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spk13: Good day, ladies and gentlemen, and welcome to NuVasive's second quarter 2022 earnings conference call. I would now like to introduce your host for today's conference call, Ms. Juliette Cunningham, Vice President of Investor Relations at NuVasive. Please go ahead, Ms. Cunningham.
spk12: Thank you. Good afternoon, everyone. Joining me today are Chris Berry, Chief Executive Officer, and Matt Harbaugh, Chief Financial Officer. Chris will provide an overview of NewBase's second quarter 2022 business results and trends, as well as innovation highlights. Matt will review our detailed financial results and full year 2022 outlook, and then we'll host a question and answer session. The earnings release, which we issued earlier this afternoon, is posted on the IR section of our website and has been filed on Form 8K with the SEC. We have also posted supplemental financial information on our IR website. As a reminder, this call is being recorded and an archive will be available on our website later today. Before we get started, I'd like to remind you that our comments during this call will include forward-looking statements, which are based on current expectations and involve risks and uncertainties, assumptions and other factors, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. The factors that could cause actual results to differ materially are described in evasive news releases and periodic filings with the SEC. Except as required by law, we assume no obligation to update any forward-looking statements or information which speak as of their respective date. In addition, this call will include certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP financial measures are included in today's earnings release and the supplemental financial information, which are accessible from the IR section of Nuvasiv's website. And now I'd like to introduce Chris Berry.
spk10: Thank you, Juliette, and good afternoon, everyone. Earlier today, we reported second quarter 2022 financial results. On today's call, I will review our performance for the quarter, share our progress on delivering multiple vectors of growth, and provide an update on our innovation roadmap and how we believe it uniquely positions NuVasive to disrupt the future of spine surgery. After that, Matt will provide additional financial details on the quarter and commentary on the remainder of the year. Nuvasa delivered second quarter 2022 net sales of $310.5 million, an increase of 5.3% on a reported basis or 7.8% on a constant currency basis compared to the prior year period. In spite of a challenging backdrop of macroeconomic and market pressures, we saw procedural volumes increase over the prior year period and continued surge in demand for existing innovation and new product introductions. This is reflected in our performance in both the US and international markets. Within our international business, we delivered another strong quarter of net sales, resulting in double-digit growth on a constant currency basis led by Europe and Latin America. In Asia Pacific, where COVID-19 challenges were most acute, we saw growth in the region led by Japan, where we continue to see strong execution by our team. U.S. spinal hardware delivered low single-digit year-over-year growth, driven by continued growth in the X360 portfolio, led by the X-ALIF procedure, and strong demand for the C360 portfolio, led by the simplified cervical disc. Our U.S. surgical support business performed well in the second quarter, supported by pulse platform net sales. This was offset by a decrease in biologics, driven by a shift in case mix and lower attachment rates in the quarter. We're proud of our history as the leader in spine innovation, with Spine's most comprehensive portfolio of procedurally integrated solutions. As we continue to integrate our industry-leading procedures with Pulse, we're well-positioned for continued growth. In addition to new Pulse sites going live in the United States, we achieved numerous key milestones with Pulse in the second quarter, including over 100 Pulse cases in early sites both in the US and Europe, Our first Pulse case is in Italy, as well as our first Pulse case for pediatric scoliosis. Driving clinical utilization and adoption is key to the near and long-term success of Pulse. The Pulse software ecosystem integrates multiple technologies into a single platform and can be utilized in 100% of spine surgery cases. Unlike other enabling technology systems on the market, Pulse provides surgeons a seamless and efficient workflow through integrating 3D navigation, neuromonitoring, radiation reduction, imaging enhancement tools, patient-specific rods, and global alignment planning. A recent study published in Scientific Reports found that PULSE outperformed two other common imaging and navigation systems with respect to screw placement accuracy. Notably, PULSE with CO-SPIN from Siemens Healthineers was significantly more accurate than Stealth with ORM. We continue to make progress building out the broader Pulse ecosystem, and its