Q2 2024 Nevro Corp Earnings Call

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[music].

Mark: Good afternoon. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to Nevro Corp's second quarter 2024 earnings conference call-in webcast. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise.

Mark: Good afternoon, My name is Mark and I wouldn't be a conference operator today at this time I would like to welcome everyone to novel Corp. Second quarter 2024 earnings Conference call and webcast. Today's conference is being recorded all lines have been placed on mute to prevent any background noise out there to speak of your remarks, there would be a question and answer session. If you would like to ask a question. During this time since your breasts.

Mark: After the speaker remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. I will now turn the conference call over to Angie McCabe, Nevro's Vice President of Investor Relations and Corporate Communication. Ms. McCabe, please go ahead.

Followed by the number one on your telephone keypad, if you would like to read Doug a question Press Star one again.

Mark: I will now turn the conference call over to Angie Mccabe, Barbara <unk>, Vice President of Investor Relations and corporate Communications. Please.

Speaker Change: Please go ahead.

Angie Mccabe: Thank you, Mark. Good afternoon, and welcome to Nevro's second quarter 2024 earnings conference call. With me today are Kevin Thornal, our CEO and President, and Rod MacLeod, our Chief Financial Officer. Before we get started, please note that our earnings release and the supplemental presentation accompanying this call are available on the Events and Presentations page of the Investors section of our corporate website, www.nevro.com. Also, this call is being broadcast live over the internet to all interested parties, and an archived copy of this webcast will be available in the Investors section of our corporate website shortly after the conclusion of this call.

Angie Mccabe: Thank you Mark good afternoon, and welcome to <unk> second quarter 2024 earnings Conference call with me today are Kevin Thornell, our CEO and President and Rob Mcleod, Our Chief Financial Officer before we get started please note that our earnings release and the supplemental presentation accompanying this call are available on the events and presentations page of the investors section.

Angie Mccabe: Of our corporate website at <unk> Dot com.

Angie Mccabe: This call is being broadcast live over the Internet to all interested parties and an archived copy of this webcast will be available in the investors section of our corporate website. Shortly after the conclusion of this call.

Angie Mccabe: 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. Results could differ materially from those expressed or implied as a result of certain risks and uncertainties. Please refer to Nevro's SEC filings, including its annual report on Form 10-K, filed on February 23, 2024, for a detailed presentation of risks.

Speaker Change: 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.

Speaker Change: <unk> could differ materially from those expressed or implied as a result of certain risks and uncertainties. Please refer to <unk> SEC filings, including its annual report on Form 10-K filed on February 23, 2024 for a detailed presentation of risks.

Angie Mccabe: The forward-looking statements in this call speak only 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 our ongoing business performance. Non-GAAP Adjusted EBITDA excludes interest, taxes, and non-cash items such as stock-based compensation and depreciation and amortization, as well as litigation-related expenses, restructuring of supplier contract renegotiation charges, and other adjustments. Please refer to the financial tables in our press release issued today for reconciliations of GAAP to non-GAAP financial measures. I'll now turn the call over to Kevin. Okay, Kevin?

Speaker Change: The forward looking statements in this call speak only 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 our ongoing business performance non-GAAP adjusted EBITDA excludes interest taxes.

Speaker Change: And noncash items, such as stock based compensation and depreciation and amortization as well as litigation related expenses restructuring a supplier contract renegotiation charges and other adjustments. Please refer to the financial tables in our press release issued today for a reconciliation of GAAP to non-GAAP reconciliation financial measure.

Kevin: I'll now turn the call over to Kevin Kevin.

Kevin Thornal: Thank you, Angie, and thank you all for joining us. After the close of market today, we issued our second quarter 2024 financial results. In my remarks today, I'll discuss the key factors that impacted our results and why we are revising our full year 2024 guidance, share why we remain optimistic about our business, and discuss the initiation of our review of strategic opportunities. Rod will then provide details on our second quarter financial results and third quarter and full year 2024 guidance. To begin, our results for the second quarter of 2024 as compared with the second quarter of 2023 were as follows. Worldwide revenue of $104.2 million decreased 4.3% on a reported basis.

Kevin Kevin: Thank you Angie and thank you all for joining us after the close of market today, we issued our second quarter 2024 financial results.

Kevin Kevin: In my remarks today I will discuss the key factors that impacted our results and why are we are revising our full year 2024 guidance sure why we remain optimistic about our business and discuss.

Kevin Kevin: Initiation of our review of strategic opportunities.

Speaker Change: <unk> will then provide details on our second quarter financial results and third quarter and full year 2020 for guidance.

Kevin Thornal: U.S. Spinal Cord Stimulation, or SCS, trial procedures declined approximately 9.5%. Net loss from operations was $25.1 million compared with $25.6 million last year, and adjusted EBITDA was positive $3 million compared with a loss of $3.1 million in the year-ago quarter, demonstrating that our drive to profitability is having an impact on our income savings. And we ended the quarter with over $270 million in cash and investments on our balance sheet, which we're excited to utilize to fund our organic growth initiatives over the coming year.

<unk>: To begin our results for the second quarter of 2024 as compared with the second quarter of 2023, whereas follows worldview.

Speaker Change: Worldwide revenue of $104 2 million decreased four 3% on a reported basis and U S revenue of $90 7 million decreased two 4%.

<unk>: U S spinal cord stimulation or SCS trial procedures declined approximately nine 5%.

<unk>: Net loss from operations was $25 1 million compared with $25 6 million last year and adjusted EBITDA was positive $3 million compared with a loss of $3 1 million in the year ago quarter, demonstrating that our drive to profitability is having an impact on our income statements.

<unk>: And we ended the quarter with over $270 million in cash and investments on our balance sheet, which we're excited to utilize to fund our organic growth initiatives over the coming years.

