Q2 2023 Nevro Corp Earnings Call
Ladies and gentlemen, good afternoon. My name is Abby and I will be your conference operator today.
At this time I would like to welcome everyone to never a second 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 he would like to ask a question during that time simply press. The star key followed by the number one on your telephone keypad.
If you would like to withdraw your question and remove yourself from the question queue Press Star one a second time.
Thank you.
And I would now like to turn the call over to Greg Patrick for Inductor remarks. Please go ahead.
Thanks, Abby good afternoon, and welcome to <unk> second quarter 2023 earnings Conference call with me today are Kevin <unk>, CEO , and President and Rob Mcleod.
Chief Financial Officer on today's call, Kevin will discuss second quarter business results and Rod will conclude with detailed financials and guidance before we open it up open up the call for questions.
Please note. There are also slides available related to <unk> second quarter performance on our Investor Relations website in the events and presentations section.
Earlier today never released its financial results for the second quarter ended June 32023.
A copy of the earnings release is available on the Investor Relations section of <unk> website at <unk> Dot com.
This call is being broadcast live over the Internet to all interested parties on August one 2023, and an archived copy of this webcast will be available on <unk> Investor Relations website.
Before we begin I would like to remind everyone that comments made on today's call may include forward looking statements within the meaning of the federal securities laws results could differ differ materially from those expressed or implied as a result of certain risks and uncertainties.
Please refer to <unk> SEC filings, including the annual report on Form 10-K filed on February 21, 2023 for a detailed presentation of risks.
Forward looking forward looking statements in this call speak only of as of today and the company undertakes no obligation to update or revise any of these statements.
In addition management will refer to adjusted EBITDA, a non-GAAP measure used to help investors understand <unk> ongoing business performance.
non-GAAP adjusted EBITDA excludes interest taxes, and noncash items, such as stock based comp compensation.
Depreciation and amortization as well as litigation.
Related expenses certain litigation charges and credits and other adjustments such as restructuring charges. Please.
Please refer to the GAAP to non-GAAP reconciliation tables within the earnings release.
And now it's my pleasure to turn the call over to Kevin.
Thanks, Greg and good afternoon, everyone. We appreciate you joining us it's hard to believe that three months have already passed for me as CEO , it's been very busy and productive as I've gotten to know our organization and assess the pathway forward to continue to win in the SCS market and fully capitalize on the opportunities ahead of us.
As I said on our last call my top priorities will be to build on the significant progress. The company has made professionalizing the organization, establishing a manufacturing plant in Costa Rica, bringing new indications to market and launching innovative new product platforms like IQ.
During the last three months I've spent significant time in the field meeting with our sales teams customers and key opinion leaders in the U S and internationally have learned a lot already.
Our customers believe and our superior technology and want to partner with a company that's easy to do business with and people in the field that partner with their care teams.
Our products in 10, kilohertz therapy are highly differentiated and our <unk> IQ launch has been well received we also have a great pipeline of new products currently being developed by our R&D and clinical teams that we intend to launch in the coming years.
Our team is talented determined resilient and mission driven.
However, we have areas for improvement and need to be laser focused in these key areas. There were move our business forward our must dos our focus on three key pillars for success, which our first <unk>.
Commercial execution we.
We have not performed performed commercially to the levels that we consider world class in a market that demands excellence and sales force execution.
Starting with the hiring of Greg filler to the CTO role. We are moving quickly to ensure we have a plus talent at every position to increase sales productivity improved physician engagement and maximize the growth opportunity in this business.
We are also focused on improving our sales rep performance to Croda right sizing some of our sales territories and filling open territories faster.
These changes coupled with aligning the goals of our internal and external teams, where improve our sales productivity and enhance our customer experience.
Second market penetration, we will continue to expand indications with strong clinical evidence as our ongoing sensors such as our ongoing sensory study for PD and pursue H FX line extensions and support our robust R&D pipeline development. We will also consider augmenting our product portfolio.
Through strategic opportunities lastly, profit progress, we will continue to scale, our Costa Rica manufacturing facility improve our operational efficiency and streamline internal processes.
On the commercial front, Greg Silver recently joined as our new Chief Commercial Officer, Gregg proven track record of success and his passion for building high performing commercial organizations will be instrumental as we continue to focus on accelerating revenue growth developing.
Underpenetrated markets, such as painful diabetic neuropathy, and nonsurgical back pain, and launching new products, including our new <unk> IQ system Greg.
Greg is off to a fast start and is already having a positive impact on our commercial organization.
