Q2 2019 Earnings Call
All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press. The pound key questions will be limited to one plus one follow up you May recall, you think you Juliet Cunningham Vice President of Investor Relations you May begin your conference.
Thank you good afternoon, joining me today are Keith Grossman, Chairman CEO and president.
And Andrew Galligan, Chief Financial Officer.
Keith will review the company's progress over the second quarter, and Andrew will provide detailed financial results and guidance.
Earlier today never released its financial results for the second quarter, which ended on June 30 up 2019.
A copy of our earnings press release is available on the company's Investor Relations website.
This call is being broadcast live over the Internet to all interested parties and an archived copy of this webcast will be available on our IR website.
Before we begin I'd like to remind you that management will make forward looking statements on this call within the meaning of federal Securities laws.
All forward looking statements, including our discussion of operating trends and expectations of future financial performance.
As well as full year 2019 guidance are based upon our current estimates and various assumptions.
These statements involve material risks and uncertainties that could cause actual result.
For them to differ materially.
Accordingly, you should not place undue reliance on these statements.
Please review our filings with the FCC, including our quarterly report on Form 10-Q , which we expect to file today for a full description of risks and uncertainties.
Never disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements because of new information future events or otherwise.
This conference call contains time sensitive information and is accurate only as of today August eight 2019, and I'd like to turn the call over to keep the person.
Thank you Julie and good afternoon, everyone. Today, we reported second quarter 2019 revenue of $93.6 million worldwide.
That compares to our previous guidance for the quarter of $87 million to $89 million and this reflects a 14% sequential growth over the first quarter.
Last quarter I spent a fair amount of time going through my initial assessment of what led us to the tissue we were in.
And other general areas of my focus going forward, particularly out of improved commercial execution and revenue growth.
So let's start with that topic today, they won't do so a bit more briefly then and last quarter.
In my first four months here at never I've been focused largely on trying to understand and optimize our existing sales and marketing structure issues and priorities.
Well, we suggested you should anticipate that many of these initiatives should arise from this process will take a few quarters to bear fruit.
Let me start by saying that I have been pleasantly surprised with our sales organizations. Early response of this country and what we're seeing thus far in the early stages of a change and improvement.
We are beginning to take action to improve our sales force structure territory productivity compensation product pricing strategies and policies messaging and training performance visibility and accountability, the salesforce stability and just general process and primary priorities.
And of course these initiatives are designed to grow revenue and pave the way to profitability overtime by way of a more efficient and scalable commercial model.
As you recall, we removed the burden of company initiated high volume ordering practices that we had placed on our sales force through most of last year and asked them to refocus their efforts on growing patient trials as I mentioned on our Q1 call patient trials are a really important one to two quarter predictor of future implant revenue.
Patient trial volumes were flat in the second half of 2018 and most of Q1 of this year.
So in late Q1, we reengaged our field team to focus on trials, where we began to see immediate improvement and that improvement has thus far been sustained.
To provide some context for the full second quarter trial procedures were up 15% year over year and permanent implant procedures increased by 10%.
Well I'm not going to promise that we'll be sharing these metrics every quarter. We wanted to provide some clarity behind this quarter's reported revenue number regarding the early progress and I think we're already starting to make.
Of course, one quarter doesn't make a trend and these are still early days, but we're encouraged by the early impact of some of these changes.
It's important to remind you that this was not driven by territory additions to our sales organization. In fact, we finished the quarter with actually just slightly fewer sales territories that we had at the end of 2018.
We're also refining territories and helping reps to be more productive with support from more clinical specialists to help with post procedure patient support.
Now this optimization process will be one that continues throughout this year and into next of course.
I told you last quarter that we were not going to continue to get turnover metrics on a regular basis, either however, given the trends over the last year or so it's important for you to know that voluntary turnover was very low by historical standards and more importantly that portion of the voluntary turnover in our U.S. sales organization that we would consider regrettable or unwanted was in the very low single digits in the second quarter.
I think our sales organization is excited not only by the new products and data coming in our pipeline.
But by the early signs of responsiveness and support in addressing their needs for success and the consistency of leadership and direction.
Like most of US I guess when sales team members feel they are representing a great product have good prospects for growth and feel properly supported and led reduction in turnover should be the expected result in my experience.
Now we have more work to do on this front for sure but progress is already visible.
We're also now much of the way through a very large qualitative and quantitative study of our market. This is the important work I mentioned last quarter that will continue to inform a greater understanding of market segments market growth opportunities and specific company growth in market share drivers and it will do to direct our market strategies going forward.
Well I won't be discussing the details of this study today, we have been a really encouraged by the engagement of our customer base and their assumptions about their future utilization growth in SCS therapy.
The untapped market potential ahead of us and the significant interest in the products and therapies that we offer now or those that we will be offering soon.