Kevin Thornal: Last year, Nevro's board hired me as CEO to implement a three-pillar strategy of commercial execution, market penetration, and profit progress to address the challenges of softness in the de novo spinal cord stimulation market. We have made progress in many areas, and we recognize that we have more work to do. Nonetheless, our revenue and trialing results in the quarter were impacted by competitive dynamics and continued softness in the U.S. SES market, and this is also why we are revising our full year 2024 guidance.

Speaker Change: Last year. Nevertheless board hired me as CEO to implement a three pillar strategy of commercial execution market penetration and profit progress to address the challenges of softness in the de novo spinal cord stimulation market. We have made progress in many areas and we recognize that we have more work to do.

<unk>: Nonetheless, our revenue and trailing results in the quarter were impacted by competitive die minute dynamics and continued softness in the U S. SCS market and this is also why we are revising our full year 2024 guidance importantly, we are taking proactive steps to improve our competitive position.

Kevin Thornal: Importantly, we are taking proactive steps to improve our competitive positioning, and we have long-term plans to continue to diversify the business beyond SES. The FCS market has seen increased competition driven mainly by new product launches over the past year by two of our larger competitors.

Speaker Change: <unk> and we have long term plans to continue to diversify the business beyond SCS.

<unk>: The SCS market has seen increased competition, driven mainly by new product launches over the past year by two of our larger competitors as we've seen historically some physicians like to try new products. When they are introduced however, we found that physicians that use a multitude of products often refer to our patented 10 kilo her.

Kevin Thornal: As we've seen historically, some physicians like to try new products when they are introduced. However, we've found that physicians that use a multitude of products often revert to our patented 10 kHz therapy, given our superior clinical data, ease of implantation, and positive outcomes for more than 115,000 patients worldwide. Additionally, while we are confident that we continue to have best-in-class therapy for SDS patients, some health care providers also find value in partnering with companies that can offer a diverse portfolio of products that treat and diagnose a broader spectrum of patients.

<unk>: <unk> therapy, given our superior clinical data.

<unk>: He's a implantation and positive outcomes for more than a 115000 patients worldwide.

<unk>: Additionally, while we are confident that we continue to have best in class therapy for FCS patients. Some health care providers also find value partnering with companies that can offer a diverse portfolio of products that treat and diagnose a broader spectrum of their patients.

Kevin Thornal: This is one of the reasons why last year we implemented our strategic pillar that includes diversifying our business to adjacent markets. As an example, we acquired a Sacro Iliac Joint Fusion, or SI Joint, business late last year to give our customers more tools to treat patients suffering from chronic mechanical back pain. One of the key advantages of this strategy is that it gives us the ability to leverage one of our largest and most important assets, our sales force, to drive adoption of and penetration into more therapies with our customers.

Speaker Change: This is one of the reasons why last year, we implemented our strategic pillar that includes diversifying our business to adjacent markets. As an example, we acquired a sacroiliac joint fusion or Si joint business late last year to give our customers more tools to treat patients suffering from chronic mechanical back pain.

<unk>: One of the key advantages of this strategy is that it gives us the ability to leverage one of our largest and most important assets our sales force to drive adoption of and penetration into more therapies with our customers.

Kevin Thornal: Despite these factors, we still need to step up our execution to meet our expectations of capturing market share. Last year we made several changes through our commercial realignment, and we have more work to do. For example, one of the elements of our commercial execution pillar is building a strong bench in our commercial team. To further develop a high-performing, flexible field team, we have been developing our Associate Sales Reps, or ASRs, and some are now ready to take on their own territory.

Speaker Change: Despite these factors, we still need to step up our execution to meet our expectations of capturing market share.

Speaker Change: Last year, we made several changes through our commercial realignment and have more work to do for example, one of the elements of our commercial execution pillar is building a strong bench and our commercial teams to.

Speaker Change: To further develop a high performing flexible field team, we have been been developing our associate sales reps or <unk> and some are now ready to take on their own territories and by deploying some of these existing team members into newly created territories. Our sales team can reach more customers go deeper with physicians provide.

Kevin Thornal: And by deploying some of these existing team members into newly created territories, our sales team can reach more customers, go deeper with physicians, provide the service our customers expect, and lay the foundation for new product introductions to the market. Also, in our continuous effort to improve commercial execution, we promoted some of our strongest performing field team members into leadership positions. Performing our strategy is paramount to driving long-term profitable growth, and we believe these changes will drive improved performance in the field.

Speaker Change: The service our customers expect and laid the foundation for new product introductions to the market.

Speaker Change: Also in our continuous effort to improve commercial execution, we promoted some of our strongest performing field team members into leadership positions.

Speaker Change: Executing our strategy is paramount to driving long term profitable growth and we believe these changes will drive improved performance in the field and when combined with our expanding product portfolio will help position us to compete more effectively and win in the market.

Kevin Thornal: And when combined with our expanding product portfolio, will help position us to compete more effectively and win in the market. Turning now to a discussion of the U.S. SES market. The overall opportunity to treat patients who can benefit from SES therapy is significant and continues to be underpenetrated. However, as we've discussed in the past, we continue to see softness in this market today.

Speaker Change: Turning now to a discussion of the U S SCS market.

Speaker Change: The overall opportunity to treat patients who can benefit from SCS therapy is significant and continues to be underpenetrated. However, as we've discussed in the past we continue to see softness in this market today.

Kevin Thornal: As we routinely do, we recently conducted comprehensive market analyses, including customer and patient focus groups and surveys. The results show that newer treatment options earlier in the care pathway ahead of SES therapy are gaining traction. We believe these newer therapies are, in some cases, delaying patients from getting SES therapy, as well as competing for our customers' time and operating room schedule. These newer procedures, such as SI Joint Fusion, offer physicians who treat patients suffering from multiple causes of chronic pain more tools than ever before to treat their patients' pain and, in some cases, their underlying functional etiology.