He has realigned ourselves reporting structure. So the teams are working closer together with one common goal of providing the best service and clinically proven stimulating therapy to our clinicians and their patients. This change sets us up for success in future quarters, I am confident that greg's appointment will further bolster our ability to capitalize on the <unk>.
Growth opportunities in front of us and accelerate our market performance.
Okay, Let's now turn to our second quarter results and business updates.
Although we lowered our second quarter guidance, we continue to move the business forward and lay a stronger foundation for improved commercial execution in future quarters, <unk> revenue of $108 $8 million increased 4% on both a reported and constant currency basis compared to prior year results.
Our U S. Perm procedure growth was 8% year over year, and PD and continues to be a significant growth driver with a strong second quarter increase in revenue of 73% compared to last year.
As of today three of the four main market participants have disclosed their Q2 SCS results.
Net ROE in one of our competitors reporting clear Ses growth, it's evident that the challenges to our market are improving and although recovery isn't expected to be linear we expect it to continue to improve in the quarters ahead.
Remember.
<unk> is considered a late or last line therapy used to relieve patients of their chronic pain when surgeries and more conservative treatment options either don't provide optimal relief or just simply don't work then are not an option.
We are seeing positive indicators of growth and recovery, including patients entering the pain treatment funnel.
As patients make appointments with their pain specialists and continue to move through the treatment pathway. We are confident we will see more patients who are ready for SCS and the market return to historical growth rates. The non linear recovery along with our recent salesforce execution changes, which will take time to fully implement however have led us.
To re gauge our guidance for the year.
I will come back to this at the end of my prepared remarks.
In Q2, <unk> IQ accounted for approximately 30% of our permanent implant procedures up from 11% in Q1, and we expect a meaningful shift to our <unk> IQ throughout the rest of the year.
We continue to receive positive feedback from physicians and patients regarding the ability to deliver personalized pain relief using our <unk> algorithm.
I'm convinced this technology has the opportunity to differentiate our competitive position further.
All of this progress builds on our superior high frequency paresthesia free SCS technology.
Turning now to our PDL business PD in trials represented approximately 23% of our total U S trial volume that's up from 14% of our total U S trial volume in Q2 of last year.
Among our permanent implant procedures PD and represented 18% of total worldwide procedures, resulting in an approximately $19 million in PD PD and indication sales an increase of 73% compared to $11 million in the second quarter of last year.
We attribute this in large measure to the continue continued PD and referral sales organization expansion, our direct outreach initiatives to physicians and patients in the general enthusiasm regarding the compelling data and where world outcomes and these otherwise difficult to treat patients.
We continue to see success with our direct to patient marketing for PD and as well in Q2, approximately 23% of our U S. PD and trial procedures came from leads generated by our DTC programs. We continue to believe both patient and physician marketing efforts are imperative to drive awareness of the PD and indications.
On the new indication coverage front, our PDL coverage continues to grow.
Florida Blue the largest commercial payer in Florida represented $4 6 million covered lives updated their medical policy to include coverage for PD in which became effective on June 15th and we are very pleased to see that Medicare administrative contractors <unk> and first coast service options decided to retire.
<unk>, they're SCS local coverage determination or LCD.
And cover both PD and and nonsurgical back pain, using Medicare national coverage determination or in CD that is already in place. This positive coverage policy development became effective on July 13th and provides immediate access to SCS therapy for PD in an SPP pay.
<unk> to meet the NCD coverage criteria and have Medicare or Medicare advantage health plans. This is a huge win for Medicare patients suffering from TD and who have had limited to no access to <unk> therapy since FDA approval in July of 2021.
The combined increase of coverage represents nearly 24 million covered lives, bringing health plan coverage of PDL to over 205 million covered lives total.
I want to congratulate our entire government affairs and market access team on this accomplishment and thank them for their significant effort and unrelenting focus on expanding coverage to patients who suffer from the debilitating conditions.
In addition to the existing payer coverage policies in place for PD and we continue to see a high level of case by case approvals through the prior authorization process and the appeal of payer prior off denials, including with payers, who don't have a positive PDL coverage policy in place for.
For those PD and cases that have come through our own access group, our rolling 12 month approval rate at the end of Q2 continued to trend around 72% up from approximately 62% at the end of 2021.
By leveraging our strong club published clinical data FDA approved PD and indication and inclusion in various society guidelines, we have been able to successfully overturn over 50% of these prior off denials equally impressive is that through Q2 across all indications are <unk>.
Access team has an over 80% approval rate at the initial prior authorization for patients who need medical necessity for SCS.