In short both in terms of future market growth and never market share I'm actually more persuaded than ever that this is still a business with plenty of runway ahead of us.
And a key part of laying that foundation is consistently evaluating and developing our team. We recently appointed appointed two senior executive neat Pelagreeny as Chief commercial officer, and Laura Ciano as Chief Human Resources Officer.
Both even lorie have worked with me previously they were instrumental in helping lead those particular organizations to greater growth and value creation.
I look forward to benefitting from even lorries leadership here at Nevro I know there will be a great fit given our mission critical focus on enhancing our commercial success and also on attracting retaining and supporting top talent in all areas of the company.
In particular, we need we'll be playing a very central role on our commercial strategy going forward and in unifying all of our customer facing initiatives into a single coordinated effort.
[noise] to truly positioned the commercial team for success, we need to put the right products in their hands at the right time.
Last quarter, we discussed the importance of the Omniab product platform launch planned for later this year.
On there will be the only product that can deliver HF tend the most effective SCS therapy available as well as offer the flexibility of multiple wave forms for those doctors, who are interested in different or even combination therapies.
On the offers us a unique opportunity to reengage with nearly all segments of our customer base with a new multi wave form platform and in many ways.
The army launch represents nothing less than the opportunity to relaunch nevro too much of our customer base I'm pleased to report that this project continues to track well. We received the first of what will be a series of ft approvals for the omni a platform a couple of weeks ago, and we remain on track for the expected fourth quarter product launch.
On the clinical front I'm pleased to report that were just a few patients away from completing enrollment in our sends a PD and study a randomized controlled trial or RCT to evaluate the treatment of chronic pain for patients who suffer from painful diabetic neuropathy or PDN.
This is an important step in the evaluation of Nevros Senza Hften therapy for this very large and often untreated patient population.
Diabetes affects nearly one kind of adults in the U.S. and can damage peripheral nerves, resulting in severe neuropathic pain numbness in the hands and feet.
According to the literature, approximately 4 million patients are suffering from moderate to severe pain due to due to painful diabetic neuropathy and are currently seeking treatment and we also believe approximately half of these patients are refractory to conventional medical management or CMS.
The study, which is being led by principal investigator at neurosurgeon Dr. Erika Peterson compares HSN Hften therapy, plus CMS to CMS alone in 216 of these very patience at 18 centers in the United States.
We expect to see the release of the first primary endpoint efficacy data from this cohort in early 2020, and this data will help us further define the PDN patient population and the addressable market for us yes.
In these patients.
Of course, there is a lot of market development work to be done in the meantime to create your referral pathways for this new set of physicians in call points.
I will be in a position we think an early 2020 to discuss our going forward plans to develop this particular market opportunity.
[noise] PDN as one of two large studies, we're conducting the second ongoing RCT is one per nonsurgical refractory back pain or NSR BP.
We currently expect to complete enrollment and its RVP trial sometime in 2020.
The populations from both of these RCT is offer opportunities to greatly expand the addressable market for US yes, we believe over the next few years.
Regarding our submission for upper limb and neck pain label indication, which was based on the results of both our U.S. and Australian studies. The FDA denied our submission is proposing a new RCP is required prior to approval.
We believe regulatory precedent as well as our existing data strongly support approval for the neck pain indication and we're right now working with the FDA to better understand and lay their concerns. If we're not successful will need to evaluate at that time, our options to make sure. This important clinical advancement in treating neck pain becomes available to patients and as a reminder, upper limb pain is included in our current labeling.
Additionally, CMS last week issued its proposed rule on the outpatient prospective payment system zero people yes.
CMS has proposed increase payments to hospitals and surgical centers for SCS procedures under the existing codes.
The proposed facility payment increases range from 3% to 5% and will become effective on January onest of 2020.
As part of this annual review CMS evaluated the need for economic incentives for non opioid alternatives for pain management therapies used in outpatient settings.
As directed by both the administration and as authorized by the support Act.
Our team provided significant scientific evidence of the benefit of SCS has a non opioid treatment option for patients with chronic pain and we honestly. We're disappointed CMS did not propose specific additional changes related to any non opioid therapies.
For now the proposed increase payments and step in the right direction and we will continue to provide our important input rather during the 60 day comment period and beyond with the goal of eliminating disincentives entirely for proven non opioid therapies in the future.
On the legal side, we were pleased that the Delaware Court granted our request for a preliminary injunction against stimulates commercial use of high frequency waveforms to treat Fcs patients.
This rather extraordinary outcome was the result of our continued commitment to protect our intellectual property as well as the strength of our patent portfolio itself.
So with that I'll now turn the call over to Andrew who will provide more detail our Q2 financial results and our full year 2019 guidance.
Thanks Keith.