extensible software architecture allows for the integration of current and future innovation. The future of spine care will not start and stop with intraoperative surgical procedures, and we remain committed to leveraging the power of Pulse to extend from preoperative to postoperative spine care. Another key strategic growth driver for our company is cervical. which delivered greater than 20% growth in the US for the third consecutive quarter. Surge in interest in the C360 portfolio, and specifically the simplified cervical disc, remains high. The simplified cervical disc achieved multiple milestones in the second quarter, including first cases in Switzerland, Austria, the UK, and most recently, Australia. We're taking share and will continue to do so with the industry's most clinically effective cervical total disc replacement. To further enhance the C360 portfolio, which currently features an invasive ACP system with advanced material science interbodies and the simplified cervical disc, we remain on schedule to introduce Reliant Cervical Discorder. Reliant Cervical, our next generation posterior cervical fixation system, is fully compatible with PULSE, and integrates with our Thoracolumbar Relined Portfolio. This creates a single, comprehensive, posterior fixation system to seamlessly treat pathology from the occiput down to the pelvis. With yet another new product introduction joining the C360 portfolio, we continue to target and take share in the $2.6 billion cervical subsegment. As the leader in less invasive spine surgery and in support of our multiple vectors of growth, we remain focused on new product introductions in international markets. In the $900 million anterior subsegment, surge in demand remains high for the X360 portfolio. Within our advanced material science portfolio, we continue to introduce our market-leading inner bodies in key markets around the globe. Modulus ALIF commercially launched in Australia in the third quarter of 2021. and we've seen significant growth in that market. Modulus XLIFT commercially launched in Japan in the second quarter, and we have performed nearly 500 cases to date. In addition, we received FDA clearance in Q2 for MODX XLIFT, our next generation expandable interbody for lateral procedures. Our R&D team continues to leverage our proprietary 3D printed porous modulus technology to other expandable inner bodies and procedures. And we remain on schedule to launch the new invasive tube system later this year. Our new tubular attractor system will be the company's first tube system and a key addition to our comprehensive portfolio of solutions to support less invasive posterior procedures. Late last year, we welcomed the return of Precise titanium products from Nuvasys specialized orthopedics in key global markets. Surge in demand and patient interest for Precise remains high, and we anticipate continuing to benefit from the product's return as we look to the back half of 2022. In support of international growth and to further our industry-leading clinical professional development program, we held a ribbon cutting for our new Singapore Experience Center in June. The new center features a dedicated pulse demonstration site to provide hands-on experience with the platform, educational training rooms with advanced cameras and streaming capabilities for virtual learning, and a technology rotunda with the ability for live and virtual demonstrations of our procedural offerings. Our vision is bold, to change a patient's life every minute, and our purpose remains unchanged, to transform surgery, advance care, and change lives. Like many companies around the globe, we're not immune to the challenging macroeconomic and market pressures. However, we are making progress on our commitment to deliver multiple vectors of growth through extending our leadership position in less invasive surgery, taking share in subsegments where we historically had underrepresented market share, delivering on our enabling technology roadmap, and driving continued growth in our international business. The future of spine surgery will not be solved with a new inner body or procedure. It will be defined by improving patient selection, selecting the right procedure in the most appropriate surgical setting, creating a patient-specific surgical plan, utilizing enabling technology for interoperative execution, and enabling postoperative outcomes management for the patient, the surgeon, and provider. As a company, this is our focus. We're building upon our industry leading procedurally integrated solutions and deep know-how to redesign the future of spine care. In closing, we're excited about the opportunity before us and believe that Nuvasiv will make surgery more intelligent. This in turn will fundamentally change the quality of care patients receive by providing smarter and more clinically validated tools to surgeons. Simultaneously, This will unlock value and support our progress against our vision to change a patient's life every minute. I'll now turn the call over to Matt to discuss the company's financial results in more detail.
