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spk11: Good day, ladies and gentlemen, and welcome to the NuVasive Second Quarter 2021 Earnings Conference Call. I would now like to introduce your host for today's call, Ms. Juliette Cunningham, Vice President of NuVasive Investor Relations. Please go ahead, Ms. Cunningham.
spk15: Thank you. Good afternoon, everyone, and welcome to our Second Quarter 2021 Financial Results Conference Call. Joining me today are Chris Berry, Chief Executive Officer of and Matt Harbaugh, Chief Financial Officer. Chris will provide an overview of Nuvasiv's recent business results and trends, and Matt will review our detailed financial results, as well as the company's 2021 financial guidance. Then we'll host a question and answer session. If you have not had a chance to review our earnings release, which was released after market closed today, it can be found on the investor relations section of our website, The release has also been filed with the SEC on Form 8-K. In addition, we've posted to our website supplementary slides to summarize our results. If you'd like to be on the distribution list for our IR materials in the future, please drop me a note and I'll be happy to add you to our list. This call today is being recorded and webcast live to all interested parties. The audio portion of this call will be available on the investor relations section of our website approximately two hours after this call, and it will be archived there for 30 days. Our remarks today will include a discussion of financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. For a full reconciliation of GAAP to non-GAAP financial measures, please see the reconciliation tables provided in our second quarter 2021 earnings release and the supplementary slides posted on our website. The discussion during today's call will include forward-looking statements. It's our intent that all forward-looking statements will be protected under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations and are subject to risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements. In particular, there is significant uncertainty around the duration and impact of the COVID-19 pandemic on the company's business, operations, and financials. The COVID-19 impact continues to evolve And it's important to note that our commentary reflects our best estimates as of today. To better understand these risks and uncertainties that may affect our future results, we refer you to the documents that we file with the Securities and Exchange Commission, including Nuvasiv's most recent Forms 10-Q and 10-K. Nuvasiv assumes no obligation to update these statements. Before I hand the call over to Chris, let me summarize our top line performance. NuVase has delivered second quarter 2021 net sales of $294.8 million, an increase of 44.8% on a reported basis or 43.3% on a constant currency basis compared to the prior year period. Later in the call, Matt will provide detailed financials for the second quarter and commentary on our expectations for the remainder of the year. And now, I'd like to introduce Chris Berry.
spk18: Thank you, Juliette, and good afternoon, everyone. Earlier today, we reported second quarter 2021 financial results. On this call, I will provide updates on our progress delivering multiple vectors of growth in key procedural segments in international markets and our upcoming commercial launch of the Pulse platform. We're evolving from an implant-focused company to the largest spine technology company in the world. As discussed, we continue to focus on multiple vectors of growth, making deliberate investments in select procedural segments where we've historically had underrepresented market share and commercial operations to further globalize our business. This was reflected in our quarterly performance, which was in line with 2019 results. and I'm encouraged by the progress and momentum we were building for the back half of the year. Our business continued to show signs of improved recovery across all procedural segments as we began to see stabilization in the U.S. and key international markets. Results in U.S. spinal hardware were driven by continued adoption of our C360 cervical portfolio, and improvement in thoracolumbar led by our ALIF procedure with modulus ALIF. As outlined previously, there is a $2.6 billion opportunity in cervical, and we are committed to taking share in this key subsegment. In Q2, we saw continued growth of C360, our comprehensive portfolio for anterior and posterior cervical spine surgery. Our new invasive ACP system The thinnest interior cervical plate currently on the market is procedurally integrated with our differentiated advanced material science technologies, the Modulus Cervical Implant and Cohere Cervical Implant. As we shared last quarter, the Nuvasiv Simplify Cervical Disc achieved a regulatory milestone of U.S. FDA approval for two-level cervical total disc replacement in April. making it one of only three devices approved for use in two-level CTDR procedures. This is a truly differentiated product in the market. These results, along with early surgeon feedback and adoption, validate our strategic investment and further our continued growth in one of the largest subsegments in spine. There's a $900 million opportunity in the anterior spine subsegment. and we are well positioned to continue leading in this space. In the second quarter, our ALIF procedure was the primary driver of thoracolumbar improvement, led by Modulus ALIF, which we commercially launched last week following successful clinical evaluations. Modulus ALIF is the latest 3D-printed porous titanium implant in our AMS portfolio, and it supports our goal of becoming number one in ALIF. In addition, a new journal article was recently published comparing single-position surgery, or X360, to dual-position lumbar fusion. The article helps validate the benefits of X360, outlining shorter hospital time and stays with X360 while maintaining similar clinical outcomes. These results build on our prior literature validation of X360, a comprehensive system enabling surgeons who