Ill begin with worldwide revenue for the three months ended June Thirtyth 2019.
Our second quarter revenue was 93.6 million compared to $96.1 million in the prior year period.
This one's a 3% decrease year over year, but a 14% sequential improvement.
ASP declines for an approximate 3% drag on worldwide revenue or a 2% decrease on a constant currency basis.
That is a function of pricing and customer mix, which can fluctuate from quarter to quarter.
You asked for revenue in the second quarter was $78.1 million, a 2% decrease from 79.9 million during the prior year period.
Year over year decrease in U.S. revenue was primarily driven by our decision to reduce the impact of high volume orders as we discussed last quarter.
Hi, volume orders continued to be healthy and an important part of our business, but the changes.
We made were designed to better match quarterly shipments to quarterly usage diminishing impact on sequential or year over year trends.
The impact of net de stocking in the second quarter was roughly equivalent to the first quarter 2019 levels.
Which was less than we had originally anticipated.
Therefore, we expect to have some de stocking cardio for in into Q3.
But expect it to be a small to be smaller than Q2 and in material after that.
I would note that less de stocking in Q2 Q2 was not just a reflection of utilization, but also some growth into customer segments to carry their own inventory of our products.
International revenue was $15.5 million, a decrease of 4% compared to $16.2 million. During the same period last year. So on a constant currency basis, a growth rate of 2%.
We were pleased by European growth in the low double digits on a constant currency basis, but this was offset by weakness in Australia.
Gross profit for the second quarter of 2019 was 63.9 million or 68% gross margin compared to 67.9 million or 71% gross margin in the prior year period.
The year over year decrease was primarily driven by higher product costs and lower average selling prices.
Total operating expenses for the second quarter of 2019 were 19.5 million.
An increase of 19% year over year compared to $76.1 million in the prior year period, but a $5 million sequential improvement.
The year over year increase in operating expenses was primarily driven by us sales and marketing personnel costs associated with the strategic improvements, we're making in our commercial execution as well as clinical trial related expenses.
Legal expenses associated with patent litigation for 3.9 million for the second quarter 2019.
Compared to $5.8 million in the prior year period.
Regarding the ongoing skim waves litigation, the Delaware Court recently granted our motion for preliminary injunction.
As Keith mentioned as far as Tim wave technologies and its affiliates from infringing our patents claims for high frequency paresthesia free SCS therapy.
A trial date has been set for may of 2021.
Turning back to our second quarter results.
Net loss from operations was $26.6 million compared to an $8.2 million loss in the second quarter of 2018.
The balance of cash cash equivalents and short term investments was 233.9 million as of June Thirtyth 2019.
Net cash used in the second quarter of 2019 was 5.7 million.
$30.6 million for the six months ended June Thirtyth 2019.
Beginning in the third quarter. In addition to GAAP results, we will begin reporting adjusted EBITDA.
On a non-GAAP measure I will exclude litigation expenses.
Interest taxes, and non cash items, such as stock based compensation and depreciation and amortization.
We think this additional visibility we will help investors measure our underlying business results and progress.
And now for full year 2019 guidance.
Based on our current business outlook, we expect worldwide 2019 revenue to be in that 368 to 374 million range.
And gross margins to be in the high Sixtys Thats a percentage of revenue.
I'd note that Q3, and Q4 tend to be highly variable with three with Q3 seasonally slower in both trial rates and procedures during the summer months Q4, being the seasonally strongest quarter of the year.
Rapid growth in previous years may have noticed that typical seasonality, but we do expect to see this past third in 2019.
Also we have assumed no contribution from the upcoming Onea product launch in our 2019 guidance.
We will of course sector onea into our 2020 guidance and as a reminder, we expect to have a headwind to year over year revenue Comparables in the second half of 2019, two to altering our practice on high volume orders.
We expect this issue to anniversary the Q1 of 2012.
And that concludes our prepared remarks, operator, please open the line for questions.
At this time.
I would like to remind everyone in order to ask a question.
Please press Star then the number one on your telephone keypad.
As a reminder, questions will be limited to one question plus one follow up we will pause for just a moment to compile the culinary roster.
Your first question comes from the line of Larry Biegelsen.
Biegelsen from Wells Fargo. Your line is open.
Hi, good afternoon, Thanks for taking the question and Keith Congratulations on a nice quarter out of the gate here. So.
Keith just first I wanted to ask about the quarter and then I wanted to ask about the guidance.
So on a sequential basis, you did very well relative to your competitors you also do.
Relatively well.
Versus what we've seen in the past couple of years.
So Mike My question is what drove the rapid improvement here, if you talk to upfront Keith about a lot of changes, but maybe if you could put.
Give us a little bit more color, which of those changes you made really drove this relatively rapid.
Improvement here and I had one follow up.
Yeah.
So Larry I tried to.