In June we attended the American Diabetes Association 80, <unk> scientific sessions, where Dr. David Kahn off and Dr. Erika Petersen presented important secondary findings from the landmark Senza PDL RCT, comparing nevertheless, proprietary high frequency SCS plus conventional medical management.
<unk> for the treatment of PD in two conventional medical management alone.
This presentation was the first look at the correlation between the use of a 10 kilohertz SCS implant and reductions in <unk> and body weight.
For your reference we've included this 88 abstract data and our <unk> investors slide presentation.
Dr. Erika Petersen also participated in an 88 symposium on the treatment of painful diabetic neuropathy, whereas you've reviewed the long term 24 months durability of pain relief as well as clinically meaningful improvement in neurological function and quality of life achieved with 10 kilohertz therapy impressively.
At two years high frequency spinal cord stimulation from Nedrow H FX was associated with significant pain relief with 90% of participants reporting greater than 50% pain reduction.
We recently received confirmation that this 24 month PD in RCD RCT data has been accepted for publication and we expect to see this data published in the second half of this year.
In addition to these promising results we have enrolled almost 20 patients and 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 PD and <unk>.
Youll recall that the neurological improvements we observed in the original sins of PDL study are unique to 10, kilohertz SCS therapy and have not been reported for any other competitive low frequency SCS therapy.
By restoring sensation in the feet 10, kilohertz SCS may alleviate this tremendous disease burden reduce amputations and enable patients to be more active all of which would improve overall health and quality of life and of course reduce health care costs.
Now before I leave PD and I wanted to cover one more topic.
On our last earning call Youll recall that we mentioned that we were evaluating whether we should continue to breakout PDL indication sales. Since there are now two other PD in on label competitors, who do not segment the SCS business at all.
Since that call we received a lot of feedback from analysts and investors on this topic.
All of these and SCS indications, whether for PD in nonsurgical back pain or fell back and leg use the same ses technology utilizing product sold and serviced by the same organization are reimbursed using the same codes used with patients that may have multiple pain areas and etiologies and our.
<unk> by the same in planning and are deployed by the same implanting physicians to treat chronic pain given.
Given this we have decided to continue providing this PD and indication breakout for 2023 reporting purposes. However, beginning with our first quarter of 2024 results, we will not specifically breakout PD in but we will continue to provide qualitative commentary on this important growth indication.
As stated last quarter, we are interested in driving overall market share gains and company growth period, and we're doing just that.
Finally, I wanted to say a few words about our updated guidance first do not interpret our guidance is a lack of confidence in the long term outlook of the SCS market. Our growth drivers are where the company is headed we believe the market is on a path to recovery and will eventually return to sustained historic growth rates along.
With the organizational changes we discussed the scaling of our Costa Rica manufacturing facility and our future product line. We believe we can generate significant future returns, including improved revenue growth enhanced margins and increased operating leverage setting us up for success in 2024 and beyond.
We are also not providing formal pn indication guidance for the for the year, but expect PDL indication sales to be in line with how we have previously discussed the 2023 PD and opportunity.
We are enthusiastic about our plan and look forward to executing our current strategies driving growth and taking advantage of the meaningful leverage opportunities, we have to drive towards profitability and deliver shareholder value.
And with that I'll pass the call over to Rod to provide further details on our second quarter results and guidance.
Thanks, Kevin and good afternoon, I'll begin with our worldwide revenue for the second quarter of 2023, which increased 4% reported and on a constant currency basis compared to the second quarter of 2022.
PDL represented 18% of worldwide permanent implant procedures, which resulted in approximately $19 million in PD and indications sales in the second quarter of 2023.
This quarter included the same number of selling days as Q2 2022.
U S revenue in the second quarter of 2023 increased 4% compared to the second quarter of 2022.
International revenue in the second quarter of 2023 increased 5% as reported and 4% on a constant currency basis.
Now moving on to some detail below the top line.
Gross margin was 68, 4% in the second quarter of 2023 compared to 69, 8% in the second quarter of 2022.
The full market release of the H FX IQ system continues to progress well and we expect a meaningful shift in the mix to the HFF IQ product throughout 2023, which combined with the ramp up of our Costa Rica facility is expected to benefit gross margins beginning in the fourth quarter of 2000.
'twenty three.
Looking at operating expenses year over year. The increase in operating expenses was primarily due to $3 6 million in personnel related costs largely specific to management changes made in the second quarter.
non-GAAP adjusted EBITDA for the second quarter of 2023 was a loss of $3 1 million compared to a loss of $4 5 million in the second quarter of 2022.