Speaker Change: As you as we routinely do we recently conducted comprehensive market analysis, including customer and patient focus groups and surveys the results show that newer treatment options earlier in the care pathway ahead of SCS therapy are gaining traction. We believe these newer newer therapies or in some cases delaying.

Speaker Change: Patients from getting SCS therapy, as well as competing for our customers' time and operating room schedules. These newer procedures such as Si joint fusion offer physicians, who treat patients suffering from multiple causes of chronic pain more tools than ever before to treat their patients pain and in some case.

Speaker Change: The underlying functional.

Speaker Change: Etiologies chronic.

Kevin Thornal: Chronic pain patients have always progressed through multiple treatment modalities before arriving at the need for SES therapy, and we believe more tools in the hands of our customers, while temporarily delaying the application of SES in some cases, will continue to bring more patients into the care of pain management specialists and will ultimately expand the market for SES therapy. We've seen this happen in other specialties and interventional markets.

Speaker Change: Chronic pain patients have always progressed through multiple treatment modalities before arriving at the need for SCS therapy, and we believe more tools in the hands of our customers while temporarily delaying the application of <unk> in some cases, we'll continue to bring more patients into the care of pain management specialists and will <unk>.

Speaker Change: Ultimately expand the market for SCS therapy, we've seen this happen in other specialties and interventional markets.

Kevin Thornal: This increase in therapeutic options benefits both patients and the physicians we currently serve and is one of the primary reasons why we are diversifying our product portfolio to include treatment therapies earlier in the care continuum. Our acquisition of Versa Technologies, which gave us entry into the SI joint space, is one example of this. Another strategic response to this trend that we have discussed previously lies in our solid R&D pipeline, which not only includes our next generation of high-frequency SES therapies, one of which we anticipate launching in early 2026, backed by strong clinical evidence, but also new devices and treatments that address additional causes of chronic pain. Nevro is today more than just an SES company.

Speaker Change: This increase in therapeutic options benefit both patients and the physicians. We currently serve and is one of the primary reasons why we are diversifying our product portfolio to include treatment therapies earlier in the care continuum.

Speaker Change: Our acquisition of <unk> technologies, which gave us entry into the Si joint space is one example of this.

Speaker Change: Another strategic response to this trend that we have discussed previously lies in our solid R&D pipeline. It not only includes our next generation of high frequency SCS therapies, one of which we anticipate launching in early 2026 backed by strong clinical evidence, but also new devices and true.

Speaker Change: <unk> that address additional causes of chronic pain.

Speaker Change: <unk> is more than just an SCS company today.

Kevin Thornal: Our vision is to free patients from the burden of chronic pain, and we are working towards becoming a more comprehensive pain management company. While the opportunities for rapid SES growth are currently slower than historic norms, the opportunities within the pain treatment space are more numerous than ever. As more procedures become less invasive, we believe that physicians who treat patients for chronic pain will continue to grow their practice and have the ability to treat a multitude of different pain conditions.

Speaker Change: Our vision is to free patients from the burden of chronic pain, and we are working towards becoming a more comprehensive pain management company.

Speaker Change: While the opportunities for rapid SCS growth are currently slower than historic norms the opportunities within the pain treatment space are more numerous than ever.

Speaker Change: As more procedures become less invasive we believe that physicians, who treat patients for chronic pain will continue to grow their practice and have the ability to treat in multitude of different pain conditions.

Kevin Thornal: We also believe that many patients who undergo these alternative therapies will ultimately continue the journey along the care pathway all the way through to SES therapy. However, we believe that by diversifying our business, we can better position ourselves, we'll be better positioned as a unique resource to our customers, and that can drive sustainable growth, profitability, and value creation. Taking these competitive and market dynamics into account, we remain very optimistic about our business over the longer term given the multiple catalysts that we believe can contribute to our top line growth.

Speaker Change: We also believe that many patients who undergo these alternative therapies therapies will ultimately continue that journey, along the care pathway all the way through to SCS therapy. However.

Speaker Change: However, we believe that by diversifying our business, we can better position, we will be better positioned as a unique resource to our customers and that can drive sustainable growth profitability and value creation.

Speaker Change: Taking these competitive and market dynamics into account, we remain very optimistic about our business over the longer term given the multiple catalysts that we believe can contribute to our topline growth.

Kevin Thornal: As part of our plan to become a more comprehensive pain management company and drive market penetration of very large and underserved markets over the next few years, we are working on growing our business through expanded SES indications, next-generation SES therapy, and alternative therapies that are earlier in the care continuum. And as we continue to ramp up our SI joint fusion business, we expect it to contribute more meaningfully to our growth next year. The painful diabetic neuropathy market, which Nevro created, remains underpenetrated at less than 1%.

Speaker Change: As part of our plan to become a more comprehensive pain management company and drive market penetration, a very large and underserved markets over the next few years, we are working on growing our business through expanded Ses indications next generation SCS therapy and alternative therapies that are earlier in the care continuum and as we.

Speaker Change: To ramp our Si joint fusion business, we expect it to contribute more meaningfully to our growth next year.

Speaker Change: The painful diabetic neuropathy market, which never created remains underpenetrated at less than 1%. We continue to focus on this business by educating the referring physicians and raising patient awareness benefits of SCS as treatment therapy for these patients and sharing strong clinical evidence of <unk>.

Kevin Thornal: We continue to focus on this business by educating referring physicians and raising patient awareness of the benefits of SES as treatment therapy for these patients and sharing strong clinical evidence of greater than 90% pain responder rates at two years and neurological improvement in the majority of subjects. We recently presented our four-year follow-up, with continued robust long-term outcomes. In addition, as we announced last quarter, due to enrollment progressing more quickly than expected in the sensory RCT, we reached the pre-planned interim analysis in POS enrollment to allow the currently all-randomized cohort to progress to the primary endpoint.

