.

And we will take our next question from the line of Adam <unk> with Piper Sandler.

Hey, Keith Robin and Kevin. Thank you for taking the questions and I'll go ahead and.

Echo the same sentiments with my colleague on your departure Keith and.

Kevin assuming the wrong.

So maybe just regarding the Q2 guidance, specifically can you parse out CDN versus.

For SCS growth expectations, and how do we think about growth in the quarter.

Versus the prior year given.

I know Q2 of last year was particularly hit by staffing challenges. So as you weigh that softer comp and some of those challenges easing versus <unk>.

Market recovery and underlying growth.

And both SBS and PGN.

Sure I'll take a crack at that.

So first of all in general we don't breakout PD and what we have said is that we do anticipate sequential.

Growth in Q2 for <unk>.

Versus what we posted in <unk>.

In Q1.

And then as we're as we're looking at the second quarter and I'm going to actually bounce back a little bit and refer to what we said in our last earnings call. It is going to take a little bit of time for <unk> to ramp up.

And have an impact and what that also means is that we're.

We're selling at.

A greater mix of our legacy products and we continue to have a little bit of pricing erosion. There so as.

As far as the growth in the quarter that create that create a little bit of softness.

You mentioned that.

Staffing shortages last year, yes, it does create a little a little bit of softness in the in the comparable.

But we're also right in this in this period here, where we're ramping up IQ.

And we will start to see that become a material part of our of our mix.

Later in the year, none of Keith do you want to add anything on top of that.

I think that covers it pretty well I mean, if we if we can keep in mind that when we go.

<unk> guidance as we have for Q2.

Functions behind that are reasonably granular.

Sure there based on some of the macro assumptions about product line uptake.

Market growth rates et cetera, but there their base fairly heavily on.

The trial rates that are already in the book so.

We feel like we're not making quite as big.

Q2.

These year comparable was probably in Q1 of last year with the the omicron here.

Hit that Q1 took the Q2 comparable from last year while.

I would agree probably have a bit more staffing and infrastructural challenges and our customer base was a stronger comparables in Q1.

And Thats and Thats part of our assumptions as well if you look at the sequential lift from Q1 to Q2 and if you look at the combined first half of the year.

Q1, actual Q2 guidance.

As a percentage of our total guide for the year, it's very comparable to the <unk> to breakout from prior.

From prior cycles, So I think all the ends.

Kind of meet in the middle here and were comfortable with the Q2 guidance.

Okay perfect.

What explains that really well.

Maybe for my follow up how do we think about adjusted EBITDA growth over the course of the year.

Now with Q2 kind of guide and hand, it does seem like it's pretty heavily back half loaded.

And.

Just kind of thinking through some of the drivers in the business you have.

Ongoing clinical trials.

We're starting a new clinical trial.

You're expanding the PDL referral.

Salesforce and.

It does sound like Youre going to kind of attack Nsdap, maybe a bit more aggressively in the second half of the year. So I guess like what are the primary leverage point not.

And help us to get a bit more comfortable with that second half ramp.

Yeah. So.

There is a couple of things going on in the P&L as we go throughout the year one is as we've mentioned.

IQ continues to.

B, a greater part of our mix that should help us from an ASP perspective.

We've been pleased so far with the types of.

Asps that we've been able to get with the IQ and as that becomes a greater part of the mix that will that will certainly help with with leverage on the P&L.

Also in the fourth quarter, we start to.

Move product from our Costa Rica facility through through our cost of sales and that should also be.

Margin expansive for the P&L.

And then from an operating expense perspective, we continue to manage our operating expenses.

We are always going to have a bias towards growth, but we manage them in a disciplined way.

And <unk>.

Q1, traditionally is one of our higher quarters from an operating expense perspective.

I'd say this year is really going to be no different so as we go throughout the year theres going be some puts and takes on the operating expense.

Side of things to some of the points that you brought up as we.

Expand in some key areas of investment.

But we're also doing that.

A really sound job of being disciplined in our approach and that should enable us to be able to drive some some pretty significant.

Significant profitability in the second half of the year.

Alright, I will take our next question from Matt Taylor with Jefferies.

Hi, good afternoon.

Afternoon. This is Mike Sarcone on for Matt today, Thanks for taking our questions.

So just just the first one.

You talked about pricing pressure in <unk>, and you've talked a little bit about degradation. This year.

Hoping you could quantify what kind of price you are able to take with the new IQ launch.

Yes, we really haven't quantified that.

That's not really information, we want to give to our competitors we've talked about it in general terms, we do have some natural limits we live in a.

<unk> reimbursement world and.

And recognize the need for our hospitals, and <unk> and doctors to be able to.

Make a living as well so we do have some upside limitation on the kind of premium we can we can bring to the market.

But we do we have seen in the past a premium for.

Meaningful innovation in this space and are some of our product introductions being I think.

Right there among them and we think that a.

A premium is justified for what IQ brings to the patient into the field.

And that's what we've asked so we think we've asked a reasonable pricing premium for the value that we're bringing to the patient and to the customer.

But we've not quantified the amount.

In the past I don't believe at all of the previous discussions we've talked about the percentage I believe no.