spk07: Thank you, Chris, and good afternoon. Today I will provide an overview of our second quarter 2022 financial results and drivers, as well as update you on our full year 2022 outlook. Our detailed financial results have been provided in today's press release. During my remarks, I will be discussing both GAAP and non-GAAP measures and refer you to our press release for GAAP to non-GAAP reconciliations. I'll begin with worldwide net sales. Our second quarter results reflect strong net sales growth compared to the prior year period, as well as sequentially. That said, our bottom line results were pressured by macroenvironmental issues, including inflationary costs, supply chain delays, volatility of foreign exchange rates, and the ongoing impact of COVID. I will provide greater detail on these challenges as we dive deeper into our results. Importantly, procedural volume remains strong and we continue to execute well on our new product introductions. Second quarter worldwide net sales were $310.5 million, an increase of 5.3% as reported and 7.8% on a constant currency basis. compared to the prior year period. This growth was driven by higher procedure volume and continued positive momentum from our new product introductions, including the Pulse platform and our C360 portfolio led by the Simplify Cervical Disc. International sales of $73.6 million in the second quarter demonstrated continued strength with double digit constant currency growth compared to the prior year period. These results were driven by Europe, Latin America, and Asia Pacific, particularly in Japan. NuVasive Specialized Orthopedics, or NSO, also contributed to international results, driven by strong demand for our precise titanium products, which returned to market in late 2021. Turning now to U.S. net sales by product line, U.S. final hardware net sales were $165.1 million in the second quarter of 2022 representing a 3.1% increase over the prior year period. Cervical grew more than 20% for the third consecutive quarter. This performance was led by our C360 portfolio, specifically the Simplify Cervical Disc, which continues to experience strong surge in demand. U.S. surgical support net sales were $71.8 million in the second quarter, an increase of 6.2% driven by pulse sales. Moving to operating results, non-GAAP gross profit in the second quarter was $224.7 million compared to $217.1 million in the prior year period. The year-over-year increase was primarily driven by higher procedure volume. As a percent of net sales, non-GAAP gross margin was 72.4%, a decrease of 120 basis points compared to 73.6% in the prior year period. The year-over-year decline was primarily driven by pricing pressure that was once again in the low single digits, partially offset by a decrease in inventory charges in the quarter. Second quarter 2022 non-GAAP operating expenses were $184.2 million, an increase of 4.6% compared to $176.2 million in the prior year period. The year-over-year increase was primarily driven by variable expenses on higher net sales, freight costs, and our continued investment in R&D to further our core spine and enabling technologies product portfolios. Increased costs due to inflation negatively impacted several expense areas, including fuel surcharges on freight shipments, increased travel costs, and higher compensation costs. Non-GAAP other income and expense was $8.4 million of expense compared to $1.7 million of expense in the prior year period. The increase was primarily driven by unrealized foreign currency losses in the second quarter of 2022. During the quarter, a number of foreign currencies weakened against the U.S. dollar. Second quarter 2022 non-GAAP operating margin was 13%, a decrease of 90 basis points from the prior year period. The year-over-year decline was primarily driven by lower gross margin, continued R&D investments, and higher costs due to inflation. Non-GAAP tax expense in the second quarter of 2022 was $7.2 million compared to $8.1 million in the prior year period. Our second quarter 2022 effective tax rate was 22.5%. On a GAAP basis, we reported a net loss of $900,000 or diluted loss per share of two cents in the second quarter of 2022 compared to net income of $1.8 million or diluted earnings per share of three cents in the prior year period. Included in our GAAP results for the second quarter were unfavorable impacts of foreign currency exchange fluctuations of approximately $25 million associated with the weakening of the Australian dollar against the U.S. dollar principally related to our 2021 acquisition of Simplify Medical. On a non-GAAP basis, we reported second quarter net income of $24.8 million or diluted earnings per share of 47 cents compared to net income of $31.2 million or diluted earnings per share of 60 cents in the prior year period. The year-over-year decrease in non-GAAP earnings per share was primarily driven by unfavorable currency exchange rate fluctuations. Notably, FX accounted for approximately six cents of negative EPS impact during the second quarter of 2022. Free cash flow for the second quarter of 2022 was $26 million versus $19.3 million in the prior year period. The increase was primarily due to increased operating cash flow offset by continued investments in our capital expenditures to support our net sales growth and new product launches. As of June 30, 2022, we had cash and cash equivalents of $226 million. Our $550 million revolving credit facility remains undrawn. Now I'd like to provide our current perspective on the state of our business for the second half of 2022. Stepping back for a minute, When we shared our full year 2022 financial guidance in late February, we issued a range that was wider than what we would have provided historically, given the many uncertainties surrounding the macro environment, including inflation, currency fluctuations, supply chain, COVID, and geopolitical issues. As a reminder, based on our strong first quarter results in May, we raised the lower end of our non-GAAP net sales growth range from 6% to 9% to seven and a half to nine and a half percent on a constant currency basis. However, we purposefully did not change our non-GAAP operating margin guidance range of 13 to 14 and a half percent due to these macro environmental uncertainties. Unfortunately, the macro environment has remained uncertain and we can reasonably expect these pressures to continue. On the positive side, procedure volumes are healthy and we are executing well on our multiple vectors of growth strategy. We're seeing continued success with our new product introductions, especially with both the Simplify Cervical Disc and Pulse. In addition, we expect low to mid double digit growth in our international markets. Taking into account current macro conditions, we have updated our full year 2022 financial guidance accordingly as follows. We reiterated our full year guidance for reported net sales growth of six to 8% compared to 2021. We updated our GAAP diluted earnings per share guidance from a range of $1.05 to $1.35 to a range of 95 cents to $1.25, reflecting current foreign currency expectations. And finally, we maintained our prior non-GAAP diluted earnings per share range of 215 to 245 that we provided on May 4, 2022. We are working diligently to navigate and manage the macro environmental challenges that we face. We remain confident in the underlying health of our business, our continued strong cadence of new product introductions, and the many opportunities that lie ahead. Now I'd like to ask the operator to please open the call for questions.