In my remarks list a number of categories of things, we're focused on and and.
I don't want to get into a lot more detail than that for for reasons. We have discussed in the past.
But essentially I think what we're what we're seeing this quarter and some of the underlying activity that you mentioned.
Is just the ability ability to to reengage with our customer base on on the things that actually drive growth in our business on defining patients on on finding patients on.
On getting trial activity that leads to firms.
On setting up a sales organization those people know what their objectives are were there to go.
What are their territory is who's going to support them.
Providing some accountability and visibility to the things that really matter just a whole lot of blocking and tackling now.
Going forward you know there will be I think some larger strokes that come out of our target.
The portions of the market that we target messaging of course, the new products that we bring to the market later this year.
For now it's been really kind of a a number of things to improve our day to day execution and the good news is those things can be implemented at many of them at least relatively quickly.
And I think a change of tone and leadership has been part of the well I don't necessarily.
I mean my own but.
Some of the changes we've made in sales and commercial management I think you have had a.
We have had a visible and an early impact so to Larry I think it's a combination of lots of things.
That's helpful and then actually I wanted to just want an omni.
Keith what additional approval approvals are needed before launch and are you still on track for a limited launch in Q3 I think that was your prior guidance. Thanks for taking the questions.
Yes, the whole the whole program plan is intact and and on plan at the moment, there, including the timing for a small limited.
Market release and that.
I think we've been very granular on which product approvals come in what order, there's either two or three that need to come that make up the whole system.
I would say, there's no greater risk in the approvals. We have ahead of us and those we've already gotten so I think we're on track and at this point, we expect to be launching before the end of the year.
Thanks, a lot.
Your next question comes from the line of Margaret.
Texstar from William Blair. Your line is open.
Hi, guys. This is an from Margaret Thanks for taking my question.
First I wanted to ask about the sales force you mentioned, it's been stable do you feel confident in the existing.
Numbers today without needing to add any additional hires in the near term and how far along are you in the process of re energizing the sales force and and restructuring some of those strategies.
Okay, and then just to add on to that I guess, what what selling activity as they are they primarily focused on right now.
Thanks.
Well in terms of in terms of numbers we.
Many of you know that we added a lot of people to our field organization throughout particularly the second half of 2018.
So I think that just as we communicated last quarter I think we continue to believe that we have a footprint in the field is adequate to drive near maybe even to mid term growth for the company. So I don't think we feel like we need.
A change in the size of the field organization I think over time.
We probably envision that will change the makeup of the of the organization as we as we take the opportunities here and there to add.
Technical and clinical consultants to support.
To support our selling organization.
In terms of.
I don't know if I wrote down all three aspects of your question, but in terms of those things.
Necessary the timing to kind of Reenergize. The sales organization I think the sales organization is pretty energized act actually I think that there.
I think they are seeing some of the changes may be that if you asked many of them. They would have liked to see before I think the feeling we like the direction is clear leadership is present on a day to day basis in the field.
And I feel like they're they're getting the support they need to be successful in the field in terms of data information and clarity guidance support et cetera. So I think I think the I think our field organization is doing well and I think that shows up in the numbers I think it shows up in in some of the turnover data and it's our job to.
To continue to help them to be successful and effective and target them in the right way and I think there was a full development that I've forgotten. It maybe you can remind me.
Yes. It is just saying here is just in relation to some of the strategies. They have been working on to reinvigorate that sure trialing and what's selling activity they focused on.
Right now.
Well, just said and again I, we're we're the only standalone public pure play company among the big four in this business. So I I know I keep saying that but I want to be careful not to.
Not to be too granular, particularly when there are things that may not be.
Material to to your assessment of how things are going at least in our view.
But weve directed them I think broadly speaking to back to the fundamentals and focusing them and providing great clarity on the fundamentals of this business and they start with patient trials I mean that is the that's a leading part of the treatment algorithm for this therapy.
And and it's a leading indicator for our business going forward for a quarter or two so we've we've been very clear on on what needs to be done by territory very granular in terms of numbers and goals were to go to get them.
Giving them tools to to get those trials to be successful.
And I think I think.
The more detail than that.
Okay. Thanks.
And then one quick follow up gross margin is expected in the high Sixtys for this year is this the range for you said expect long term.
At this point or not talking longer term.
Give guidance 2022 smart.
For giving guidance just share presence.
The only thing I would add to that is is we have said that you we would expect to see.
From a market standpoint, you would expect to see not only growth rates, but also.
But also pricing.
Change through out product Lifecycles in this case I think we're at the end of product Lifecycles for most of the market, but most of our competitors and I certainly think that affects not only our pricing but market pricing in general so as we as we get back into a new.
Product cadence I think that will hopefully help.
Underlying pricing, which is which is going to drive margins.