Speaker Change: Later than 90% pain responder rates at two years and neurological improvement and the majority of subjects. We recently presented our four year follow up with continued robust long term outcomes.

Speaker Change: In addition, as we announced last quarter due to enrollment progressing more quickly than expected in the <unk> century, RCT, we reached the Preplanned interim analysis and pause enrollment to allow the currently all randomized cohort to progress to the primary endpoint. This may allow earlier than initially anticipated.

Kevin Thornal: This may allow an earlier-than-initially-anticipated publication, followed by potential review and specific inclusion of Nevro's proprietary 10 kHz SES therapy into evidence-based guidelines, such as those published by the American Diabetes Association. We anticipate a readout from the interim analysis in early 2025. Also, as we discussed on our first quarter 2024 earnings call, our SES devices have rechargeable batteries with a very long functional life, yet they will eventually need to be replaced, as has been the case with our competitors for decades.

Speaker Change: Dissipated publication, followed by potential review and specific inclusion of Nevertheless, proprietary 10, kilohertz SCS therapy into evidence based guidelines such as those published by the American Diabetes Association.

Speaker Change: We anticipate a readout from the interim analysis in early 2025.

Speaker Change: Also as we discussed on our first quarter 2024 earnings call. Our SCS devices have rechargeable batteries with a very long functional life, yet they will eventually need to be replaced.

Speaker Change: As has been the case with our competitors for decades.

Speaker Change: We believe many of our patients will want to continue using our best in class and clinically proven high frequency therapy and excess our newer AI enabled <unk> IQ system, which uses real time patient data to enable on demand therapy adjustments and proactive care within 48 hours as a reminder.

Kevin Thornal: As a reminder, we began treating a significant number of patients commercially in late 2015, which means patients implanted with our IPG during that time are now nearing the natural life of their IPG battery, and many of those patients, in consultation with their doctors, will choose to replace their device with a new one.

Speaker Change: We began treating a significant number of patients commercially in late 2015, which means patients implanted with our IPG. During that time are now nearing the natural life of their IPG battery and many of those patients in consultation with their doctors will choose to replace their device with a new one.

Kevin Thornal: As I previously mentioned, our longer-term goal is to become the leading provider of treatment options with the most diversified, differentiated, and innovative product portfolio in the pain management space. By achieving this goal, we believe we can create the type of scale, growth, operating leverage, and sustainability to unlock the kind of shareholder value that our board and management team are intent on creating. But we feel an urgency to respond to this evolving market environment and to create value for our shareholders.

Speaker Change: As I previously previously mentioned our longer term goal is to become the leading provider of treatment options with the most diversified differentiated and innovative product portfolio in the pain management space by.

Speaker Change: By achieving this goal we believe we can create the type of scale growth operating leverage and sustainability to unlock the kind of shareholder value that our board and management team are intent on creating.

Speaker Change: But we feel an urgency to respond to this evolving market environment and to create value for our shareholders. So to enable and accelerate this strategy our board of directors and management team have begun a process to explore all possible strategic options that might be available to us we have retained advisors.

Kevin Thornal: So to enable and accelerate this strategy, our board of directors and management team have begun a process to explore all possible strategic options that might be available to us. We have retained advisors, and over the next several months, we will more aggressively explore broader options alongside our current standalone path that may help us accelerate the achievement of our goals. These opportunities may include, but are not limited to, partnerships, mergers, or even a sale of the company.

Kevin Thornal: We have not set a timetable for the conclusion of this process, and we can't say for certain that this process will result in our entering into or completing any transaction at all, or that any transaction we identify will be a better option than our current standalone strategy. In the meantime, we remain laser focused on executing our initiative. Over the past year, we have made significant progress on our three-pillar strategy. We continue to focus on improving our commercial execution, which is still ongoing.

Speaker Change: And over the next several months, we will more aggressively explore broader options alongside our current standalone path that may help us accelerate the achievement of our goals.

Speaker Change: These opportunities may include but are not limited to partnerships mergers or even a sale of the company. We have not set a timetable for the conclusion of this process and we can't say for certain that this process will result in or entering into or completing any transaction at all or that any transaction we.

Speaker Change: <unk> will be a better option than our current standalone strategy.

Speaker Change: In the meantime, we remained laser focused on executing our initiatives over the past year. We have made significant progress on our three pillar strategy. We continue to focus on improving our commercial execution, which is still ongoing we acquired an Si joint company that allowed us to expand into an adjacent pain market that is early.

Kevin Thornal: We acquired an SI joint company that allowed us to expand into an adjacent pain market that is earlier in the care continuum. We aligned our cost structure more closely with the size of our business, and we strengthened our balance sheet through our November 2023 debt refinancing. Before I turn over the call to Rod, I want to make very clear to our customers, patients, and employees that we are in a strong financial position with over $270 million in cash and investments on our balance sheet.

Speaker Change: And the care continuum.

Speaker Change: We aligned our cost structure more closely but the size of our business and we strengthened our balance sheet through our November 2023 debt refinancings.

Speaker Change: Before I turn over the call to Rod I want to make very clear to our customers patients and employees that we are in a strong financial position with over $270 million in cash and investments on our balance sheet. We remain confident in the long term health and growth of our markets our ability to compete and win.

Kevin Thornal: We remain confident in the long-term health and growth of our markets, our ability to compete and win in those markets, and our ability to bring additional innovative products to our customers who treat patients suffering from chronic pain. Our more than 400-person customer-facing team remains dedicated to partnering with our physicians to provide exceptional patient care. I'll now turn the call over to Rod for a discussion of our second quarter financial results and guidance. Rod? Thank you.

Rod MacLeod: Thanks, Kevin, and good afternoon, everyone. To echo Kevin's comments, we are pulling levers to better execute in the field and further position Nevro for the significant growth ahead while embarking on a process aimed at accelerating our growth, diversifying our business, and creating shareholder value. An international revenue of $13.5 million decreased 15% as reported and 14.5% on a constant currency basis. This is offset by a $4.1 million reduction in litigation-related expenses that was primarily the result of the Q224 resolution of our legal dispute with the Mayo Clinic and Flathead Partners.