spk13: At this time, we'll be conducting a question and answer session If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. We ask that you limit your questions to one so that others may have the opportunity to ask questions. You may re-enter the queue by pressing star one. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from Josh Jennings with Callen. Please proceed with your question.
spk05: Josh Jennings Hi. Good afternoon. Thank you for taking the question. I wanted to ask on Pulse and primarily I'm curious about realizing it's still early days, but are you seeing increased utilization and pull-through of NUVA spinal hardware in your initial PULSE accounts, and how is that trending? And sorry, this is one question on PULSE with two parts. I mean, any updates on the robotic module development program?
spk10: Hey, thanks, Josh. Thanks for the question. So, yeah, we're early days on PULSE. The goal is obviously getting broad utilization. We've got a limited number of sites, but encouragingly, we are seeing some pull through. We look at those sites compared to the base business of other sites. So simple answer is we are seeing pull through. Now, putting a magnitude on that at this point is probably a little early, but the fact is it seems to be a stickiness that we've been looking for and are hoping for, at least the initial placements of the technology. Yeah, robotic, as we talk about Pulse, we've always talked about the fact that we want it to be really a suite of technology. Obviously, it incorporates all the different technologies I mentioned in some of the prepared remarks. Robotics will be a part of that. We continue to make progress on the robotic development. No updates at this point on timelines, but good progress, and we look forward to really equipping Pulse with a robotic module as well as many other technologies in the near future.
spk05: Understood. Thank you.
spk13: Our next question comes from Vic Chopra with Wells Fargo. Please proceed with your question.
spk02: Hey, good afternoon, and thanks for taking the questions. So I guess one first question I had was pricing. Can you just talk about how pricing was in the quarter, and what's your ability to take price in this inflationary environment? And then I had one follow-up. Thanks.
spk07: Yeah, Vic, this is Matt. Thanks for the questions. Pricing was kind of in line with what we've seen before. Obviously it is a headwind for us, but it was in the low single digits, which is very normal. As far as taking price, difficult to do it on products that have already been introduced, but obviously we're thinking about it as we bring new technologies to the marketplace, whether we need to be more aggressive on pricing.
spk02: Great. And then just one follow-up. You know, just on procedure volume, can you just talk about what impact you've seen in Q2 from hospital staffing shortages? Thanks so much.
spk10: Yeah, thanks for the question, Vic. We still see it. You know, the interesting thing is we're seeing procedures schedule, and then we see procedures cancel from time to time. And that could be staffing-related or it could be patient-related, somebody tests positive. So it's still really choppy and lumpy. We saw good volume. But a lot of that had to do with the fact that we really entered in markets that we didn't really have any business in, very, very low share like cervical. So even with some of the downward pressure, we saw good volume growth, but we also saw a bit of mixed pressure there as well. So some of the complex cases were a little pressured. Some of the thoracolumbar where we have high share, a little pressure there, still flattish, but pressured. And then areas like cervical where we think we're taking a lot of share, we saw those volumes are really high. So mixed bag, but overall we felt good about the volume that we saw in the quarter.
spk07: Yeah, and I would just add globally, we were really pleased with the results in our international businesses as well. We've said all along, low to mid-double digit growth, and they were squarely in that zone. So another good quarter for our international team as well.
spk13: Our next question comes from Joanne Wunsch with Citibank. Please proceed with your question.
spk11: Hey, thank you so much for taking my questions. Did I miss it, but did you quantify what you think your new FX headwind will be versus your old?
spk07: Yeah, we haven't quantified it on a full year basis, but we did include it in our thinking around reiterating our our guidance range. So we didn't change anything from what we said on May 4th as it relates to non-GAAP numbers. So we included that in our thinking. We did say on the call that we had a six cent impact to EPS. So you can back calculate that. Hard to give you a hard number right now because it's volatile. The currencies that we saw the greatest fluctuation from an operational viewpoint were Japan and the Euro. So we spent a lot of time watching those fluctuations. And obviously it's pronounced across the industry, but as we have been growing our international business, obviously it creates more fluctuation for us.