access every single level of lumbar spine in lateral, pronolateral, ALIF, and posterior fixation procedures, all while keeping the patient in a single position. The integration of the XLIF, XALIF, and X fixation procedures into a single system helps deliver clinical, financial, and operational outcomes for all stakeholders. Posterior spine surgery is a $1.6 billion opportunity and remains an important growth driver for the company. In Q2, we saw continued improvement in our posterior fixation offering, particularly with RELYON 3D used in pediatric complex deformity procedures. Clinical evaluations for COHER T-LIFT-A and COHER T-LIFT-O are underway, which expands our porous peak technology to the T-LIFT procedure and will launch later this year. International continues to be a significant contributor to growth for the company in the near and long term. The recovery and second quarter 2021 net sales was supported by strong international growth. This quarterly performance is a testament to our investment in commercial operations, progressing our long-term strategy for low to mid double-digit growth in our international business. In particular, these results were led by the Asia Pacific and European regions where leadership, operations, and commercial execution led to continued expansion of our core spine business in these markets. I'm encouraged from what I've seen. However, we have more work to do to further globalize our footprint and bring our game-changing technologies to help more patients around the world. Now turning to innovation. We increased our investment in R&D expense year-over-year to advance our innovation roadmap in each procedural segment, and our spine portfolio has never been stronger. Like we did with the XLIP procedure, Pulse has the ability to transform spine surgery and the trajectory of the company. The evolution from a spinal hardware company to a provider of a comprehensive spine solution is supported by this first-of-its-kind technology. Let me be clear, Pulse is not just a navigation system. Pulse is an integrated platform with multiple applications that can be utilized in 100% of spine procedures. This differentiated platform helps address some of the most common clinical challenges in spine surgery with radiation reduction, imaging enhancement, rod bending, navigation, intraoperative neuromonitoring, wireless connectivity, and spinal alignment technologies. We recently received CE certification and clinical evaluations are underway in six European countries. we remain on track for an expanded launch in targeted global regions of the PULSE platform later this summer as we currently await U.S. FDA 510 clearance. During PULSE clinical evaluations, surgeons have completed a variety of cases from degenerative and deformity pathologies to cervical, thoracic, and lumbar procedures. Throughout each case, the seamless integration among all of the technologies in a single condensed footprint is one of the most significant differentiators of the technology. Throughout cases, it was evident Pulse's wireless connectivity, which allows everyone in the operating room to easily manage their respective roles while not interfering with the surgeon's display, is a major step in making surgery more efficient. Surgeon feedback continues to reflect our internal expectations and reaffirms our strategy with this highly differentiated technology platform. To further validate the platform, we recently completed a cadaveric study comparing screw placement with pulses navigation to traditional fluoroscopy. Pulse navigation significantly outperformed traditional fluoroscopy across all categories measured, including operating room efficiency, screws were placed 40% faster, accuracy, there was significant more accurate screw placement, and safety. Screw placement using fluoroscopy on average resulted in 14 times more radiation exposure to the surgeon. Incredible results, which demonstrate the superiority of PULSE and its ability to be an integral tool in the surgical workflow. It's still early days in enabling technology adoption, and we see incredible opportunity for the platform. PULSE is designed to increase safety, efficiency, and procedural reproducibility with unmatched benefits to the surgeon, hospital, and patient. With its ability for utilization in 100% of spine procedures, participation throughout the entire operating room workflow, and its extensible architecture for future applications, Pulse has the ability to disrupt the spine market. Nuvasiv is the industry leader in surgeon education and training. Our clinical professional development programs play a pivotal role in helping surgeons adopt our less invasive surgical techniques and enabling technologies. As COVID-19 restrictions eased and travel began to resume, we experienced a double-digit increase in surgeons trained quarter over quarter, which is in line with our 2019 numbers. Our surgeon training courses scheduled for the remainder of the year support increased surgeon interest and availability. In addition to a world-class training facility in San Diego, courses will take place at our East Coast Experience Center, which is on track to open later in Q3. As we shared earlier today, the company is providing full-year 2021 financial guidance. The return to more normal business conditions and elective surgery stabilizing provided us more confidence in formulating expectations for the remainder of the year. As I look ahead, we have immense opportunities in front of us with the strongest innovation pipeline in spine, which enables us to grow across all procedural segments. Pulse, a differentiated platform that has the ability to transform spine surgery and our continued expansion across all global markets. I'm being confident in our long-term strategy, supported by R&D investment, efficiency gains in the supply chain, and commercial execution. Our talented team is committed to becoming the largest spine company in the world, and I couldn't be more excited of what's ahead for Newvasive. I'll now turn the call over to Matt to discuss the company's second quarter financial results in more detail.