Rod: 10% as reported and 14, 5% on a constant currency basis.

Speaker Change: Our international business was affected primarily by the short term impact of negative FCS related media reports in Australia, where we have the largest market share.

Speaker Change: And that resulted in cases being postponed or canceled.

Speaker Change: As well as the impact of health care reform in Germany that caused a delay in procedures in the current year quarter.

Speaker Change: Gross profit of $67 5 million decreased nine 4% compared with the second quarter of last year, representing a gross margin of 64, 8%.

Speaker Change: Note.

Speaker Change: <unk> Q2, 2020 for margins included a $6 million, one time charge related to the renegotiation of a supplier contract to reduce future purchase commitments and future cash flow as we continue to move our manufacturing processes to our Costa Rica facility.

Speaker Change: Excluding this charge.

Speaker Change: Most profit in Q2, 24 would have been $73 5 million, representing a gross margin of 75%, which we're very pleased with.

Speaker Change: This is compared with the gross margin in the second quarter of 2023% to 64%.

Speaker Change: Furthermore, in addition to our continued progress in right sizing our contract manufacturing footprint. We also continued in the second quarter to make progress shifting additional work to Costa Rica to further leverage our investment there in.

Speaker Change: Discussed in his remarks, we are revising our full year 2024 worldwide revenue to a range of approximately 400 million to $405 million from our previous range of four.

Speaker Change: $435 million to $445 million, representing an approximately 5% to 6% decrease from our worldwide revenue for the full year 2023.

Rod MacLeod: While we are quickly making changes to our commercial team and optimizing our sales territories, we don't anticipate feeling the benefits from these actions. Therefore, our full year 2024 revenue guidance assumes that U.S. SES trialing growth rates do not improve from the second quarter of 2024. We expect all-year gross margin to be approximately 66%. We are also revising our full year 2024 adjusted EBITDA guidance as a result of our lowered revenue to a range of approximately a range of negative $20 million to negative $18 million from our previous guidance range of negative $5 million to positive $2 million.

Speaker Change: While we are quickly making changes to our to our commercial team and optimizing our sales territories. We don't anticipate feeling the benefits from these actions until we enter 2025. Therefore, our full year 2020 for revenue guidance assumes that U S. SCS trailing growth rates do not improve from there.

Speaker Change: Second quarter of 2024 weeks.

Speaker Change: We expect full year gross margin to be approximately 66%.

Speaker Change: Or 68%, excluding the $6 million supplier charge in Q2 that I discussed.

Speaker Change: Before we.

Speaker Change: We continue to see our Costa Rica manufacturing facility produced excellent results with labor and material costs meeting our expectations for manufactured products.

Speaker Change: As I mentioned earlier in my remarks, we continued to project long term gross margins in the mid seventies, assuming pricing holds at current levels.

Speaker Change: <unk> negative 20 to negative $18 million from our previous guidance range of negative $5 million of positive $2 million.

Speaker Change: While we are providing 2025 guidance at this time as we look ahead to next year, we expect to reap the benefits from the changes to our commercial team and territories to drive growth and market penetration continued ramping of our Si joint fusion business and greater revenue contributions from IPG replacement.

Speaker Change: As we move throughout the year for.

Speaker Change: For the third quarter of this year, we expect worldwide revenue to be in the range of approximately 92% to $94 million, which also assumes a U S. SCS trailing growth rate consistent with the second quarter of this year. We also expect Q3 2024, adjusted EBITDA to be in the range of negative <unk>.

Speaker Change: $10 million to negative $9 million.

Speaker Change: In closing, while we made a lot of changes and accomplished much over the past year. We recognize that we have a lot of work ahead of US we remain committed to executing our strategy to grow and diversify our business and getting getting us back on the path to profitability and value creation.

Speaker Change: Operator, we will now open up the call for questions.

Speaker Change: At this time I would like to remind everyone in order to ask a question by Star then the number one on your telephone keypad again star followed by the number one on your telephone keypad.

Mark: Your first question comes from the line of Nathan Treybeck with Wells Fargo. Aidan, the line is now open.

Nathan Treybeck: Okay, and in terms of your full-year guide down, can you say one, how your PDM business is trending in Q2 and how much of that guide down is due to a lower outlook for PDM? And, you know, if you are losing share in PDM, can you just talk about why that is?

Rod MacLeod: Yeah, Nathan, this is Rod.

Speaker Change: Seeing some some headwinds in the market both from a from a competitive and overall market perspective.

Speaker Change: And.

Speaker Change: Looking at Q2, it seemed prudent to bring the guidance down into the range that we're talking about.

Speaker Change: Okay. Thank you.

Speaker Change: Yeah.

Robbie: Your next question comes from the line of probably a Marcus with JP Morgan Robbie Your line is now open.

Robbie: Oh, great. Thanks for taking my questions I.

Robbie: I wanted to ask on the not guidance for 2025.

Robbie: You know it kind of sounds like you're talking about an improvement from trends, if I kind of read between the lines correctly and.

Marcus: Just help me understand why things would improve why fewer sales reps would drive better productivity and a market that quite frankly, when I look at your peers, there's just not growing much in.

Robbie: Based on the initial.

Rod MacLeod: launch it here with the S.I. joint.

Speaker Change: Sure with the DSI.

Speaker Change: The Si joint.

Speaker Change: Asset isn't quite ramping as we had hoped so why would 25 be better than 'twenty four.

Speaker Change: <unk>.

Rod MacLeod: Yeah, Robby, this is Rob.

Speaker Change: We we we think that with a little bit more revenue generation were actually not that far away from being able to break into that breakeven slightly positive cash flow land, but we do we.