spk11: And the impact on revenue in the quarter and in your guidance?
spk07: Yeah, we didn't disclose the impact on our revenue, but obviously you can look at it on a constant currency basis versus not. and you can pretty much figure out exactly what the calculation is.
spk11: And the guidance aspect of it? I'm sorry to push on this.
spk07: Yeah, just look at the table that we provided in the release, and it'll give you all your answers.
spk11: Okay, then I'll ask a more product-specific one. Could you quantify how simplified sales were in the quarter, or qualify if you can't quantify it?
spk07: Yeah, we were really pleased with the results in simplified sales. We had a nice jump from what we did in the first quarter, so we're really pleased with the results. We really don't want to get into just talking about Simplify, because it's really about the cervical portfolio, and it's about C360, Simplify, new products that are coming out later this year. The way we think about it is, if you ask yourself, are we being successful in cervical, this is our third quarter in a row where we grew greater than 20%. Very notable results.
spk13: Our next question comes from Shagan Singh with RBC Capital Markets. Please proceed with your question.
spk00: Thank you so much for taking the question. So just a question on guidance. So on sales, you've raised your XFX outlook and maintained reported growth despite higher FX pressure. You know, I'm just trying to understand what's driving this underlying momentum. You did call out, you know, some of the products, but I'm just curious what trends you're seeing you know, into Q3, so in July and maybe, I don't know, two days of August, and then, you know, any contribution from backlog. And then on EPS, you know, you've maintained your outlook despite the Q2 myth. So can you just talk about, you know, maybe the timing of expenses or R&D projects, you know, inflation supply effects, and, you know, what are you factoring in that gets better in the second half? Thank you for taking the questions.
spk10: Thanks, Shagan. I'll take the first one, and I'll let Matt cover the second part of the question. So, You know, we're seeing underlying momentum in some of the key investments we made. I've talked over the last several quarters about this idea that we've sort of shifted from that singular focus in XLIFT to really broadening our focus across many different subsegments and also continuing to see growth, as Matt just talked about, in our international market. So those are really the two contributing factors, new products, things like Pulse, obviously the focus we have in cervical, our international growth, All of those things, I think, give us a lot of confidence that we can continue to, even in challenging macroeconomic situations, continue to deliver on the top line. So with that, I'll turn it to Matt on the second part.
spk07: Yeah, so with regard to your question around maintaining our earnings per share guidance and keeping the operating margin range the same on a non-GAAP basis, look, we said on the last call that there were a lot of swing factors going on. And in the prepared remarks, you heard us talk about incremental freight charges, travel charges, increased compensation costs. We have taken all that into consideration, and it's the reason why we gave as wide a range as we did, both from an operating margin as well as a diluted earnings per share perspective. But we're still comfortable, based on everything we know right now, that we can navigate these We have looked hard at our expenses and we're looking where we can find the right of offset to deliver on this guidance. But, you know, we feel good about the fact that we didn't need to change guidance from where our thinking was on May 4th.
spk13: Our next question is from David Beck. Please proceed with your questions.
spk08: Yeah. Hi, Kristen, Matt. Thanks for taking the questions and congrats on the quarter. I just had one on kind of the cadence for revenue through the back half. It looks like last year, sequentially, third quarter was down around 8%. So, you know, just wondering, I think you have a larger NSO benefit in the third quarter. And then, you know, with Simplify and Pulse continuing to ramp is, you know, could we see something better than that? Or should we be thinking, you know, in line with what you saw in the third quarter of 21 sequentially.
spk07: Yeah, typically our two highest quarters are the second quarter and the fourth quarter, and you didn't see that in last year's results. We came in at 270.8, which I'm sure you know. Last year, we've got to remember the third quarter of last year, the Delta variant was putting pressure on procedural volumes in that quarter, so it's not a good apple-to-apple comparison. I would say we still We see the third quarter being below what we just posted today for the second quarter, and then the fourth quarter will ramp back up. And to answer your question on NSO, yes, traditionally, historically, the third quarter has been the highest quarter, although in the results we announced today, they had a very strong second quarter as well.
spk08: Okay, that's helpful. And then just my second one on Simplify, any way to quantify the kind of halo effect it's having? I mean, it seems like it's driving strength across the cervical portfolio, but are you also seeing it pull through across the broader spine portfolio? Thanks for taking the questions.