spk10: Thanks, Chris, and good afternoon, everyone. I'll begin by reviewing our second quarter 2021 results and then discuss our 2021 financial guidance. Net sales for the second quarter of 2021 were $294.8 million. up 44.8% compared to the prior year period on a reported basis, and 43.3% on a constant currency basis. We saw surgical volumes improve sequentially, with some modest variability in May and June. We believe this volume improvement was primarily related to continued positive recovery in the spine market, as well as the broader global economy beginning to reopen. Signs of recovery in the second quarter continue to support our outlook that we can deliver 2021 net sales growth that exceeds our pre-pandemic 2019 results. U.S. final hardware net sales were $160.1 million in the second quarter, up 40.7% year over year, and a return to 2019 levels. These results were primarily driven by continued demand for products within our advanced material science portfolio within each procedural segment. In particular, ALIF was the primary growth driver within Thoracolumbar procedures as we continue to see strong adoption of Modulus ALIF. Additionally, we saw increased momentum in cervical as our C360 portfolio continued to gain traction and the market responded very positively to the Simplify Cervical Disc, which contributed nearly $2 million of net sales during the quarter. Simplify was off to a great start in our first full quarter since acquisition, and we're working through manufacturing, integration, and ramping up surgeon training to maximize this momentum for years to come. The strength from our innovation in these procedures was partially offset by slower recovery and ex-lift, as expected. Surgeon training, which is typically a good leading indicator of procedural growth, continues to pick up as travel returns. We were pleased to see training demand in Q2 exceed Q2 2019 levels. Moving to U.S. surgical support, net sales were $67.6 million in the second quarter, a 43.2% increase compared to the prior year period. The growth was primarily attributed to increased surgical volumes in our hardware procedures. International net sales of $67.2 million grew 57.5% on a reported basis and 50.3% on a constant currency basis year over year. These strong results, led by Europe, Japan, and Asia Pacific in our core spine business, continued despite pockets of COVID impact. Compared to second quarter of 2019, international net sales grew by 16% on a reported basis and 12.8% on a constant currency basis. As Chris discussed, we expect our international business to be one of our key long-term growth drivers. Turning now to profitability, non-GAAP gross margin for the second quarter of 2021 was 73.6% compared to 60.5% in the prior year period. The quarter-over-quarter improvement was primarily driven by incremental inventory reserves from pandemic-related impacts last year. As part of our strategy to improve margins, we have focused on in-source manufacturing efforts and supply chain efficiencies, which have and are proving to be beneficial over time. We expect further benefit in the future as we continue to fully integrate manufacturing and distribution of the simplified disc into our Ohio and Memphis facilities. Non-GAAP operating expenses increased to $176.2 million, an increase of 23.2% compared to the prior year period. The $30.7 million increase in SG&A expense was primarily due to variable expenses related to higher net sales. R&D expense increased by $2.5 million as planned. We continue to make significant investments in enabling technologies with our pulse platform, across our global hardware spine offerings, while continuing to integrate the Simplify Cervical Disc into our C360 portfolio. With the strongest innovation pipeline in spine, we believe these investments will fuel our future growth. Second quarter 2021 non-GAAP operating margin was 13.9% as compared to negative 9.8% in the prior year period. The improvement in non-GAAP operating margin was primarily due to COVID-19 recovery and the impact the global pandemic had on our business last year. This improvement was partially offset by the negative impact on non-GAAP operating margin related to the simplified medical acquisition as expected. Non-GAAP other income and expense in the second quarter of 2021 was $1.7 million of expense compared to $6 million of expense in Q2 2020. The reduction in expense for the quarter was driven by lower cash interest expense following the settlement of the 2021 convertible notes upon maturity and higher unrealized foreign currency gains. Non-GAAP tax expense in the second quarter was $8.1 million, resulting in an effective tax rate of 20.6% versus the prior year tax rate of 21.2%. In the second quarter, we reported non-GAAP net income of $31.2 million or diluted earnings per share of 60 cents. This compares to non-GAAP net loss of $20.4 million or diluted loss per share of 40 cents in the prior year period due to the global pandemic. Importantly, Free cash flow for the second quarter was $19.3 million versus $3.9 million compared to the prior year period. The increase in free cash flow was a result of improved operating cash while maintaining stable working capital metrics. We ended the second quarter of 2021 with cash and cash equivalents of $204.1 million. This is after we paid a regulatory milestone related to the simplified medical acquisition of $45.8 million during the quarter. In addition, our dent debt leverage in Q2 dropped to 3.3 times, down from 3.6 times in the first quarter. We also have an undrawn $550 million revolving credit facility, making us very well positioned from a capital resources and allocation perspective. I'd like to discuss our expectations for the remainder of the year. Today, we issued full year 2021 financial guidance. We continue to monitor and evaluate the impact of COVID-19 on our business operations and financial results, and our guidance is dependent on the following key assumptions. First, our guidance assumes an ongoing and steady recovery in the US and key international markets, leading to normalized levels of elective surgical procedures in the second half of 2021. And secondly, we assume that the impact from COVID-19 will continue to diminish as vaccine availability and adoption increases and patients continue to seek treatment at or near historical levels. If these assumptions differ materially from the actual pace of recovery, we may need to revise our assumptions and guidance accordingly. With that, Let me share our current business outlook for the full year 2021. We expect worldwide net sales to be in the range of $1,190,000,000 to $1,210,000,000. This represents year over year growth of approximately 14.2% at the midpoint compared to full year 2020 and 2.7% compared to the company's 2019 financial results. From a phasing perspective, we expect our net sales to be a slight sequential improvement due to the ramp in Q2 procedural volumes, which was sooner than we anticipated. In addition, we expect SG&A expenses to increase sequentially as business travel returns. We continue to believe that net sales growth will be weighted towards Q4 with growth in our core spine business and the full commercial launch of our Pulse platform. We also continue to expect approximately $5 million of net sales for Pulse this year, largely weighted to the fourth quarter. And we continue to expect $5 million in net sales for Simplify in 2021 as we continue to ramp up production as previously discussed. For the full year 2021, we expect non-GAAP operating margins in the range of 14.4% to 14.9% and non-GAAP earnings per share in the range of 225 to 235. To wrap up, we were very pleased with our second quarter 2021 results. At the same time, we recognize there is more work ahead as we prepare and continue to execute on our significant commercial product launches, which provide NuVasive with multiple vectors of growth. We believe our strategy positions us well for above-market growth for years to come.
spk08: And now, I'd like to turn the call back over to the operator to start the Q&A session.
