Feb 23, 2022
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Operator
00:11 Good afternoon. My name is [Bow] [ph].
And I will be your conference operator today. At this time, I would like to welcome everyone to Nevro's Fourth Quarter 2021 Financial Results Conference Call.
All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.
[Operator Instructions] Thank you. 00:39 I would now like to turn the call over to Julie Dewey for introductory remarks.
Please go ahead.
Julie Dewey
00:45 Good afternoon, and welcome to Nevro's fourth quarter 2021 earnings conference call. We appreciate you joining us.
I'm Julie Dewey, Nevro's Chief Corporate Communications and IR Officer. With me today are Keith Grossman, Chairman, CEO, and President; and Rod MacLeod, Chief Financial Officer.
The format of our call today will be a discussion of fourth quarter business results from Keith, followed by detailed financials and guidance from Rod, and then we'll open up the call for questions. 01:14 Please note, there are also slides available related to our fourth quarter performance on the Nevro Investor Relations website on the Events and Presentations page.
Earlier today, Nevro released its financial results for the fourth quarter ended December 31, 2021. A copy of our earnings release is available on our Investor Relations section of our website at nevro.com.
This call is being broadcast live over the internet to all interested parties on February 23, 2022, and an archived copy of this webcast will be available on our Investor Relations website. 01:48 Before we begin, I'd like to remind everyone that comments made on today's call may include forward-looking statements within the meaning of federal securities laws.
Our results could differ materially from those expressed or implied as a result of certain risks and uncertainties. Please refer to our SEC filings including our Form 10-K to be filed later today for a detailed presentation of risks.
The forward-looking statements in this call speak only as of today, and we undertake no obligation to update or revise any of these statements. 02:18 In addition, we will refer to adjusted EBITDA, which is a non-GAAP measure that is used to help investors understand Nevro's ongoing business performance.
Non-GAAP adjusted EBITDA excludes certain litigation expenses, interest, taxes, and non-cash items such as stock-based compensation and depreciation, and amortization. Please refer to GAAP to non-GAAP reconciliation tables within our earnings release.
02:43 And now, I'll turn the call over to Keith.
Keith Grossman
02:47 Thanks, Julie and good afternoon, everyone. I’m going to focus my comments today on our fourth quarter results, the current state of our business in COVID recovery, and on our PDN launch.
Following my comments, Rod will cover specifics of our Q4 results and our 2022 first quarter and full-year guidance. 03:05 While the current COVID environment and related headwinds remain challenging, we’re pleased with our fourth quarter results, which were well above the high-end of the most recent guidance range we communicated for both revenue and adjusted EBITDA.
Both U.S. and International revenue were impacted by COVID-related issues, particularly in the last two weeks of December as the Omicron variant began to spread widely.
03:28 We were really encouraged by the level of recovery and procedures up to that point however, which had been steadily improving since July and began to approach our highest historical levels on late November and early December. We believe this is an encouraging indication of how our market will respond as we begin a more durable recovery.
We continue to be excited about the PDM opportunity, which I’ll discuss in more detail shortly, as well as our recent FDA approval for a specific indication to treat non-surgical or NSRBP patients. 03:56 All of this progress further differentiates our high-frequency paresthesia-free SCS Technology and we’re confident that throughout these difficulty quarters we’ve laid a foundation for attractive growth when the impact and uncertainties of COVID on our market subsidies.
04:11 Now, let’s take a look at actual procedure activity. Compared to prior year, Q4 total U.S.
permanent implant procedures decreased 5%, while trial procedures increased 3%. Compared to the fourth quarter of 2019, U.S.
permanent implant procedures decreased 7%, while trial procedures decreased 5%. As I said a moment ago, trial and permanent implant volumes were impacted by COVID-related issues in the second half of December, mostly.
That Omicron impact continued into January. 04:44 So, encouragingly the worst of the impact seems to have been relatively short lived and we were already beginning to some stabilization and improvement by the end of January and that has continued through February.
The impacts of a surge like this one include changes in patient behavior, increased hospital restrictions on elected procedures, and the exacerbation of already existing staffing shortages. 05:09 From a volume of procedure standpoint this shows up in lower new patient visits, cancellation of cases already scheduled and an increased difficulty in scheduling cases in the OR, particularly perm cases, which has the effect of extending the temp to perm conversion curve and pushing revenue generation further out.
05:27 These impacts are felt across all SCS patient categories by the way. For these reasons we’re providing first quarter guidance in addition to full-year 2022 guidance and Rob will cover this in more detail later in the call, but as you will hear this guidance assumes no new material ways of infection for the balance of the year and therefore a steady improvement in procedure volumes, throughout the rest of the year with a return to solid growth in the second half of the year.
05:55 Since our last quarter call, we once again completed additional market survey work with our physicians and patients to gauge the progress of the SCS market recovery. At a high level, nothing has really subsequently changed.