Your next question comes from the line of Bob Hopkins from Bank of America. Your line is open.
Oh thanks.
I appreciate the opportunity to ask your question I'll start with.
Some of your comments about the market.
I was just curious what are you hearing from the field that gives you a little more comfort about the market and I know you don't want to talk about specific projections for market growth, but it definitely feels like you're more encouraged about the outlook for market growth in spinal cord stimulation and I'm. Just curious if you could talk about that a little bit.
Yeah I think.
I think Bob Bye.
If I have increasing comfort on market growth opportunities going forward and I think it's I think it's safe to say that I do it's coming mostly from the primary research that we've been doing over the last.
Few months.
Which has been a pretty as I've mentioned has been pretty broad and deep exercise on our partners actually still ongoing and the fact that I haven't really seen anything on the anecdotal side other from customers or or from our field force to contradict where people feel like the therapy is going I think people understand that.
There's a low end growth now and I think that's I think that's driven by some of the things we've talked about before ordering patterns in recent quarters end of lifecycle for new for us for all the companies with their product lines.
And frankly.
Execution and at least at least some of the participants in that in the market I think were included.
Our markets are as healthy and robust as the participants in the market and if you've got a couple of saying that they've they've had some commercial execution problems over the last three or four quarters, that's going to affect market growth.
As well so if I take all those things into consideration and principally look at the market Research project that we have ongoing it seems to me there is a fair amount of.
The reason for optimism going forward and I think we've heard.
Some of our competitors expressed the same thing.
Okay.
And then just one other sort of.
But a big picture question just curious.
Sounds like you made a lot of positive changes and obviously made great progress. This quarter can you just talk about the spending levels that the company right now and the levels of cash that you have on hand I mean.
Where are you do you have what you need in that regard to kind of.
Drive the improvement that you're expecting your of course of the next 18 months.
Yeah.
The short answer is yes, we have what we need and.
And that's that's the good news part of the of the answer.
You know I don't think that we feel like spending needs to ramp up from here as I look at really any area of the company.
The small puts and takes but I think we have built an organization not just in the field, but in other areas to accommodate for a fair amount of growth here. So I don't think it's an issue of you you know to get to the next leg, we're going to need to spend a lot of money, we might have to raise capital et cetera, I don't think any of those things are true.
Now that doesn't mean I think expenses are perfectly matched to where we are today or will be in the near term.
Because I think they are not actually but.
I think what we want to do is really understand over the next few quarters.
With new products, new indications with.
Putting a finer point on our commercial.
Execution, I think we and I want to understand what that growth profile really looks like.
And then I think we'll be in a much better position to reevaluate our cost structure and been commute and begin communicating kind of a pathway.
It's a profitability based on some growth rate assumptions, but I don't think we I don't think we have a big incremental spend we need from here I think we have plenty of cash and once we've established growth rate expectations. I think we'll take a hard look at where we are in our current.
Our current expense model.
Your next question comes from the line of Joanne one each from BMO capital markets. Your line is open.
Good afternoon everybody.
I have two questions. The first one and I'll get involved at the same time is.
Really what are the steps that it's going to take to bring the omni.
SCS device to market.
How much of it that's left is more clinical development versus commercial preparation and then the second question is you know.
How many companies having products that are at the end of their life lifecycle.
I think in general pricing environment for FCS devices. Thank you.
Okay. Thanks Joanne.
Look on the I think the.
As I said before we haven't been really granular on whats included in which approval. The steps are really I would say less clinical disappoint and more regulatory as we wait for one more approval and really commercial preparation.
So the limited market releases to to do some of the things that Ela March typically do to prepare us to roll the product.
More broadly and make sure we're supporting that rollout in the proper ways.
But I would say most of what we're doing aside from waiting for one more regulatory approval most of what we're doing between now and a presumed Q4 launch is really commercial preparation.
Making sure we understand exactly how to face to the customer with this particular product launch what the messaging will be that the the sales training.
You know, how we want to help our customers think about patient selection.
How we want our salesforce to begin thinking about.
Competitive market share capture that kind of thing.
We have a lot of work to do between now and then but I would say.
I would say less of it is either in the bucket of clinical risk.
Or.
Even regulatory risk. So we have one approval ahead of us does that help.
It does thank you.
On the second question, which was pricing.
You know I think.
The high level and anecdotally I think there is no question that when you get when you when you're in a market where all of the entrance are sort of in the later stages of.
Of their lifecycle from a product standpoint, you, especially in a market that's as competitive as this one you do tend to see some impact on pricing I can't quantify.
The portion of our ASP erosion that we've seen in the last quarter or two but it certainly has a it has some contribution to it.
And I think that thats not unusual it's not unexpected and.
And I think that it will improve probably over time as more of us bring new products to market.