spk11: Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And in the interest of time, and being able to answer as many questions as possible, please limit yourself to just one question. Thank you. And now we will poll for questions. Our first question is from Matthew O'Brien with Piper Sandler. Please proceed.
spk04: Afternoon. A lot of places I could go here, but I think for the story specifically that's the most interesting that I heard today was just this double digit increase in the number of docs that you trained during Q2. Can you talk a little bit about those clinicians? Are they existing clinicians? Are they new? Are you getting some people back from competitors that you've lost? And then Is Simplify specifically helping you or the C360 specifically helping you accelerate some of the growth in the new docs that you saw here in Q2?
spk18: Yeah, thanks, Matt. Appreciate the question. It's a bit of all of the things that you just mentioned. We're bringing in, clearly we've had a bit of a pent-up demand. That's opened up, and we saw a double-digit growth comparative sequentially of quarter-to-quarter in the number of surgeons trained. So all things considered, we're ramping up our ability to train on Simplify. I think that's garnering interest in the portfolio. We continue now to reestablish the focus we had with X360 pre-pandemic. So all in all, just probably both pent-up demand and just the normal training that we've traditionally done. So it's a little bit of everything. I think the broader portfolio is attracting a new subset of surgeons to our campus that likely hasn't been there in the past, specifically in the fact that we didn't have certain aspects. And we talk about multiple vectors of growth. We think that will continue. Obviously, we talked a little bit about the Experience Center on the East Coast. we think that also expands our reach. So that's still in our future, but all in all, positive signs, positive indicators that the market's returning with the number of people we're seeing come through in training.
spk11: Thank you. Our next question is from Robbie Marcus with J.P. Morgan. Please proceed.
spk05: Hey guys, this is actually Alan on for Robbie. Just like, you know, the first quick question, you gave a little bit of directional guidance on third quarter. I just wanted to ask you about kind of, you know, specifically the trends that you were seeing so far in July and also just to throw it out there. I think right now the street's kind of at like a 313 million number on the top, like a 65 cent from the bottom. Is that like an appropriate range for us to be in just in light of the guidance update you provided today?
spk18: Thanks, Alan, and I appreciate your question. Let me just kind of back up. I think if you look at Q2, we sort of mentioned this in some of the prepared remarks, but we saw continued sequential improvement April through June. And interesting enough, in June, we really saw a return to what the pre-COVID seasonality looked like. So, for all intents and purposes, we're seeing trends that the full year is sort of playing out the way we thought it was, with the exception of June was better than we expected. Now, coming into July, as you know, with seasonality, specifically in this business, you have holiday, you have certain vacations that happen. I think that's actually even more pronounced coming out of the pandemic. But we're seeing that return to normal seasonality. So for the full year, we're right on track. We're super excited, as we talked about, with really some of the key investments coming to fruition with Cervical, with our focus on Aleph, the eve of launching Pulse, and, you know, as we continue to see our international business really just produce really strong results. So, Matt, I don't know if you have anything to add on that.
spk10: Yeah, no, Chris, the only other thing I'd add is that, you know, from a net sales perspective, I would say we're looking at the third quarter to be likely in kind of the low 300s. But really, nothing has changed. It's just kind of an inner quarter change that we're seeing here. You know, we've been saying since February that we're going to be plus or minus against $1.2 billion. And obviously, in the guidance we provided today, we still feel very confident that that's a good range for us to deliver on on a full-year basis.
spk11: Thank you. Our next question is from Joanne Wench with Citi. Please proceed.
spk14: Good afternoon, and thank you for taking the question. I want to spend a little bit of time on Pulse. With the CE mark approval in June, it sounds like you're looking in your term for the 510K in the U.S., but also how you're thinking about rolling out into those six countries and then into a more fulsome launch. Thank you.
spk18: Thanks, Joanne. Thanks for the question. Listen, number one, we're very excited about the Pulse system, We did receive CE mark earlier, and we've been in doing, as we talked about, clinical evaluations in six European countries. We are, to your point, we're literally waiting day by day on the FDA 510K approval. That will then kick off evaluations that we'll schedule for the U.S. market. As we roll it out, it's really going to be relegated on phase one, I would say, with Western Europe and the U.S. We feel like we've got good demand. We've got good line of sight to delivering what we say we're going to deliver. You know, I said all along with Pulse that we're being disciplined on how we roll it out. You know, we're making sure that we obviously have been building a pipeline to sell the product. We've been building flexibility and a portfolio of options to offer our customers. We want to make sure we in-service appropriately and install the system to actually do what we've talked about, which is participate in 100% of spine cases. So we're being very disciplined, but we feel very confident in how we roll the product out and what it represents for us going forward. From there, we'll start to move into other regional geographies over the 2022 and beyond. But as we look forward over the course of this year, really into Q4, we're Rolling through Q3 with clinical evaluations and looking to fully start to commercialize in the Q4 timeframe.
spk11: Thank you. Our next question is from Josh Jennings with Cowan. Please proceed.
spk02: Hi, thanks. Good afternoon. I wanted to follow up on Paul's question. Some of our checks with surgeons that have attended these training sessions have implied that they've gotten some I've been introduced to Pulse, the latest generation of Pulse, and there's a little bit of buzz created, especially around the invasive loyalist surgeons. I was wondering, how much are you able to train surgeons on Pulse here pre-approval and maybe just give an update on the U.S. demand funnel that's being created here? Thanks for taking the question.