Cash cash equivalents and short term investments totaled $329 9 million as of June 32023.
This represents a decrease during the second quarter of 2023 of $11 8 million.
Uses of cash were in line with normal business operations as well as our projections.
And we continue to manage our working capital and are very comfortable with our balance sheet to fund operations.
Turning now to guidance, it's important to note that we will be using non-GAAP financial measures to describe our outlook for the business. Please see the financial tables in our press release issued today for GAAP to non-GAAP reconciliations.
We expect third quarter worldwide revenue of approximately 95 million to $97 million, which represents a decrease of 4% to 6% on a constant currency basis.
We expect third quarter of 2023, non-GAAP adjusted EBITDA to be a loss of approximately 8 million to $10 million.
We expect worldwide revenue for full year 2023 of approximately $410 million to $415 million, an increase of 1% to 2% over prior year on both the national reported and constant currency basis.
We expect full year 2023, non-GAAP adjusted EBITDA to be in the range of negative 25 million to negative $28 million, which compares to a non-GAAP adjusted EBITDA loss of $23 8 million in 2022.
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.
We are in a great position strategically with best in class SCS technologies remaining share gain opportunity future growth opportunities in PD, and NSP and our new <unk> IQ platform superior clinical data.
And the opportunity to improve our commercial execution.
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 Greg 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 you to please limit yourself to one question and a brief related follow up question you can rejoin the queue NSF and if time allows we will take additional questions Abby we're ready for Q&A.
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.
Pressing star one a second time will remove your line from Mchugh.
We will take our first question from <unk> Singh with RBC. Your line is open.
Hey, good afternoon. This is avianca, Michigan.
Just overall talking about 2023 guidance, how did you arrive at the new guidance range and overall, what's your guidance philosophy. This.
That you think is conservative.
Or allows you to be at a place where you can be in a range that should progress throughout the year. Thank you.
Yes, thanks for the question.
You look at the previous two quarters, all four of us.
The biggest part of the SaaS market reported positive growth. This is the fourth the first quarter since those last two quarters, where one of US reported flat we were up 4%.
One of the other competitors was up significantly, but one of the others.
Was flat to negative in the U S per the reports and so that gives us a little bit of caution just to think about the market and we said, it's going to be a non linear recovery and so each quarter by quarter, maybe a little different on that recovery journey. The second part is if you look at the changes that we did during the second.
Quarter, with bringing named Greg Silver as the new Chief Commercial officer, who got off to a fast start and has made the appropriate changes that we've done in the past in other organizations that we know will be successful. It does take some time for those changes take hold and get the get the sort of the teams in the field working as one unified unit.
As well as filling some of those open territories with speed and making sure people are getting trained and effective out in the field. Those are really the two reasons, which made us change our guidance for the remainder of 2023.
Okay.
We will take our next question from Anthony Petrone with Mizuho Group. Your line is open.
Hi, Thanks, and maybe just to dig in a little bit to maybe the second half implied guide and fully understand that PVM. Beginning in 2024 is going to go away here, but if we just assume TVN is basically flat.
In <unk> <unk> and that would be conservative considering that it is still growing.
The implied math sort of shakes out too.
Core.
Outlook that sort of down in <unk>.
In the low double digits.
For a blended.
Time frame of <unk>, so maybe between just underlying market and competition.
If we barbell those two themes, what's really sort of impacting the second half more so and then the quick follow up would be just on sales force restructuring and replenishment in the core SCS Division is that also at play when we look at the back half guidance. Thanks.
Yes ill answer the second part and then turn it to rod for the numbers on the first part and the implied math on that you said with the sales force execution. What we're really doing is aligning the people that are in the field underneath the closest manager thats in each of those regions or territories previous to that we had.
<unk>.
Reporting structures reporting to different leaders within the organization. So now compiling together so that they are operating in making decisions for each territory.
That's the big change and it will take some time for that to sort of take effect, but the positive outlook on that I'm, a big believer that putting power to those closest to the customers what drives meaningful results. Because every city is not the same every territory is not the same decisions that need to be made to drive growth in each of those territories is different versus a peanut.
Better spread across the whole nation or the whole world for that matter and so that's going to take some time, though people have new managers, they have new teammates new bosses.
Know that this is the right thing to do specifically as we look about look at strategic opportunities maybe in the future. We've got to organize ourselves ready to be able to scale not only in the SCS market or anything else for the future as well so I will turn it to rod to do the implied math and the other question that you asked yes, Hey, Anthony This is Rob.