Your next question comes from the line of David Lewis from Morgan Stanley . Your line is open.
Hi, Good afternoon, just a couple of questions and obviously a solid quarter here.
Keith just on high frequency you got an injunction against in ways. We certainly believe physicians were using high frequency on that system. So does that become a bit of a tailwind into the second half of the year and as you think about Omnia you now more confident given that you believe you are back to the only high frequency player in the market that.
Could be a significant share catalyst in the night a quick follow up.
Yes.
Well the answer the second question is certainly yes, I I expect you know it's interesting when you think about omnia.
The opportunity is is the opportunity to offer a broad.
Array of waveforms and yet that's underpinned by the fact that age of 10 is lead among them. So.
I think that that will continue to be critical the way, we position the company and the therapy and and our outcomes while at the same time being able to offer other other wave forms and being the only one who can offer all of them.
As for the Stim wave injunction I don't know that I would consider that a a very large tailwind there. They are early stage and still a relatively small participant.
In the market I think for US this was more about protecting our intellectual property and what we thought was a pretty clear case.
And we've invested of course, a lot in our IP and in our technology and and.
Demonstrates our ability and willingness to defend it but I don't know that we would consider David a huge commercial tailwinds at least not none of the near term.
Okay, very clear and just two quick ones from me I'll ask them both Andrew for you.
You grew to actually competitors sequentially in the U.S. This quarter, obviously suggest some share capture but obviously not definitive pretty early guidance in the back half and it seem to suggest.
Share capture so any thoughts on back half year any reason why share capture and wouldn't continue from here and then key for you you've now talked two quarters about your enthusiasm for PDN have you started to think about the commercial strategy necessary to deliver that product in light of need to service the undercut community Hi, perhaps primary care community. Thanks, so much.
Sure capture I mean, we can really just talk about.
How.
We think we're going to do and that's encompassed.
In our guidance.
Yeah, the secular share capture and balls might make taking a position on bahar competitors are going to do.
And I'm not sure we're in.
Okay position to do that so.
We'll take.
Yes.
Well on the on the first question I agree with what Andrew said, although I certainly will tell you as an organization that's our goal and it's our expectation that whatever.
The market growth rate turns out to be over the next 12 to 24 months, our goal and certainly be to grow faster than that.
We're in under Index, we think well do our competitors from a market share standpoint, with a a technology that we think is best in class.
And we think thats something that we ought to be able to fix fixing that implies a pickup in market share. So.
We can't forecast that we can't put it into our guidance, but I will tell you from my standpoint, I certainly expect it.
The question on PBM is a good one I I.
My inclination is to be very positive on on PBM and pretty excited but I want to I want to restrain that a little bit until we have more more information about exactly how that market will segment.
And what it means for us and how will how will recruit patients.
The reasons I think to be enthusiastic are obvious its a big market. It's a very untreated portion of the patient population thats pretty severely affected by by this particular form of chronic pain.
And it's a patient population that tends to be very tuned in tuned into their disease to therapy options and tends to respond rather quickly.
And it's a very very large patient population those are the things that gives me great.
Optimism.
The reason I want to restrain that optimism a bit for now is I think we have a little bit of to learn as we see the data as to what it means from a patient segmentation standpoint, and exactly how we go about recruiting these patients.
And I and so you're asking the right question I don't think we have the totality of the answer yet we've got some time here, but I think by early 2020, we ought to be able to give you a much clearer view on.
On where we're going to go how we're going to get there and what our expectations will be.
Your next question comes from the line of Jason Mills from Canaccord Genuity. Your line is open.
Hi, Keith and Andrew Thanks for taking the questions Keith Congratulations on the sequential improvement.
I'm curious if you would be willing to give your thoughts on sequential improvement in the third and fourth quarter as it relates to those metrics that you.
You were very proud of the <unk> in this quarter the growth in trial and the growth in permanent implants mature somewhat agnostic to the stocking that you face difficult comps as Andrew mentioned the third quarter.
Does your guidance assume that those rates or something similar will be.
Evident in the second half of the year.
Well, we have some internal assumptions.
Behind the guidance, we've given of course.
In.
Both trial and Perm rates.
And it obviously assumes some continued rate of growth.
In terms of we haven't given guidance on on those metrics of course, I'm not I won't give them here.
But we will likely want to commit to it but I think we're likely to want to provide a similar level of transparency in Q3, because the reported revenue will have.
The disadvantage of the year over year comp issue from the multi unit order so it will be a little bit.
A little bit contaminated as as Andrew said until we anniversary that issue at the end of the year. So I think we'll probably give some visibility on trial and per unit rates through the balance of the year.
We obviously, if we're going to expect growth in the underlying business, we would expect growth in those metrics, it's where we're directing our commercial organization.
And we're actually pretty upbeat about that at the moment, but I, but we haven't included it in our guidance.