spk18: Thanks, Josh. I appreciate it. And, you know, we have gotten, I think we talked about this in subsequent calls, the latest iteration, one of the things that we're excited about, you know, we believe really hit the mark, and it's been echoed through the voices of our customers that have come in. We are limited. We can't fully train on the technology in the U.S. until we get 510K approval, but we've had people in the lab setting, test driving, and seeing how the product performs. More recently, we have been in the clinical setting in the European market, and it's further validated exactly what we've seen in the lab setting in the U.S. So we're excited. We're waiting on FDA approval. We're ready to go with our training in the U.S. to start that process quickly. We've got our testing sites established, and as soon as we get that 510K, we'll be moving into clinical evaluation in the U.S. There was a cadaveric study that recently came out that I think really showcases the power of the system. It basically measured efficiency, accuracy, and safety. And one of the things I've talked a lot about is, you know, the value of pulse. And I said in my prepared remarks, it's not just a navigation system, but an integrated system that provides a host of application. And it's shown in the fact that, you know, first traditional fluoroscopy, which I would remind you, you know, 75% of cases are still done with traditional fluoroscopy. It showed significant faster screw placement. It showed significantly better accuracy, and it also showed with the integration of LesRay in the technology or in the platform a significant reduction of horoscopy to the staff and to the surgeons. So I think the first two really represent how this would line up against the traditional way to do surgery. I think that last one's critical when you look at the incumbents, that 25% of the market that's occupied by competitors. We believe the system and what's integrated in the application within Pulse truly differentiate us. So we're excited. We're moving quickly. We're doing it the right way and clearly waiting on the FDA, but we feel very, very confident that we're within days of getting that 510K approval.
spk10: Josh, the only other thing I'd add to that, because you had asked about demand, We feel good about that 5 million. We feel good about the demand. But I'll just echo what we've been saying now for a number of months, which is the lion's share of the net sales that we're anticipating in the 5 million number that we put out there is going to come from the U.S.
spk08: market. But there are a few of them in Europe.
spk11: Thank you. Our next question is from Matt Mixick with Credit Suisse. Please proceed.
spk13: Hey, thanks. Good afternoon and congrats on a really strong quarter. I'll just ask maybe one question about the environment and sort of what you're seeing across different regions. You know, we've heard a lot of different types of comments from the folks that have reported spine business metrics so far and things like, you know, deferrable, more deferrable, maybe more affected by variability across the country. but your U.S. numbers look really strong and sequentially improved, as you're describing, and just wondering what, if anything, that you are seeing in terms of variability across the U.S., pockets of strain, areas of weakness, any effect of Delta, and any color you'd provide overseas would be super helpful. Thanks.
spk18: Thanks for the question, Matt. I'll get to the Delta last, the Delta question. I think that's something that's kind of playing out as we speak, but Generally speaking, we saw, and one of the things we were encouraged by, was more uniformity in the market in the U.S. specifically during the quarter. And I say uniformity. I'll say that with the context that we saw sequential improvement April to May to June. So sequential improvement and more uniform volumes coming out of the U.S. So I'd say that gave us good confidence that we're sort of past the pocketed areas. Now, you know, I'll hold my breath on will that change. hold through the quarter based on what we're talking about with the Delta variant. But in the international markets, it's still a little bit choppy. In the European market, you know, the UK is still a little bit sluggish. So we're still watching certain countries. Asia-Pac has been a real strength for us, specifically in Japan, with a little bit slower laggard in some of the Asia-Pac countries and in Australia and New Zealand. But So I would just say in general, more uniformity in the U.S., still a little choppiness international with some real standouts like Japan and some key European countries. We're still moving forward. Now, the Delta variant, I think, creates a bit of a concern, I think, for everybody. I do believe that the market is more equipped to manage. I think the big question is, well, patient sentiment matters. uh, play into any deferrals of procedures. And maybe that's what your original part of your question was. Do we see any, you know, is, is spine more, uh, exposed to deferrals than maybe hips or knees? I don't really have a great answer for you there. Uh, we, we clearly saw a pretty quick shutdown during the COVID situation. We saw a pretty quick return, uh, But certain pockets were a bit sluggish. So I think time will tell. We're hopeful that we move past the Delta variant and move back into more normal business as we go through the next several weeks and months.
spk11: Thank you. Our next question is from Rich Newiter with SVB Learing. Please proceed.
spk06: Hi. Maybe I'll just squeeze two quick ones in. The first is... You mentioned the training demand or the demand for training on XB6, a very encouraging data point there, exceeding 2Q 2019 levels. And that was a very high watermark for you where growth is accelerating in the business. I'm curious what the timeframe is between training and actually getting to adoption and what is the time gap for the lead time there? And then the second question, Can you walk through the puts and the takes in between recovery that's anticipated in the back half, normal seasonality, what you called out, and then abnormal vacationing that you also called out at the same time, and backlog worked out? I'm just trying to figure out what's contemplated into your back half guide there amongst those pushes and pulls. Thanks.