Rod.
The first is your math is directionally right.
Using those assumptions.
We do think PD and continues to be a growth driver for us we are seeing good sequential growth quarter.
Quarter over quarter.
With that business.
We also continue to see MSP as a growth driver.
We're all seeing ourselves as well as our competitors out there continuing to push NSP, but but fundamentally you met your math is right.
As Kevin mentioned, we're sitting here after two pretty strong quarters in Q4, and Q1 of of growth in the industry.
As he mentioned we.
Two of the three posted growth in the second quarter with one being flat to maybe down a little bit in the U S.
And.
With that in our sales force execution that we have we have in place.
That's how the guidance is kind of playing out for the second half of the year.
No that does.
Helpful. I'll hop back in queue. Thank you.
And your next question comes from the line of Adam <unk> with Piper Sandler Your line is open.
Hi, This is <unk> on for Adam. Thank you for taking the question.
I wanted to dig into Q3, a little bit so it looks like.
Thank you for your guide implies.
Revenue is down about 12% sequentially and I understand there is a seasonality component with the business, but this is maybe a bit steeper.
Quarter over quarter sequential step down than we've seen historically.
Can you walk us through the puts and takes for Q3 and.
How do you weigh other dynamics like competition.
H FX IQ launch and just.
Underlying market recovery.
In the quarter.
Yes sure similar on this.
So yes seasonality definitely in Q3 has historically been one of the lowest quarter throughout the year before.
Q4 end of the year, where People's insurance plans right when their deductibles were reset into the new year, but still going back to the couple of reasons, we talked about in the script and also answered on the first couple of questions.
If you go back and look at what happened and transpired with Q2 I started on the two days before the last earnings call and about four weeks in five weeks in.
Made the change at the Chief commercial officer role and we took down guidance for the second quarter. Obviously that was one month, one five months into the quarter and I knew that we had some things that we needed to change in the organization. So it's either.
Put off some of those changes that we need to make or do it immediately so we can set us up for the future so bringing Greg in in the middle of the quarter. Obviously gave him time to spend time with the team and really assess what what offense, we need to play here. So he quickly made those changes with the reorganization of the sales teams and made.
Some changes in the marketing side as well to be able to align our internal and external organizations to be working together as one team versus two separate units. So that all happened towards the back half of second quarter. So if you look at those changes and possible a little bit of disruptions that could occur because of those changes. That's why the Q3 is down some.
<unk> more than it would have been in previous years Rod you want to add to that.
No I think I think he covered it the only thing that I might add is that H, FX IQ, which we should receive a bump from both in pricing and pricing. It can take a little while for that mix to ramp up and we saw increase or improve in Q2, and we'll see that.
Okay.
And your next question comes from the line of Larry <unk> with Wells Fargo. Your line is open.
Hi, This is Nathan trained by comp for Larry Thanks for taking the questions.
You had indicated several times that you plan to diversify net ROE and interventional pain, you talked about new technologies and new indication on your existing technology and all within three years can you, let us know what that will entail and would you raise equity for M&A. Thanks.
Yes, so as far as I'll answer the new indication question. As you know we have 20 patients enrolled as I said on the script out of the 200, we need for our PDL sensory study our plan is to withdraw and extract some really good data that will allow us to build on the claims we already have on that indication. So that one is already in.
Play.
Not talked about other indications that we're working on in the background, but we're in the pilot phase of some really interesting other areas of pain.
Not been publicly disclosed yet and we will do that when whenever we get closer to something thats more tangible there, but that's the plan with our superior clinical team that we have I mean look at the clinical results that we've been able to produce over the history of this company.
As a core part of who we are and we're never going to get away from that and so.
Think about the things that we're able to find because we are doing that clinical studies. The sensory study as an offshoot because we solve these early indications in our first <unk> study that allowed us to say Hey, you know what we should explore this further because this is showing really good things for additional claims now as far as new technologies and diversifying.
I talked about it in the main pillar that we have to really diversify our revenue.
And I'll, just say that we're always constantly looking and taking meetings and looking at what should be part of our.
Leveraging our biggest asset we have in this organization, which is our sales force and we've got great relationships. We have we've said publicly 500 people out in the field that should be leveraged to be able to service. Our same call point that we service today with adding stuff in the bag that they're already doing from a procedure standpoint or other <unk>.
Areas that other procedures that could be launched that could help those patients that suffer from chronic pain. So we're not going to steer way far from the ship, we won't do anything stupid, but we're constantly looking for those opportunities and as far as raised raising capital I'll, let rod talk about some of the options that we might have.