Thank you for that color and then Andrew you mentioned your plans for the metric of adjusted EBITDA and giving that going forward could you talk about.
The first half the first half adjusted EBITDA and what you're expecting in the second half and therefore sort of what levels of adjusted EBITDA, We should expect.
For the full year 2019, and any any commentary about direction I assume you know it gets better in 2020, but any any qualitative commentary would be helpful.
No. We just pointed cascades advance notice at this point, so Claire where we're headed and.
The net one of the metrics that were going to be.
Talking about going into the future.
I think we'd like to report it for a couple of quarters, a quarter or two and I think the ideal state.
Jason would be that when we guide for 2020 that first of all we're hopefully able to in getting comfort in guiding for the whole year.
And.
I think the ideal would be that we're comfortable guiding not only the top line, but on the bottom line, maybe even both net income and adjusted EBITDA. We've we've got.
I think some work to do between here and there to gain that comfort, but that would be the position we'd like to be in.
In the meantime, we'll start reporting the adjusted EBITDA number and.
Just wanted to give you some clarity as to what we were doing and why we are doing it.
Your next question comes from the line of Danielle Antalffy from Us.
VB Leerink your line is open.
Good afternoon, everyone. Thanks, so much for taking the question congrats on a solid quarter.
Steve you touched on this a little bit already to David's question, but just curious how we should be and it sounds like it's a little bit early to be asking this but.
Should we be thinking about the new indications coming on line, specifically looking at PDN and upper limit Bakken specifically upper limit Nexsan. You mentioned that is already actually on label are these the types of new indications that can drive market growth inflection or is this going to be more of a type of slow and steady ramp into these new indications that I have one follow up.
Yes, well.
My my sense is that they you know until we have a chance I think to learn a little bit more on PD and my sense is that they are kind of slow and steady drivers for the business in the coming quarters and years.
Going forward, which is not.
I don't view that as a bad thing.
In case of a preliminary they are not both on label neck is not on label Upper limbs are on label. So there is a potential label claim addition to be had.
Despite the fact that FDA wants us to do a forced lease at present to saying they want us to do a longer RCT. So we've got that negotiation ahead of us with RCT or was that FDA and want to decide if we if we don't prevail whether or not that's the course, we want to take.
In the case of.
PDN I think certainly there's a couple of oral argument on both sides, if you're a payer as to whether or not that's on label.
Or not our view is that it is technically on label, but clearly as we go to a different call point, we would like to have the on label and we'd like to have a compelling case for payers.
So that that's a little bit more clear so depending on the data we will make a a submission tried to get some of those claims on label that will take some time that will be followed by some effort with payers all the while we'll be we'll be working on on market segmentation and recruiting patients.
And beginning to understand how we grow that market. So I would say in both those cases. It is an ongoing steady effort not a an overnight flip the switch.
Got it okay understood my follow up is on Virgin back or pre doctoral degree I'm curious what you guys are thinking needs to be done there too.
Longer term change the infrastructure of how treatment is is given in this because you're kind of that's a situation where the spine surgeons involved and and are you screwing with your referral chain you know so I'm just curious how you're thinking about approaching that potentially very large market, particularly given the opioid epidemic. Thank you so much.
Yeah.
Well, we've got some time to figure that out I mean, once again, you're talking about a population of patients that already make up a portion of the patients that we treat not a majority portion by along a long shot, but we do treat these patients today again.
Again.
We would I think argue pretty pretty effectively that these patients are on label now, although we do get pushback occasionally from payers.
On non surgical back pain.
Patients.
We have some time, what I mean by that is we will take us some good portion of 2020 to complete recruiting.
That trial, we then need to take patients to endpoint and submit data for publication and Jeff.
And for regulatory filings et cetera. So so this was a little bit longer term than the other two indications we've been talking about we've got some time to figure out the marketing my sense is that the.
The call point issues, you're describing just from a high level are are going to be relatively straight forward to work out.
Theres, an awful lot of overlap now between our surgical call points and our our pain Doctor call points in terms of who's doing trials who's doing perms who's doing both trials and firms and I think there's lots of there's lots of ground for us to work that out I don't personally see that as a huge call point.
Conflict, but as I said, we've got a we've got a bit of time here.
Your next question comes from the line of Robbie Marcus from J.P. Morgan Your line is open.
Great and thanks for taking the questions one for Keith and one for Andrew Keith maybe we could start off and just follow up on Bobs question on market growth and maybe and instead of looking forward take a look backwards in time.
And I guess my question to you is we saw on on several new product launch ways from competitors.
Along with that.
The great growth that never played out the market grow around 20% and that that great growth.
Fell off spectacularly, starting in fourth quarter or first quarter.
And based on the numbers, we've seen to date unless Medtronic puts up some you know.