spk18: Thanks, Rich. I'll take the first one. I may have Matt help me a little bit on the second one. On the training – We usually look at a one or two quarter turnaround on when we see training really result in adoption. We track everything pretty closely. But we're in the process of ramping up. Our campus is lively again on Fridays and Saturdays, which is a great thing to see. And so under historical rates, we look over the next couple quarters for that to really start to then result in adoption of the key technologies. I would just say it isn't just X360 we're training on anymore. It's also C360. It's Simplify. So we've got a multitude, and I've talked a lot about multiple vectors of growth, and now fully playing in the broader spine market, inclusive of the $2.6 billion global cervical segment, And then, obviously, as we move into the next several weeks and months training on our Pulse system, you know, we think it gives us a unique opportunity to take advantage of the opportunity we see now within the broader portfolio. As far as what the puts and takes are, let Matt share that one.
spk10: Yeah, happy to answer. Thanks for the question. I would say, look, June, as Chris mentioned earlier on a previous question, we saw a lot more uniformity. And so we kind of feel like we saw some volume there. in June that we had kind of forecasted back in the late April, early May timeframe when we did our last call. We kind of were thinking it was going to happen more in the third quarter, but we started seeing it kind of manifesting itself in June because of the uniformity. And so that's why I said earlier, we're thinking that the third quarter will be in the low 300s. That's great because if you think about it, if you're comparing to 291, from 2019, that kind of gets you in kind of the mid-single digits range that, you know, pre-COVID we saw. And then as you're getting into the fourth quarter, what you're getting is continued underlying strength in the business, and then you add in Simplify, you add in Pulse, you're getting more out of C360. And generally, the fourth quarter, when you don't have a pandemic going on, is typically our strongest quarter as well. So, That's why we really feel confident and have since February around this $1.2 billion range. And obviously, the guidance range of $1,190,000,000 to $1,210,000 puts you squarely with what we've been saying all along.
spk11: Thank you. Our next question is from David Saxon with Needham. Please proceed.
spk07: Yeah, thanks for taking the question. I guess just wondering if we can get some more color on each of the businesses. I mean, it sounds like international, despite the choppiness, should grow double digits year on year at least. But just wondering if you could give some color on the domestic business and specifically for surgical support. I mean, that's tracked below 2019 levels. So in the back half relative to 2019, do you think that that can grow? And if so, maybe what can drive that? Thanks so much.
spk18: Thanks, David. Thanks for the question. I'll start with sort of the domestic international split on the hardware side, then I'll move to surgical support. But we've sort of covered some of this, but we feel there's more uniformity and more predictability in the U.S. market, and that coupled with the fact that the key launches and the key areas of focus that we've developed over the last couple of years are really coming to market. The cervical portfolio, our pulse system, our focus on continuing training and defending our leadership position in the anterior lateral space, our growth of ALIF, all brings us into a stable market environment in the U.S. International, we're still very bullish on. You know, we're hitting our stride with still certain markets that are still sluggish and having impact of the pandemic. So we feel very good about the domestic international segment. As far as social support, we've been challenged on the NCF side. If you look back at 19, we had ran some pretty solid numbers on billing and collections, so we're running against a bit of a tough comp in the back half. That coupled with that business really grows with the rate of market and has been a bit of a laggard to return for us. So it's going to be a bit of a drag for us in the back half. As far as NSO, we've had some product-related issues that we had to resolve. The good news is we're resolving those as we speak. That's been a bit of a drag. We expect that to come back. It's a function of timing of when that really comes back for us, all of which are contemplated in our guidance. So there's nothing I'm saying within any of these overview of these businesses that materially detract from anything we've said. They're all contemplated in what we've said, and we feel very confident in our ability to overcome any of the drags that we may see and take full advantage of the opportunities I spoke of.
spk11: Thank you. Our next question is from Kayla Crum with Truist Securities. Please proceed.
spk16: Hi, guys. Thanks for taking our questions. So just to simplify, you know, you said I think you generated about 2 million in Q2. You're expecting only 5 million for the full year because of manufacturing issues. So, I mean, do you think that these manufacturing issues will be over by the end of this year? And if that's the case, I mean, how big of a product, you know, could this be next year? I mean, it's something, you know, 25 to 30 million, you know, totally off the table. Just would love to get your thoughts on it longer term. Thank you.
spk18: Thanks, Kayla. I just let me always find it interesting to answer some of these questions, but I just want to make sure that we level set. We just purchased this technology this year, but the first case of this was done in December of 2020. I just want to make sure that we're clear. We don't have manufacturing issues. It's just ramping up and transitioning the manufacturing capability that the company had versus integrating what we're going to do with it. So it's all about transitioning the manufacturing to West Carrollton, which is a PMA product which has some complexities to it. We're, as we speak, working diligently. I'm very hopeful to be able to give a different answer to the $5 million question this year and be more clear on what the numbers will look like next year. I can tell you we're selling as much as we can make right now, and our supply, our demand, I should say, well outstrips our current supply. And as I sit here today, we haven't transitioned to West Carrollton, but we're in the process of making that happen. There are some hurdles and some milestones we have to achieve in order to make that happen, but we're very confident in the $5 million. I'm hopeful if we can move past those milestones in Q3, we open up upside for us potentially in the Q4 timeframe. That leads us into next year. I haven't commented. I know there's been a lot of speculation, but I don't think your numbers are too far off what's possible. We've got to execute. We've got to get our training education in order, which we're doing as we speak. We've got our manufacturing in order, which is the long pole in the tent. But having said all that and assuming we're going to do all that, I think we're within reason to think this could be a really big product for us in the next couple years.