Nathan.
Really financing.
It depends it depends on if we enter into a deal what the size and the magnitude and the timing of it is where we're in very good shape from a balance sheet perspective.
We have about $330 million on the on the books and cash cash equivalents and short term investments as of the end of the second quarter.
And with a little bit of growth.
We find ourselves getting closer to that of adjusted EBITDA.
Positive growth territory, and then cash flow should be not too far behind that so we like where we are from an operating perspective.
But it really depends on what size of a deal and when it comes along from from a financing perspective, what we what we would entertain at that point.
Okay. Thanks, if I could follow up with one more in terms of just the competitive landscape.
Youre one of your larger public competitors reported a strong quarter, but in terms of the smaller private competitors like <unk>.
Would you say you've gained or lost share in Q2, what do you think nevertheless stacked up.
Yes calculations show that we held steady with the positions that we already had that implant exclusively net Roe or those accounts that we call splitters that use some of us in some of somebody else, obviously theyre going to try new technology Thats out there, but we don't think by our calculations and data that we can get that there.
Significant impacts on any of us from those two new entrants at this time now to say that.
The ex athlete, both NFL and college and I do not take any competitor.
Lee So we will continue to be vigilant in some of the changes that we've made in our organization and the commercial organization will set us up to be more competitive to not only just treading water and just keep the share we have but our plan is to go out and take share we're highly competitive team here and that's why we are changing our organization and <unk>.
Sure and we have a plus talent every position. So we can go out there and continue to win in this market.
And your next question comes from the line of Robbie Marcus with Jpmorgan. Your line is open.
Hi, This is allen on for Robbie.
Just the first question clearly the rest of 2023 is going to be pretty impacted by the commercial changes as you kind of.
And refocus the organization what level of confidence you have that the majority of FERC is going to be behind you by 2024 and that kind of return to a normalized growth rate then.
Yes, I mean that was the that was the plan and making the change early here with Greg and Greg had 17 years at Stryker Rod and I, both came from Stryker as well, where we know how to to build world class sales organization and bring in our people that we know from other organizations that op.
Right with the same level of intensity competitiveness and passion that we all do and all the other leaders that we have on my direct reporting team.
We're a highly highly competitive grid.
Everything that we do and so we believe that that six month Mark is traditionally what it takes new people to sort of get ramped up specifically if they are top performers, but maybe they are coming from a different side of med Tech and we believe that most of that groundwork is going to be taken care of in 2023 and as I mentioned at the other.
<unk> doing it early was the right thing to do for our shareholders, our investors and for all of US as employees. So that we can get off to a really good start as we come out out of this year.
Got it and then the quick follow up you referenced confidence in the market kind of returning back to historical growth rates and I think I hope I'm not alone in saying that this idea of historical.
Historical growth rates is one of kind of an up in the air because the market has been pretty bumpy both before never first into the market as you enter the market and then the slowdown we saw in the years after meeting the Covid. So when you talk about a normalized market growth rate. What are you what are you thinking of.
Yes, typically the historical rate would be anywhere from like 6% to 9%.
And if you look at if you look at this quarter in the last two quarters, where we all had.
We all had growth in the previous two quarters. This quarter was as you mentioned one or the previous question mentioned there was one large competitor that had really good double digit growth, we had 4% growth and then we had one of our competitors that were flat and then down 4% we calculate in the U S. So it's starting to diverge a little bit.
But overall the market is going to show likely show growth in this quarter, So and just to go back to those remarks, then Lon non linear nature, it's not going to be a straight bottom left to top right graph that we see in some other elective procedures return, it's a little choppy as its going up into the right. So it's not just.
A linear line, but the trajectory is going in the right direction. If you look back from the last two to three quarters now.
And as a reminder, it is star one if you would like to ask a question.
And we will take our next question from Brandon Vazquez with William Blair. Your line is open.
Okay.
Hi, everyone. Thanks for taking the question Kevin you had made a brief comment earlier about <unk>.
Potentially replacing or filling some open territories as you guys made some commercial changes I just wanted to clarify.
Open territories as a result.
Any higher than usual turnover given.
There's been some volatility in the core market recently.
Or perhaps there's just commercial changes. So curious if you can just give an update on how the sales force has been is there turnover or are you guys having to fill in some open territories and does that kind of elongate what a recovery could look like since they have to ramp. Thanks.
Yes, no we're.
Still within those norms of med device turnover, that's traditionally the 10% to 20% type type range. We only have a handful of territories opened a lot of that is behind us with what we've been doing behind the scenes since our.