spk10: Yeah, thanks, David. We are. That's one of the things that gives us a lot of confidence. We've seen greater than 50-plus surgeons that really didn't have anything to do with this that have not only started picking up the SimpliPly product, but also the broader C360. We also have greater than 100 of our surgeons that have been introduced that we see other parts of the portfolio kind of coming into. So the simple answer is yes, we want to continue to see that. Put some quantification around it over time, but early indicators would say there is a halo effect. It is giving us better exposure. It will be, as we talked about, we think a door opener for the broader New Basel portfolio. So early days here, but encouraging results thus far.
spk07: Yeah, the other thing I would add on that is we also talked in the prepared remarks around the first cases globally. So we're now introducing Simplify in Switzerland and Australia and UK and so on and Austria. So it's exciting times because we've got a really strong base set up in the U.S. market. And now we're starting to chip away internationally. Okay. Thanks.
spk08: And if I could just ask a clarifying question, Matt, I think you said to the back half low to mid double digit growth internationally. Um, did I hear that right? And is that on a reported basis or, or constant currency? Thanks.
spk07: Yeah. Uh, that's on a, on a, uh, reported basis, obviously with currency fluctuating, like it is, we're trying to give you a sense of what the underlying business is doing. And the guidance of low to mid-double digits, we introduced to J.P. Morgan in January of 2020. So what we were saying, any given quarter, you should expect the international business kind of in that 11% to 14% constant currency range. Got it. Thank you. You bet.
spk13: Our next question is from Alan Dong with JP Morgan. Please proceed with your question.
spk01: Hi, I'll just put them both together. But, you know, when we look at your gross margins, we obviously saw some pressure, as you highlighted in the prepared remarks, from pricing and inflation. So how should we think about the cadence of that? either improving or staying a bit more pressured through the balance of 2022? And then in 2023, assuming trends hopefully continue to get better, how should we think about the kind of leverage you can get on that line as you work through some costs that have been capitalized into your balance sheet?
spk07: Yeah, so for this year, what I would say is the fourth quarter, because of what I said earlier, which is expected to be the strongest net sales quarter for us, you'll get a stronger operating margin number there. So we'll still continue to see the pressure in the third quarter because, as I basically said, the second and fourth quarter are top quarters for net sales, and that does have impact on margin, operating margin. As far as 2023, look, I'd love to see inflation come down. The travel costs, you know, as we calculate it, are up very significantly, and travel is a big component of what we do at NuVasive. So I'd like to see that come down, because that'll reduce our travel costs. Also with freight, freight has been a challenge starting in the second quarter of last year, and we've seen that continue through this quarter. But again, this is why we gave a wide range for the operating margin from the guidance, so that we could you know, feel comfortable but accommodate some of these factors that are hard to predict.
spk13: Our next question is from Rich Newiter with Chua Securities. Please proceed with your question.
spk09: Hi. Thanks, guys. Thanks for taking the question. I wanted to just start off with the guide. First on the earnings. I appreciate that you're keeping your guidance range unchanged. It was a large range. You called out six cents of currency impact in the second quarter. Is that a reasonable kind of rate to just kind of run through the rest of the year? And if so, I guess, do you feel like you're more or less likely to be towards the midpoint or perhaps towards the midpoint to lower end of the range? Or Were there enough offsets, especially with the increased rev guide, that you still feel comfortable with that midpoint of the range? Thanks.
spk07: Yeah. Hard to predict right now because our biggest quarter is in the fourth quarter as we think about the balance of the year. Predicting currencies is very challenging. We just looked at currencies earlier today to see if there was any change in currencies. the numbers, and Japan's gotten a little favorable and Europe's gotten a little unfavorable, and net-net, they're falling out to the same place. With all this volatility, it would not be unwise to include in your model some impact. Six cents may be a good number to use. I do anticipate the volatility to continue in the back half of the year. It's unlikely that it'll kind of go back to where we were in previous years where the amount of impact was not very material.
spk09: Okay. Well, I guess just to follow up on that, I mean, if currency rates were to remain constant and hold, right, is it safe to assume you're thinking about the range with kind of the midpoint and all parts of the range are on the table still?
spk07: Yeah, we pretty much took the impact we saw year-to-date at the end of June and said if that continues, that would be the impact. And you can calculate that based on our first quarter and our second quarter release. Okay, great.
spk09: And one more, if I could just squeeze it in. Any comments on kind of what kind of trends you saw through June and even, if you can, into July and August? You know, I know it's fluid. There are vacations. We're kind of in uncharted territory here in a post-pandemic period. So I'd be curious just what you're seeing there. Obviously, you raised your guide, so you're able to power through whatever might be seeing. But can you talk to the trends month to month? Thanks.