Crazy good good number it's going to be down again in the second quarter here and I don't think inventory stocking in last year could you explain though the whole different so maybe as you look back and just what do you think happened and what do you think the underlying new patient volume is.
In the market, maybe over the past year or so.
Well I don't think theres any so I don't think theres much.
In the way of new color that I can add the answer I know, how I know that.
You've been thinking about this and I and Oh, and we certainly talked about this.
I think that it's probably a combination of things I might think our sense is.
That probably the most compelling contributor has been the lifecycle issue I just think it's a market that is.
Is one where we are competing for other modalities of care with very very busy clinicians.
And I think having a steady stream of a steady cadence of new products coming into the market.
Brings a lot of attention a lot of energy a lot of opportunities for training and refocusing and patient recruitment.
And it drives visibly I think drives growth in the therapy, we've seen it before.
I think we'll see it in the future I don't think we're seeing at present.
And I think if you look at a market that becomes our you know arguably and by definition more mature as it gets larger those things probably become more important.
To to driving growth. So I think that's probably the largest contributor.
The order pattern issue I can't really speak to that because I don't have any visibility into the greater quantity in which our competitors of practice that that particular.
Strategy. So I just I just don't know how much of a contributor that's been.
I do think there is something to the execution I think that the excitement around our company and our technology drove a lot of growth for some period of time and I think as we began.
You had some issues with commercial execution and at least one of our larger competitors have said they did the same thing over the 2017 18 timeframe I think that affects market growth.
So I you know I would say those are the three things that I think are are probably by and large.
The most important and our assumption is that most of those will get some relief going forward with both the execution issue and maybe more importantly, the new product introductions.
Okay, and maybe for Andrew I, just want to make sure I got the numbers right on the inventory de stocking. That's a that played out in second quarter and first quarter. You said sales in the U.S. would've been around flat, implying about 5 million dollar headwind is that the right amount to think about in second quarter here.
A little bit just a little bit short of that.
But directionally correct.
And then there will be a little bit carried over into.
The current quarter third quarter.
Couple of million.
Your next question comes from the line of Matt Taylor from Yes. Your line is open.
Thank you for taking the question.
I appreciate that you are reiterating the timeline for the.
Neil launch I guess I'm, just wondering when it launches here in Q4.
How quickly will start to ramp into next year is the first quarter, so going to be slower.
We have as you train folks or should you.
Be able to kind of execute right away given similar to.
Older older product and we'll see a quicker pace of sales right.
I think the.
I think the contribution is actually relatively quick and there never immediate obviously, there's things to be learned as you have a sales force.
The size of ours, who launch a new product.
We learn things.
Over time, but.
I don't think there's there's much about this that's a that would be a pre determined.
Delay in other words I think the impact of this new product will be one that.
We see pretty quickly.
I would say within the first quarter or two we're going to see.
We're going to see a pretty reasonable impact on our growth rate. That's certainly our expectation that we've got to make that happen.
But I wouldn't expect it to take two or three or four quarters for something to happen.
In the in the patient pipeline pipeline to allow.
Asked to see that kind of growth.
Okay. Thanks, and then I noticed in the opening comments you mentioned you had some technical and clinical support staff as you rejigger, how youre going to Mark and I guess I was wondering on your.
Headcount comments for for reps when you're talking about not really needing to grow the organization did just seen the rest or do you mean, the overall organization can you talk a little bit about how the.
Mix of those folks could change.
Yeah. So I think the mix if you look out over the last three or four months I think the mix already has changed from sales territories to.
Clinical support staff.
And I think if you look at that over time.
It will probably change.
Some more.
So I think in the I think just think of it. This way there had been I think a general philosophy in the past that.
To grow sales requires growing a quota carrying territories and reps to manage those territories.
And I think going forward when we look at it is we should have a fair amount of capacity for growth built into our current.
Sales rep structure, and head count, but part of that is the underlying assumption that as we grow.
That will continue to give them tools and capabilities to be able to continue to grow their territory, while managing a growing.
A growing number of patients in the field and one of the ways, we'll do that will be a what we call technical consultants in other words clinical support people in the field, but there are other ways.
We can do that as well, so but I would expect to see the ratio of reps to support people in the field.
Continue to change going forward.
There are no further questions at this time I turn the call over to Nevro CEO , Keith Grossman for closing comments.
Okay. Thank you listen while we're still in the in the early process here I hope you're sensing that there is a growing.
Sense of optimism here is never as we move closer to 2020, and our ability to to revitalize growth rates are reengage existing customers and new customers in a more meaningful way as we combine a new products and clinical data with a much finer points as I said on our commercial strategy and execution. So thank you everyone for your time and your questions. Today, we look forward to updating you next quarter.
That concludes today's conference call you may now disconnect.
[noise].