Our last public announcement was greg's hiring and quickly bringing in some people that we both have known from from.
Even before Stryker and may even before that as well. These are people that we've known that our great results driven cells sales professionals. So we have a handful of sales openings right now, but yes anytime you make a change with the underperforming red even when you put in a plus.
Star Rep, they're just taking time to get those relationships built and to strike start taking share from our competitors. So thats again, what's going to take six months for us to start seeing some of those territories that we had proactively changed over just because we've had some nonperforming territories and we have some territories and by the way are absolutely crushing.
In some areas that have higher than our national market share, sometimes double of what our national market share is so we know we can do it when we have the right people and the right territories.
And your next question comes from the line of Richard <unk> with Truest Securities. Your line is open.
Hi, This is Sam on for rich. Thanks for taking my questions. Just one quick one on the market growth rate, 6% to 9% just to clarify is that inclusive of TVN. When you when you say that amount.
Yes.
Okay. Thanks, and then just as we think about.
Salesforce productivity going forward with a lot of the changes getting made up.
How should we think about productivity ramp through 2024, and then how does that relate to what what operating leverage as the business can see as growth returns to more normalized rates in 'twenty four thanks for taking the question.
Yes, I think Sam.
As far as some of the reorganization that we had out in the sales force and really it's the realignment to who their managers are and a little bit of a increase in enhancing their comp plan, where they are working together as a team to hit their number the quota that we hand out to them. We had we had people that were sort of chasing different numbers.
Out there and now they are aligned to work together closer to the customer closer to the patient to make those right decisions that are right for their territory and Thats really the big change that we have so as far as productivity, having a team that's working together and aligned together that's always championship winning teams that are out there. It's not those teams that are full of us all.
Stars at work they don't work together, we've seen it in sports.
Those all have to watch sports you can see those organizations that have a <unk>.
Plus people on their team, but they don't work together as a team and this is a team sport right each of our sales reps can't do it on their own therapy consultants. They have assistant sales reps. They have coaches that talk to the patient post implant they have to be working together as one oiled machine and that that will bring efficiency as well as the team color.
<unk> and engagement should increase as well and so those are more of the things that we expect to get out of them and then longer term as I've said publicly being able to.
Add in something more to their sales bag. Eventually will also bring really strong operating leverage because that will allow us to increase the revenue with the same footprint that we have out there today, but obviously, we can never comment on when and how and what we would do on an M&A standpoint, but thats something and why we are.
Currently taken all these calls in and looking to see what would be a right fit for us over the longer term.
And your next question comes from the line of William <unk> with Canaccord. Your line is open.
Hi, it's John on for Joe Tonight, Thanks for taking our questions. Just a quick one on IQ I know you mentioned it briefly but are you seeing any ASP benefits and did you benefit more than offset ASP degradation you see on older generation products in the U S. Thanks.
Yes, youre asking about ASP there.
Hey, Rod Yeah.
Okay, sorry, I didn't hear clearly.
Yes.
So far we are seeing.
The sort of pricing that we anticipated for the year.
And were receiving a premium on the IQ product, we are seeing some pricing erosion as we've talked about in prior quarters and that we've seen.
Over the last couple of years with some of our legacy products and those continue to make.
A disproportionate amount of the mix and so they have a tendency to to offset one another but as as IQ continues to become a greater part of our mix as we go throughout the year into Q3 and Q4, we anticipate that the pricing will hold and more we will start to see that show.
And margins, particularly in Q4, when we also start to see some of the benefit of some of the lower cost from Costa Rica, starting to flow through gross margins.
Great. Thanks, Scott and Kevin for you just when you think about the <unk> coaches and how this has allowed the sales reps to be more productive in terms of selling versus managing patients are.
Are we supposed to be getting bigger.
Earnings.
In terms of sales productivity for utilizing those coaches and training Bret thanks for taking question.
Yes, I'd call it early innings.
Maybe fourth inning, if you will.
Is there someone call that mid innings, maybe depending on when you bring in Youre reliever.
So I think that I would call. It early to mid innings on that and we're seeing a lot of success now part of the changes that we've made on the realignment as those coaches are now going to be aligned closer with each of those individual territories. So there are those coaches work alongside the sales reps as one team and get to know the physicians and <unk>.
What they like and what the patient pool is but yes that allows our sales reps to concentrate on going out and winning new business and taking.
Taking more cases away from our competitors, while the coaches talking to the patients and really taking care of them and just wanted to make sure. We're not just talking about.