spk10: Yeah, I mean, I'll give you an overview of it, Rich. It's just been choppy. I mean, I'll just tell you, week to week, it's choppy. So it's really hard to trend out. Some normal seasonality appear to be in the numbers, which we expect in the back half of the summer, where specifically in some of the international markets and in the U.S., we just see increased levels of travel. So what's contributing to the choppiness is still hard to sort of distill out. But clearly, I would say on an average, we're seeing pretty good volume. On a week-to-week basis or month-to-month basis, it's still a little up and down. So the simple word is choppy. But I would say underlying that choppiness is a trend line that at least shows volumes that exceed pre-pandemic levels or right at pre-pandemic levels. So we think that's potentially a good floor. Just want to see a more predicted trend kind of start to form hopefully over the next few months.
spk13: Our next question is from Drew Ranieri with Morgan Stanley. Please proceed with your question.
spk04: Hi. Thanks for taking the questions. Maybe just to follow up on Rich's questions, if you could go a little bit more into what you're seeing in terms of the market in general. Chris, you talked about your confidence in taking share in cervical, but just kind of wondering where you are thinking in terms of the broader spine market and maybe what underlying growth was. And then just to add a second question in there, can you give us any type of preview of what we should be expecting on the upcoming Investor Day? Thank you.
spk10: Yeah, I'll try to glean it out. I mean, it really, if you think about our portfolio, where we had areas of strength, we saw more downward pressure from a volume perspective. Not negative comparatively, but down, just not the underlying growth that we would expect at areas. Some of the thoracolumbar procedures, posterior is down fairly sharply. We were flattish in the anterior segment, and that's with some good growth in ALIP, where again, where we're still taking share. Some of the complex cases were down. And then areas that we've made a lot of investment, like in cervical, I think even with the downward pressure, we saw some strength just because we were all out share-taking. So it's hard to kind of get to glean the underlying market growth. We look at the NCS data that we have, and that would show that it was sluggish at best in the quarter. So we feel pretty good about our performance in general. As far as Investor Day, I don't know that we've Let anything else on it. We're looking very much forward to talking to everybody and kind of reshaping some of the narrative Filling in some of the blanks for everyone So we're committed to it and scheduling but I don't think we have any other updates other than that at this point Yeah, the only other thing I would add on that is We do intend on doing a product fair what we have found is that when people actually get to see the technology and and
spk07: Talk to folks below, Chris and I, that know the products in and out, that people more fully appreciate the technologies that we're bringing forward, which obviously is manifesting itself in the strong growth we've posted today. So we will do a product fair and look forward to introducing the products at a deeper level.
spk13: Our next question comes from Jason with Loop Capital. Please proceed with your question.
spk06: Hi, thanks for checking the questions. Just first off, in terms of the guidance, just a housekeeping thing, I see GAAP was lowered but non-GAAP raised. Is that a one-time charge? Is that the difference between the two estimates or guidance?
spk07: Yeah, it's just taking into consideration charges that occur between GAAP and non-GAAP. The numbers you should focus on, Jason, are really on the non-GAAP because we're basically reconfirming that there are going to be fluctuations in GAAP And you can see all that in the reconciliations that came out in the table release.
spk06: Okay, I thought so. And then the real question I wanted to ask was about Simplify and Pulse in terms of, it sounds like at least on Simplify, at least from some of the commentary you made, a lot of the growth is coming from new accounts. I assume those are accounts that had already been using disk and you're displacing some competing disks. And then the same for Pulse. If you think about the customer or the users at this point, is that primarily your own customer base or is that also extending into new territories?
spk10: On Simplify, I would say that it's primarily CTDR users that are moving from other companies and there are several companies. But I would also say that it would feel, and again, we've got to see this trend out, that the market has accelerated a bit. And I think that maybe some of it is our performance there and our introducing the CTDR, the simplified disc, into the market. So there is definitely some new interest in using artificial disc in the cervical space, but I would say the majority of our growth is likely from competitive users at this point. As far as pulse, it's It's a little tricky to say that they're clearly, they may have been using some of our hardware, but clearly not using anything navigation or anything enabling tech from us other than potentially our neuro-monitoring systems or maybe in certain situations less right. So we think that anybody that's picking up Pulse right now is moving from a likely a predicate system that they've employed at some point. So new technology for us in the market, not new technology specifically in the market in some cases, but new technology for us. So that's one that we'll see trend out a little further. But as I said earlier, we are seeing some good pull through. The accounts that we have installed Pulse in, we see a material increase in the overall business that we're getting those accounts.