spk10: Yeah, Caleb, the only thing I'd add to your question, just to put a finer point on, I think Chris covered it, but to be crystal clear, the $2 million is really a signal of just how strong the demand is in the marketplace for this product. And so once we work our way through these supply issues, we know we've got good demand out there and That's why we're so excited about the acquisition and where we can go with it.
spk08: Thank you for the question.
spk11: Our next question is from Kyle Rose with Mechanicorps Genuity. Please proceed.
spk12: Great. Thank you very much for taking the question. I wanted to see if you could touch just a little bit more on the strength or seed in cervical and maybe kind of Help us understand what the customer base looks like there. I guess what I'm really trying to understand is can you convert entirely new customers with C360 such that you can then cross-sell some of the more complex, higher ASP-type products? Or is C360 really more about just capturing that incremental dollar from the existing NUVA customers?
spk18: Thanks, Kyle. I appreciate the question. The simple answer is, yeah, we believe we can reach a whole new customer subset with C360 that hasn't necessarily been interested in our business in the past. If you think about it, we've been more of a thoracolumbar space leader, and many surgeons that we speak to or that are doing these cervical cases are highly specialized in treating cervical spine. So we believe and we're seeing that come through in some of the training and education engagements that we've had of people that aren't familiar with NuVasive become now interested in where we're going. And that's a testament not only to the Simplify acquisition, but just the investment we made to really overhaul our entire cervical portfolio. You know, I can't stress enough, the ACP plate, the anterior cervical plate that we've launched and the benefit that actually creates by being the thinnest plate in the market, extending our posterior fixation system now to Reliance C, and just the investment that represents to what I consider to be a space that has not had a ton of innovation in the past couple of years, maybe the past several. It's truly creating a new interest for us, and this is exactly what we were hoping for by investing in the space. And this is a reminder, you know, Cervical is a $2.6 billion global market opportunity. You know, if you look at the entire anterior space, it's $900 million, and the posterior space is $1.6 billion. Winning for us in cervical represents a tremendous growth opportunity for us over the next several years. So we're excited, and we're excited to meet these new folks that are coming in interested in our cervical portfolio.
spk11: Thank you. Our next question is from Anthony Petron with Jefferies. Please proceed.
spk01: Great, thank you very much. Apologies, just hopping between calls. I'm just going to stay on cervical for a moment and try to just tie the knot between the $2.6 billion opportunity you call out globally for cervical. I'm just wondering, the current C360 portfolio, Is everything in that portfolio at this point to tackle that global opportunity? And then the follow-up there would be on the Simplify Level 2 FDA clearance. How much specifically is that motion management piece of it in the U.S.? What percent of motion management constitutes the $2.6 billion? Thanks a lot.
spk18: On the $2.6 billion segment, I would say our portfolio is fully integrated. fully equipped now to go completely out to that market. We have the full instrumentation set, we have the implantables, we have the posterior fixation, and now we have the total disc replacement with the simplified disc that we believe fully equips us to take full advantage of that market opportunity. On your second piece of that, I'm sorry, just trying to remember what you said, on the two-level indication, listen, it represents a Maybe a lower percentage of what's being done, but a lot of the surgeons we're interacting with don't want to use two different discs for a single level or a two level. So we think it plays heavily. There's only two other companies out there that have a two level indication. So we're walking through that now with trying to understand what is the percentage that do a two level CTDR versus a single level. But what we're finding is it's meaningful for us to have that indication with the eyes of our customers. So we think it's important. We think it puts us in a very unique position. And, again, going back to the value of Simplify, really striking, that technology striking the balance between mobility and stability with that two-level indication not only gives us the two-level indication benefit versus all other disks, it also gives us benefit over the existing competitors that actually have the two-level indication. So we're excited. We're obviously excited. talking about getting our supply up to meet that demand, but we feel the demand is there.
spk11: Thank you. Our next question is from Matthew Blackman with Stiefel. Please proceed.
spk00: Good afternoon, everyone. Thanks for taking the question. I was hoping you could talk to the procedure mix you saw in the quarter. I was curious if it was skewed in any direction, either to higher revenue-generating procedures or perhaps to more straightforward cases. And as we think about the second half of the year, do you think there's opportunity for any mixed tailwinds as you claw back more of these deferred procedures, some of which, as we've talked to clinicians, may be disproportionately more complex and therefore higher revenue per procedure opportunities? Thanks.
spk18: Thanks, Matt. I don't know that we necessarily – I mean, let me go back. During the pandemic, I think we saw – some lag with some of the more complex procedures based upon the fact that there was health care scarcity, if you will. There were limited ICUs or limited hospital beds. And so there may have been a deferral of more complex cases that had a more acuity associated with them. That mix shift, I think, sort of evaporated for us earlier in the year. And we saw, although lower volumes, more consistency and more historical mix. That hasn't necessarily changed. So I don't necessarily look for more complex cases to come back into the skew. There are seasonality. There's seasonality to our mix. You know, kids that are on break, specifically in the PEDS segment that are doing high-level deformity or early scoliosis cases happen in certain parts of the year, over the Christmas holiday or the end of the summer or the beginning of the summer. Things like that are normal seasonality, and that's kind of what we're seeing. So I... We'll keep a close eye on it, but I don't expect any massive mix shift or either detriment or benefit to an anomaly in the mix over the course of the year.