And growth in everything here. The good news is about the coaches is it's better for the patients as well if our if our rep is in the or cover in our case, they're not answering the cell phone when a patient calls them.
Our coaches are stationary and they are not traveling around and so our coaches have the ability to be able to spend more carrying time with those patients and some of these patients are are trying to find optimal pain and really trying to dial in what the right frequencies are for them on the right amplitude or what have you and really talk them through their <unk>.
Management journey, and I've really appreciated the fact that they can get somebody on the phone more quickly and often than they could if the sales rep wasn't available so it's better for patients and our customers as well.
Great. Thank you so much.
As a reminder, this start wondering if you would like to ask a question.
And your next question comes from the line of Brad Bowers with Mizuho Securities. Your line is open.
Hi, there thanks for taking one of our questions again, just wanted to follow up from Mizuho here.
We've been talking a lot about.
A lot of the growth outlook, just wanted to hear more about kind of the reimbursement wins that you had I mean, obviously, they're incremental to all of the coverage that you've gotten on both PD and nonsurgical back in on the core business over the years, but wanted to kind of here.
How they're impacting conversations with doctors and are you kind of do you plan on leading with those new wins and to help drive the U S trials.
Well thanks for the color.
Yes, we believe which we'll never know for sure what turn the tide for someone like first coast and Nova to us.
They wouldn't have made that change and decision unless there was clinical data that led them to make that decision and we believe that we have made the biggest impact regardless of what other press releases or whoever else to credit for that because it was the RCT data that was out there that allow them to make that decision based upon the clinical data. So we have a team our government.
Affairs and medical Affairs team is one of the best in the business I would put them up against anybody in any of the companies I've ever worked for or any of our competitors. There an unbelievable team that work underneath Greg filler in the commercial organization and are completely aligned with working with our customers to ensure that their patients have access.
Yes, that's a big tailwind for us however, they've been shut down for quite some time and so believe it or not not all the physicians just read the newspapers and find out about disk is good news. So it's our team's.
The ability to go out there and educate and educate the referral pathways in for PD and that need to be sort of primed and so it's not like immediately that happens in Q3, and Q4, but we're going out there and selling the good news in telling the good news to both the referring physicians as well as the implanting physicians that this is now in <unk>.
<unk> treatment for those patients that were previously didn't have the access but it doesn't happen overnight, so thats going to take a little bit longer into Q3, and Q4 before we see a ramp up from from those changes, but think about the areas in which they cover.
These are these are high high and Medicare populations and really cover a lot of those 205 million people that we now say.
Our covered for <unk>. So yes, thanks for recognizing that that's a big win.
The big one for patients.
Thank you.
And your next question comes from the line of Dave <unk> with JMP Securities. Your line is open.
Hey, great good afternoon.
On the guidance I just wanted to clarify one thing.
It's sort of market growth fluidity.
And obviously there's been some.
I'm just trying to make sure.
<unk> <unk> and the implied <unk> include that turnover.
Youre not anticipating more that you've made those changes and replace to folks and that is.
Implicit in what you are talking about it for <unk> and <unk> right now.
Yes, we took that all into consideration as we as we set the guidance there may be some macro economic things that we can never predict that could be outside of our control.
We took into the just like we said in our prepared remarks that the sort of two quarters of all of US growing this quarter being the first one where we saw one of our competitors flat to negative in the U S.
It gives us a little pause and then obviously the changes that we've made we've got a handful of territories that were interviewing for an close to some candidates. So we took that into consideration as we set the guidance for the back half of the year.
And for some of the folks that are no longer with you.
Alright, I imagine you're taken at whatever their contribution was or adjusted those numbers to account for the fact that you might have to start.
Rebuilding a territory maybe from from scratch here from a lower base.
Yes, so we're going there just just to make sure you understand so most we don't have a turd any territories that have one person only in them right. So when we lose a rep or more than likely we made the decision that the rep wasn't going to be an a plus player and we wanted to make a change there our therapy consultants and assistant sales reps that are often there.
To be able to keep the business sustained for a lease period of time, but those are areas in which you don't expect a.
5% to 7% growth out of because those that are left are just managing the current business. It's there. So yes, we took that in consideration as well as we said the Q3 and Q4 guidance.
Thank you.
And there are no further questions at this time, so I would now like to turn the conference back to Mr. Thornton for closing remarks.
Thanks for joining the call everybody and I look forward to reporting on our progress on the next call see you then thanks.
Ladies and gentlemen, this concludes today's conference and we thank you for your participation you may now disconnect.
Please wait the conference will begin shortly.
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