Speaker Change: Do need a little bit more revenue to be able to create the cover for some of the fixed costs. So.

Speaker Change: Not super far away, but obviously with the revenue come down it pushes it out just a little bit.

Speaker Change: Thanks, a lot.

Mark: Your next question comes from the line of Joanne Wuensch with Citi. Joanne, your line is now open.

Speaker Change: Your next question comes from the line of Joanne Wuensch with C. D. Joanne Your line is now open.

Anthony: Hey, good afternoon guys. This is Anthony on behalf of Joanne. Thanks for taking the questions. I guess first, just on the increased competition, could you dig a little bit deeper into how you plan to address that just outside of, you know, hiring more people and getting more feet on the street?

Oh, Hey, good afternoon, guys. This is anthony on for Joanne.

Anthony: Thanks for taking the questions.

Anthony: First just on the increased competition could you dig a little bit more deeper into her.

Speaker Change: How you plan to address that just outside of.

Speaker Change: Hiring more people.

Speaker Change: More feet on the street.

Anthony: Yes Anthony.

Speaker Change: So yes, when we were specifically we're talking about two large competitors that had product launches over the last year.

Anthony: Obviously, when there's a new product launch in this space go back in the historical.

Mark: Your next question comes from the line of Brandon Vazquez with William Blair. Brandon, your line is now open.

Kevin Thornal: Yeah, as I said earlier, you routinely see this in the SES space. Again, go back and look at the historical charts and some of the revenue models that have been built up since 2012. You see when there's a new product launch, you see this big surge, you know, you get price, you get new physicians that want to try something new for a little bit. And then again, you have that build-up of patients that have an older device by that company, sort of ready for the next generation.

Anthony: In the SCS space again go back and look at the historical chart and some of the <unk>.

Anthony: Revenue models that have been built up since 2012, and you'll see when there's a new product launch you see this big pop.

Speaker Change: You get price you get new physicians that want to try something new for a little bit and then again you have that buildup of patients that have an older device by that company sort of ready for the next generation and so youll see a lot of interest of patients continuing in that therapy, which is why we're excited when we get into those patients that are ready for their natural occurrence.

Kevin Thornal: And so you see a lot of interest in patients continuing that therapy, which is why we're excited when we get into those patients that are ready for their natural occurrence of a new product. The other thing that they've shown success doing, which is why we're diversifying our business as well, is that they can leverage sort of a larger portfolio of products to be able to bring value to those customers. And you know, we're still under eight months of having the ability to bring additional products to build that value, and we've concentrated more heavily on our friendly accounts right off the bat. But now we're going into competitive accounts and using that same offense to get some of those cases.

Speaker Change: Of the new product the other thing that they've shown success doing which is which is why we are diversifying our business as well as they can leverage sort of a larger portfolio of products to be able to bring value to those customers and we're still under eight months of having the ability to bring additional products to build that value and we've.

Anthony: Concentrated more heavily on our friendly accounts right off the bat, but now we're going into those competitive accounts and using that same offense to get some of those cases.

Brandon Vazquez: Okay, and maybe just a little bit on the P&L, maybe you can talk to us a little bit about what it takes to kind of reach EBITDA profitability. I mean, guidance for the year has come down a little bit. Is this just simply a story of you needing more volume over 400 million, you know, mid to high 400 million to get EBITDA profitable? Or are there some efficiencies within this business model you think over time that you can leverage to become more profitable as well? Thanks for taking the questions.

Anthony: Okay.

Speaker Change: Maybe just a little bit on the P&L.

Speaker Change: Maybe you can talk to us a little bit about what does it take.

Anthony: Trying to reach EBITDA profitability I mean.

Speaker Change: Guidance for the year has come down a little bit is this just simply a story you need more volume over 400 mill.

Speaker Change: Mid to high 400 miles to get.

Speaker Change: EBITDA profitable.

Speaker Change: Or are there some efficiencies within this business model you think overtime that you.

Speaker Change: Can leverage to become more profitable as well thanks for taking my questions.

Rod MacLeod: You know, if you just go back to the guide from 90 days ago, and we're 435 to 445, we thought we could, you know, be in the adjusted EBITDA range of plus two to minus five. So I'd say that that target range is kind of more in the mid-to-low 400s. And with revenue dropping in the new guide, then that obviously is going to drop through to the adjusted EBITDA. So I think I think that's the kind of the mid 400s is probably a pretty decent target.

Anthony: Yeah.

Anthony: Yeah.

Speaker Change: If you just.

Rod MacLeod: We are continuing to take, you know, leverage the P&L with, with, you know, some of our moves to leverage Costa Rica more and, and what we engaged in with some of our contract manufacturing and, and accelerating some of that move down to Costa Rica, those will continue to provide some benefits, but it'll just take a little bit of time for that to work its way into the P&L. But, you know, as we operate and move forward, we're going to obviously try to drive as much growth as we can and, and, you know, limiting, limiting the expense expansion in as aggressive ways as we can without affecting that top line. Yeah, I just want to add on that one as well with our SI joint business, the benefit.

Rod MacLeod: Yeah, I just want to add that one as well with our SI joint business. The benefits that we gained there are it's actually increasing our gross margin, and we actually dropped it into the same sales force that we had. And while we're still ramping that business, each incremental dollar drops more to the bottom line than it has done before. And again, that plays out to our diversification strategy, including our R&D pipeline that will start to roll out new products that are outside of SES, as well as continuing line extensions and new technology for SES therapy. And that allows us to be able to get more leverage on our business, and more drops through to the bottom line.

Mark: Her next question comes from the line of Anthony Petrone with Ms. UL. Anthony, your line is now open.