Okay. That's helpful. And then I guess just on a broader level understanding that you talked about IQ, taking some time to ramp but can you talk about at a high level for 2023.

What kind of overall price looks like versus 2022.

And what that could look like in 2024.

Yes, I think I think what we said in the past and then obviously, it's going to it's going to vary by quarter as we've got IQ, increasing as a part of our mix in legacy products decreasing.

So from quarter to quarter, it will be different but.

I think in the past so we will we've discussed is that.

Pricing is relatively flat on a year over year basis for the full year.

And and.

But it but it has movement.

And a little bit of a degradation perspective early in the year and moving into a more positive one position.

<unk> position in the fourth quarter.

Okay. Thank you.

Again, if you would like to ask a question Press Star then the number one on your telephone keypad.

Thank you I want to Echo congratulations Keith on the transition of course, and welcome Kevin and look forward to working with the team here. So maybe the first question I guess is just on the <unk>.

It's closer to hear just on potentially moving away from.

A strategy shift and maybe even tactically as you think of investments should we be just thinking about just more focus back to the core.

Pain market spinal cord stim and even in the face here of the IQ launch in maybe a little bit of.

A slowdown in the investments in <unk> or is it still we should be thinking about just really adult pronged approach here just from an investment standpoint, and then I'll have a couple of follow ups.

Yes.

I can tell you in.

I am going to defer to the judgment of the team in future quarters on this for sure but I can tell you. It has it has nothing to do with.

The enthusiasm of the prospects for PJM or the amount in.

In which we'll invest in those prospects. So we continue to be very excited about the opportunity for PD on the importance of PD and of the whole market and to the company over time, and we're going to invest behind that growth at a responsible.

Right.

I think this has more to do with the things that I talked about earlier.

Earlier in our in our remarks, and we do have to be cognizant of the fact that we went from being the only one with a PD on claim to being one of three technically with.

With a PD and approved claim and so where we are cognizant of the information, we're giving not just to you.

But to our competitors.

To be honest I think we just we certainly don't want to put ourselves or our shareholders.

Position where were being pet.

Penalize for growing the business and.

I think what matters here is overall growth now PD on as part of that but there's a lot of segments and a lot of parts of our overall growth that go unreported and certainly all of them go on reported by our competitors.

So I think those will be the things that we take into consideration when I say, we I really mean, Kevin and the team going going forward and I think the intent of our remarks was just to let you know this is something we're looking at.

We probably never intended to break it out permanently.

<unk>.

They're going to be spending some time trying to evaluate.

How to communicate that going forward and if we make changes what those changes are and when we make them.

And for the follow up is just on the dynamics of the core.

Spinal cord stim market and the dynamics there.

Quarters ago, the company talked about some <unk>.

<unk> said basically just fell out of the funnel because the diagnostic work up in the number of nodes that a patient had to get through was extensive and then those staffing headwinds. So when you think about sort of the just a renewed look at spinal cord stem.

How many patients do you think have been lost due to those patients come back and if you will when the market rebounds, which should we be thinking about and just in terms of an underlying market growth rate can it return to.

High single digits is it a mid single digit grow or can we potentially see at some point low.

Low double digits. Thanks.

Yes.

Yes.

Well look we.

We gave up a long time ago, if we ever really thought we could trying to quantify pent up demand over the course of the pandemic, that's a little bit of a.

A fool's errand I think early on we did try to identify the delta between where the market would have been in overall size absent the pandemic and where it was and discussing the magnitude of that delta, but in terms of trying to quantify the actual pent up demand and especially that portion that returns to this therapy we have.

Found not for lack of trying.

Quite a difficult thing to do I do think we are seeing in this space in terms of patient visits, which we talked about in our remarks, and we're seeing it in comparable procedures around the industry that there is clearly the view at least that part of what we're seeing is some pent up demand of patients coming back in.

To the funnel for various procedures.

Probably were deferred or delayed from prior time periods.

I don't doubt that that's the case I just will tell you that I think thats.

It's very hard to quantify from a future growth rate standpoint, yes, I actually think we are there is.

Look.

Pandemic has done a very good job of of baking in a lot of peso pessimism. The way people think about certain markets. We've tried.

The long term growth rates of this market.

Now what those growth rates are I mean, historically they've been reasonably variable.

Going from low to mid single digits up to up to mid teens.

I think the answer is probably somewhere in between not surprisingly, but you asked the question could this market.

B and overtime grower of say high single digits, absolutely it could.

Could it go through periods, where the whole market grows in the double digits certainly it could.

I don't know that I would expect that to be the norm over say a 10 year period.

But I think historically you look at any 10 year period in this market.

And it's mid to high single digit is kind of the norm and I have every confidence this market can return to that.

Got it. Thank you again, congrats to everyone on the <unk>.

Thank you.

And there are no further questions at this time I would now like to turn the conference back over to Kevin Barnhill for closing remarks.

Thanks, Lisa let me close by reiterating how delighted I am to be joining <unk> at this exciting time.

Look forward to reporting on our progress on our next call armed with my first quarter as CEO underneath my Bell thanks, everyone for joining the call today.

And that concludes today's conference you may now disconnect.

Please wait the conference will begin shortly.

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