spk13: Our next question comes from Matt Mixey with Barclays. Please proceed with your question.
spk03: Thanks so much for taking the question. One follow-up on Simplify, Chris, you were just talking about the nature of growth and share gains. I wanted to get a sense of if part of this has to do with taking surgeons and centers where you have good relationships who may be using another disc and converting them to you know, to simplify if, you know, where you are in that, if in fact that's one of the drivers, just trying to get a sense of how important that is and, you know, how much runway you have along that pathway of growth for Simplify, and then I have more follow-up.
spk10: Thanks, Matt. Yeah, I said earlier, I quoted the number that I've seen a few days ago, that 50-plus, maybe even 50 to 60-plus surgeons that sort of started out using Simplify have now adopted other parts of the cervical portfolio, which tells me that it's bringing along the anterior cervical plate. We're launching our Line C later this quarter. I think we've got a lot of dry powder still pent up, and we're just now getting out of the gate, really, with Simplify. We're still ramping up our capacity. We're still ramping up the number of sets that we're releasing. We're still entering new geographies, as Matt mentioned earlier. So we've got a good runway, and I think the artificial disk space in general will continue to grow faster than the relative cervical market, which is fairly large but fairly flattish in growth. So $2.6 billion market, we think the cervical disk space is probably 250 to 300. I think the 250 number is probably antiquated, so we look at more than 300. growing near double-digit, we think now. We've got to quantify that coming out of the pandemic. So all those things, considering the fact that we estimate we still have less than 5% share, we think we've got a lot of runway to really grow the cervical market.
spk03: That's great. I appreciate that. And then, Paul, just a comment you made around sort of the systemic and supporting technology and patient follow-up and quality of outcomes being, you know, the things that are really going to change spine surgery going forward as opposed to sort of a new inner body maybe. And I wanted to get a sense of, you know, I think I know the answer to this, but I'm guessing that you have a fair amount of sort of new implants, revised implants, systems and technologies in the pipeline just love to understand how you're balancing, you know, your spend on R&D, which I know is significant to get, you know, particularly pulse up and out the door and support that, but also to kind of continue to back it up with the kind of things that NuVase has been known for in the past, which is, you know, a steady flow of well-designed implant systems as well.
spk10: Yeah, it's a great question and one that we've talked a lot about. You know, you think about kind of phase one as I've sort of come in. I think NuVase has always been known for Fantastic instrumentation, great implant technology. And there's still work to be done there. By no means are we finished. And we'll continue to refresh the portfolio as we see innovation opportunities. The R&D team does a phenomenal job there. But having said that, I believe that what happens pre-surgery and what happens post-surgery are part and parcel to the overall success for that patient. And choosing the right patient with the right procedure a patient presents with a pathology and there's just unlimited options that they pursue. So we gotta get smarter as an industry and ensure that the pathway is clear and it's data-driven. And then what happens post-surgery? What can we measure? There's a lot of things that we can measure and there's quite a lot of things that we can't measure of what the impact of the surgery was on the patient longer term. A lot of it's patient-reported outcomes, which is are you still in pain, are you not in pain? So I think there's more we can do, and there's technology out there that we think we can incorporate. So we believe that our proceduralization strategy truly sets us up uniquely, specifically as we add in something like a pulse system to really start to think more broadly about the whole patient care continuum. And that's what we're looking for. We continue to really hone in our focus on measuring what's unmeasurable, and providing support in areas that we don't necessarily today. And we think doing those things will increase the overall outcome for the patient and, as we said, create value for us and our shareholders.
spk03: That's great. Thank you.
spk13: There are no further questions at this time. I would now like to turn the floor back over to Chris Barry for closing comments.
spk10: Thanks, Maria, and thanks, everyone, for joining us today. I just want to just reiterate the fact that we're excited, happy with the performance in the quarter, continue to focus on this idea of multiple vectors of growth, extending our leadership in less invasive surgery, taking share in those underrepresented segments, delivering on an abled technology roadmap, and our starting point here is Pulse, and then obviously continuing to drive our international growth. And as I just mentioned with Matt, ultimately extending the parameters innovation to really create a more intelligent spine surgery. So with that, I'll thank you all for your participation, and we look forward to speaking with you again in the next quarter.
spk13: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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