Anthony Petrone: Thank you. Maybe a little bit more on the competitive dynamics in the quarters; stay on that topic a bit. Maybe just a little bit of detail on the pressures. You did mention the two existing large competitors. You also mentioned in the filing that Saluda and Biotronics sort of recently entered the market. So how much is coming from new entrants relative to the existing competitors? And when you think about just the dynamics at these accounts, is it a function of losing share at existing accounts, or are we actually seeing Nevro exit some of these accounts due to competitive pressures? And then I'll have a quick follow-up.

Kevin Thornal: Yep, yeah, mainly what we see is when the larger competitors that have the same number, if not more, of the sales people that are out there, plus they have a diversified bag, they get in and take some of those what we call splitter accounts, right, those accounts that use us plus one other or maybe two others that are out there. And so when a new product launch happens, maybe, you know, we lose a few cases because they want to try a little bit more while it's new.

Kevin Thornal: And we often see those reverting back to us. As far as some of the newer entrants, while we may lose cases here and there, they're not on the scale of our larger competitors. And so we often don't often run into them, some of our established accounts, specifically those that are the ones that are dealing with those that love high-frequency therapy, right? Going back to low frequency, sometimes it's difficult unless you have some kind of feature that could incentivize them to try it. And so we see more from the larger competitors than the new entrants.

Anthony Petrone: And then the follow-up would be just on, you know, operating expense allocation, and it sounds like between adding regions versus launching new products, the latter potentially would be more impactful in turning around this share slippage situation. So maybe a little bit on the R&D initiatives. How long do you think it could be before a new core product in SpinalCord Stim is launched? Is there anything new on the PDN front?

Anthony Petrone: Are there new line extensions that we should expect, let's say, in the 2025 timeframe? And how do you balance that between SG&A and R&D? Should we be flipping our models around to model a little bit more SG&A leverage and more R&D intensity?

Kevin Thornal: Yeah, thanks, Anthony. Yeah, with the territory expansions that we're talking about, these are people that have already been in our P&L, and they're already on teams and have learned from some of our best. And they're now ready to take on some pieces of the territories that are already there. You know, they're not going to have as big territories as some of our large established regions or territories that we have, but these are sort of up and coming less tenured reps that are happy to get a piece of dirt on their own and to prove it out that they can sell the entire bag.

Kevin Thornal: Thanks. Yeah, thanks, Anthony. Yeah, with our

Kevin Thornal: So that's number one. So it's not like we're adding very expensive reps that maybe have been done in the past across this industry to grow. This is an offense that has worked at two previous organizations I worked in to grow from within as you build your bench.

Kevin Thornal: Number two is our R&D pipeline, and our expenses are ready. Anticipate everything that we have in our pipeline today. You heard me mention in my prepared remarks that our next generation SES therapy that is backed by science will be coming out in early 2026. And that's an exciting new platform that we think will be something new to the market. And for competitive reasons, we won't talk much more about it, but it's the same engineers that were the ones who launched our revolutionary 10 kilohertz therapy in the past.

Kevin Thornal: And then as far as new products go, we have SI joints that are already in the bag. And as I said last time, we had to go a little backwards before we went forward for two reasons. Number one is that it was mainly sold through distributors before, and these were distributorships that we needed to exit and then put that business back into the hands of our or into the hands of our own people. And so we went backwards before we were able to go forward.

Kevin Thornal: And also, we were scaling up the manufacturing of both the trays that are needed for the procedures as well as the implant itself. And so now we've got that going from a scale perspective, and we have more and more territories and regions every week booking cases for the first time or rebooking cases. And so as far as something new for PDN, as I mentioned in the prepared remarks, we are excited about this RCT study that if we can get the power that we need from the interim results, and it's blinded by us, so we don't have an early read, but we had some good indications that we might have the enrollment of what we need to be able to get a publication.

Speaker Change: The manufacturing of both the trays that are needed for the procedures as well as the implant itself and so now we've got that going from a scale perspective, and we have more and more territories and regions every week booking cases for the first time or Rebooking cases, and so as far as something new for <unk> as I.

Speaker Change: In the prepared remarks, we are excited about this RCT study that if we can get the power that we need by the interim results and it's blinded by US. So we don't have an early read but we had some good indications that we might have the enrollment of what we need to be able to get a publication and if we get a publication and it's our second RCT.

Kevin Thornal: And if we get a publication and it's our second RCT, that's the requirement that many of these societies need to be able to put you on any of their guidelines. And so that would be a big boost for ourselves if that's a tailwind that happens in 2025 also.

Speaker Change: That's the requirement that many of these societies need to be able to put you on.

Speaker Change: Any of their guidelines and so that would be a big boost in ourselves. If that's a tailwind that occurs in 2025 also.

Speaker Change: Thank you.

Mark: Your next question comes from the line of Bill Plovanic with Catacord. Bill, your line is now open.

Bill <unk>: Your next question comes from the line of Bill <unk> with Canaccord Bill.

Bill: Your line is now open.

Great. Thanks for taking my questions good evening.

Bill <unk>: Two questions really the first is can you help us just.

Bill: Understand.

Speaker Change: As you've added versus.

Speaker Change: We've seen kind of the core SCS slowdown even more you talked about the PD and growing I don't know how much versus added to the quarter, but.

Speaker Change: The more that adds the more slowdown as core SCS.

Speaker Change: How much of this is competitive how much of this is <unk>.

Speaker Change: Sales force focus.

Speaker Change: Theyre selling versa, they're not selling core SCS, how should we think about that that's my first question.

Yeah. Thanks, Bill you know one of the strategies that we laid out on the diversification was clearly we are not going to take our sales reps and put them into places, which theyre not already going today and with customers that arent already or have the ability to do spinal cord stimulation and as I talked about our first customers right off the bat.

Speaker Change: Where are most loyal <unk> customers and so if you think about our rep going to a location doing of SCS case, and then doing Si joint case actually is more efficiency for them to be at one place to do two cases versus driving multiple times ours behind the windshield get it from place to place.