spk11: Thank you. Our next question is from Drew Ranieri with Morgan Stanley. Please proceed.
spk17: Hi, Chris and Matt. Thanks for taking the question. Chris, earlier in the year, you talked about two emerging growth opportunities for the company. One was just approaching hospital administrators kind of as the company expands the portfolio and the second on the ASC. But just on the hospital administration side, kind of as you're entering the back half of the year with Pulse, What's your confidence level on being able to approach hospital administrators increasingly so? And then with the ASC setting, anything new to offer up there? I think that you're bringing in some new leadership maybe earlier in the year, but any update would be appreciated. Thank you.
spk18: Thanks, Jerry. Thanks for the question. Listen, one of the things that we've talked a lot about is establishing these multiple vectors of growth to become more outside of just the surgeon, but become more to the hospital. We've invested in new capabilities throughout the organization to complement our increasing portfolio. We were selling to degenerative surgeons doing lateral cases. Now we can sell the entire X360 portfolio. We're leading now in driving our ALIF portfolio. We've got a full gamut of cervical opportunities or portfolio options. We've got a navigation system embedded in a pulse platform that also provides things like less ray, rod bending, you know, interoperative connectivity, all the things I spoke about earlier in prepared remarks, and on the horizon, a robotic opportunity. So we think that elevates our opportunity and our value proposition to hospital administration. I think we have to bring these technologies to market first. So I think our first step is happening as we speak. But we have, in the process of building the portfolio, invested in capital sales leaders. We've invested in an ASC leader. We've continued to bolster our corporate accounts or national accounts capability to start to become proficient in selling at the C-suite and really, really, really transitioning the value proposition evasive from just a great portfolio to help a surgeon and a patient to truly a value driver for the hospital system. So we're on our way to taking advantage of that opportunity, but I would say we've got to walk before we can run, and step one is launching these technologies and showing success over the next couple quarters.
spk11: Thank you. Our next question is from Craig Bijaud with Bank of America. Please proceed.
spk19: Good afternoon. Thanks, guys, for taking the questions. Just had a couple quick ones on technology. Pulse, so most of the $5 million that you guys expect this year is going to come in Q4, as you said. So is that a good way to think about the quarterly revenue run rate from Pulse going into 22 and then maybe assume some sequential growth there? And then secondly on Pulse, just wanted to get any update on the robotics platform on timing there.
spk10: Yeah, great, Craig. I'll start with your first question. I'll turn it over to Chris to talk through robotics timing. No, the 5 million really is kind of a base, I would say. Obviously, we're in launch phase, so that would not be a good number to use as a run rate into 2022. Obviously, we are just in the initial phase of launching in Europe, and we're waiting to get approval here in the United States before the end of the summer. So it's a bit premature for us to kind of throw numbers out there as it relates to 2022, but do not use the 5 million and use that as a run rate into next year. That would be very conservative from our perspective.
spk18: And I'll take a shot at the second one. On the robotics side, really no change to what we previously communicated. The timeline, the targeting is still in the 2022 timeframe for our first in human. We're building out, continue to build out capabilities on the R&D side. continue to hire roboticists and continue to evaluate our timeline. And we've established milestones and we're looking towards moving into the phase where we're looking at regulatory approvals. But we're right now continuing to build out that platform in the process of launching out the Pulse platform, which again will house the robotic technology. We look at robotics as the next application of PULSE. So getting PULSE out, getting that system integrated, getting that system installed, getting that system used in 100% of spine cases, we think provides a tremendous launching ground for us to then introduce a robotic application. So no changes to what's been previously communicated. We'll continue to update you in subsequent quarters as we make progress.
spk11: Thank you. Our next question is from Matt Taylor with UBS. Please proceed.
spk03: Hello, thanks for taking the question. I actually wanted to ask one on, Matt, you had the reversal of the voluntary ship hold, and I was just wondering if you could characterize what impact that could have or maybe what hold that had when you were off market as you bring it back in the second half of the year?
spk10: Yeah, Matt, very simply, it does create some volatility in the third quarter, but everything was taken into consideration in the $1.2 billion, plus or minus the $1190 to the $1210 that we put out today, our formal guidance, if you will. So the numbers that I've put out here on this call are consistent with how we view that unfolding.
spk18: Yeah, I'll just say on that, Matt, you know, we've seen product availability challenges with that business, but pleased with the work we've done with the FDA. help make the magic system available. These are very high-risk patients. And so we're excited, the fact that we're now focused back on supporting our surgeons with case demand. However, it will probably take some time to bring this back to full product capability, fully to market. And we're still obviously working from an international perspective with other global regulators to do the same. But all in all, as Matt said, it's contemplated in our financials, and we feel like we're on track.
spk11: Thank you. Mr. Berry, there are no further questions at this time. I would like to turn the call back over to you for closing comments.
spk18: Thanks, Joe, and thanks, everyone, for joining us today. I just want to thank everyone for participating. Guided by a long-term strategy, I truly believe we'll continue to drive diligent performance across our business and deliver innovation that benefits our surgeon partners, health care providers, and most importantly, patients around the world. I look forward to speaking to you all again next quarter. Thanks.
spk11: This concludes today's conference. You may disconnect your lines at this time. Thank you very much for your participation. Have a great day.
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