Speaker Change: And so it's not really focused that's driving it is really those competitive pressures on the SCS space and again, we're going to pivot and use our Si joint business, which has gotten really good feedback both on patient results as well as physicians liking. The approach was the posteriorly approach versus the lateral approach as well as the simplicity.

Speaker Change: The device they are excited to bring that into the practice and so we're going to now be standing in operating rooms, where the physician is using competitive SCS products and our best reps are all of our reps will be actually taking some cases away and talking about the benefits of high frequency therapy and so that's how.

Speaker Change: We're going to use it to be not a distraction on focus, but a leverages <unk> asset to be able to get into more cases.

Bill Plovanic: Okay, and then my follow-up question is, how should we think about US pricing for the neuromodulation business? I think you mentioned that some of your competitors may use that lower pricing as a tactic. You know, what was pricing for the quarter in the US? Have you seen a big change? Any, any color there would be great.

Speaker Change: Okay and then my follow up is how should we think about U S pricing.

Bill Plovanic: And thanks for taking my questions.

Speaker Change: For the Neuromodulation business I think you mentioned that some of your competitors May you said lower pricing as a tactic.

Speaker Change: What was pricing in the quarter in the U S have you seen a big change.

Speaker Change: Any color there would be great and thanks for taking my questions.

Speaker Change: Bill just to make sure my comment earlier on pricing actually when when people launch new products, they're getting a gain in pricing and so you see some of their revenue actually pop more than just gaining one or two cases with a physician. They are also gaining pricing right off the gate. So you sort of get a good uplift from may be taken.

Speaker Change: In a few cases here or there as well as the pricing increase at the time, which shows in their top line results and.

Bill <unk>: And then bill overall in the U S.

Bill <unk>: It is a competitive landscape.

Bill <unk>: I would also say that pricing has actually held pretty well, we we saw.

Bill <unk>: Our average IPG pricing increase in Q2, so we continue.

Bill <unk>: Hold price and receive.

Bill <unk>: A premium price on our on our product as a as a result of our therapy and in the technology and the clinical results that.

Bill <unk>: Stan.

Bill <unk>: Our product stands on so overall, we've been we've been pretty pleased with our pricing. There are there are you know.

Bill <unk>: Pockets.

Bill <unk>: Certain places where.

Kevin Thornal: You know, you have to get maybe a little bit more creative, but overall, pricing has been holding pretty firm.

Bill <unk>: You have to get maybe a little bit a little bit more creative but overall pricing has been holding pretty firm.

Speaker Change: Great. Thanks for taking my questions.

Speaker Change: Your next question comes from the line of David Chris Scott with Baird. David Your line is now open.

Speaker Change: Great. Thanks.

Speaker Change: Thanks for taking the questions.

Speaker Change: Two from us and I'll ask them both upfront.

Speaker Change: You heard a lot a question kind of comments on.

Speaker Change: Our position in the market.

Speaker Change: Sure sure gain potential that's out there.

Speaker Change: Wondering if we take a step back and just think about the entire kind of SCS market. That's out there and what you think a kind of true market growth rate is here. When you think about the different share thats going on between different players and how I guess longer term and maybe the answer is kind of a sensor RCT studies.

Speaker Change: Sensory study do you think that the market may be can have or drive.

Speaker Change: A bit more growth.

Speaker Change: A question and the second one from US just I heard I think some comments around the potential new product coming out there I believe 26 I'm just curious if you could add any incremental.

Speaker Change: Color on that thank you.

Speaker Change: Yes, so as far as market right now three of the four public companies.

Speaker Change: Released earnings and then we have one more coming in a few weeks here and so you definitely saw slowing from Q1 in 2023 into this quarter just by pure math of the numbers for where we see specifically in the U S side of the business.

Speaker Change: The other two that reported already had strong growth internationally. We ended up having a couple of headwinds that are unique in nature and one time events that should correct themselves moving forward, but but our O U S business is pretty small relative to our U S business, but if you add those together, we definitely went from a mid to high.

Speaker Change: <unk> single digits grower to more of a low single digits within this quarter again, just by numbers, we will see what the last.

Speaker Change: Company when they report does that move that up a little bit further with one of their new product launches.

Speaker Change: And so as far as the second RCT study. The <unk> study that is specifically for our second study for PD in and as I mentioned earlier <unk> is less than 1% penetrated and look we were the first ones to come out with the indication and drove that market over the last couple of years, we still believe that that.

Speaker Change: Is going to be a long term growth driver for the entire market, but specifically for us with 10 kilohertz therapy as I've said, all along why would you want to put a patient that tingling and <unk> and their legs, which a lot of our competitors need to do when.

Speaker Change: When that patient is already having those side effects of their painful diabetic neuropathy and we're the only ones that have a large RCT study showing the benefits, it's our belief and what we're going for and look we are on some of the recommendations but to get guidelines that say this is the therapy you should use.

Speaker Change: From some of the societies, we need to have the second RCT and so if we can get that next year that will definitely be some wind in the sales for our referring physicians to follow those guidelines for diabetic patients that ultimately need the pain relief therapy that can get them back on their path to recovery. So we feel good about that and then in 2026.

Speaker Change: Our SCS device will always be built on our patented 10 kilohertz therapy, but there are some unique clinical benefits, we have seen whirlpool data as well as some of the testing we've done.

Speaker Change: With some differences.

Speaker Change: <unk> ways to actually give that therapy to patients and that will have.

Speaker Change: A lot of different benefits for both providers and for the patients themselves. It's pretty much all we're going to say at this point, but just like we've done all along with our first high frequency device.

Speaker Change: 10 years ago here in the U S.

Speaker Change: We're going to have those same kind of unique advantages of that product that we believe will be another big bolus into the market.

Speaker Change: Yeah.

Speaker Change: Ladies and gentlemen, this concludes our Q&A session and today's conference call. Thank you for your participation you may now disconnect.

Speaker Change: Please wait the conference will begin shortly.

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