We believe the patient reluctance to reengage and willingness to defer, which of course has been an issue behind the relatively slower SCS market recovery is showing signs of improving. 06:17 The impact of capacity constraints related to staffing shortages at healthcare facilities probably grew in the last quarter.
However, we believe that will likely improve throughout the rest of the year. And importantly, our data still confirms to us that the underlying fundamentals of the addressable market, and the opportunity for attractive rates of growth remain intact.
06:37 Finally from a relative performance standpoint, our share of market, we continue to see high variability in quarter-to-quarter results among all market participants though, we feel like we have continued to win in a difficult 21 market, and in fact, throughout the pandemic. We don't yet have U.S.
Claims data to look at procedures through the full-year 2021, but on a revenue basis, our U.S. revenues were roughly equal to the full-year 2019, while we believe the total U.S.
SCS market was still down about 4% year-over-year. 07:09 So, let me close this portion of my remarks by concluding that we're growing more optimistic that the worst of the COVID impact on our business may be behind us.
Patient to physician interest in pain treatments remains high and after a very tough two years of COVID, we continue to see signs of recovery with the steady pickup in trial activity that occurred within the third and fourth quarters of last year and with the early signs of post Omicron stabilization in the business that we're seeing in the first quarter thus far. 07:37 Although there are residual effects from the pandemic such as economic impacts and staffing shortages, which are harder for us to predict, we're hopeful that the Omicron variant will be the last meaningful wave at least in terms of its impact on elective procedures and that we’ll begin to see some relief in our core lower back & leg business by the end of the first quarter that will then continue to improve throughout the year.
07:59 In addition, we're excited with the progress we've made in our PDN launches, the only provider of high frequency paresthesia-free therapy approved by the FDA for patients who are struggling with debilitating PDN or painful diabetic neuropathy and who are unable to find relief with currently available drug options. 08:16 Based on published data, our HFX for PDN therapy is the most effective SCS solution for PDN with the highest responder rate at 86%, the highest average pain relief at 77% and the only system to demonstrate neurological improvements.
While still nascent, the first six months of this launch have reinforced our excitement about our PDN indication and how impactful we believe this will be for both providers and patients. 08:43 We're very encouraged by the high levels of interest among referring physicians and patients, early trial volumes, and the validating clinical outcomes in those patients who have already received their permanent implants.
08:54 Worldwide PDN revenue in Q4 was approximately $4 million. In Q4, PDN trials grew 93% sequentially, compared to Q3, and represented approximately 7% of our total U.S.
trial volumes for the quarter, growing to 8% in the month of December. 09:13 Before I provide further details on our strong PDN launch progress, I want to address Medtronic's FDA approval announcement for PDN.
The press release that we issued formally responding to that approval speaks for itself in terms of detailing the superiority of our high frequency data in these patients. So, I won't repeat that detail here, except to say that we offer the most effective therapy supported by the most robust evidence.
009:37 In fact, I think there's a lot to feel good about here for a couple of reasons. First, and as we said, one of our overarching goals for a successful PDN launch has been generating awareness with referring physicians and patients.
This is always a big lift in a new market like this one. So, having a second market participant raising awareness about this indication with referring doctors and patients can only be helpful in developing the referral channel and in accelerating market expansion.
10:05 Second, from a competitive standpoint, let me say, I think there is now a pretty bright light on what we've been saying all along. And that is the low frequency just doesn't work very well in these patients.
After all, the reference studies were published eight years ago, and if the data had been persuasive to the clinical community back in 2014, the PDN market for low frequency SCS would probably already exist. 10:27 What we now have is a very star contrast between outcomes using our high frequency non-paresthesia treatment with low frequency paresthesia based treatment, which is summarized by the way in Slide 12 in our Q4 investor deck that’s now up on our website.
10:42 The responder rates in the SENZA-PDN trial will roughly double those of the study using the Medtronic device. And as one of our key investigators said, recently, and some of you heard me quote, we've known for years you don't treat paresthesia based pain with more paresthesia.
10:57 In fact, we recently feel that PDN market research was a random sampling of pain specialist and our physicians who indicated Medtronic was their primary SCS System. 70% found the Nevro PDN data more compelling.
In addition, roughly two-thirds of these same Medtronic users indicated they are more likely to use 10 kHz Therapy to treat PDN patients after reviewing the data. 11:20 This competitive approval doesn't impede our opportunity for success or dampen our optimism for this market.
This is an enormous potential market and the superior outcomes and patient experience with high frequency in these patients will continue to put us at an advantage. 11:35 Our PDN referral sales team has called on close to 10,000 referring positions and over 900 patients have now been referred to SCS Specialists, which is up 80% from our last call.
We're finding the unmet needs of these patients are top of mind with the referring clinicians. And many times we've been entrusted with patient referrals on the initial call.
11:55 Among our early treated PDN patients we're seeing the results we would expect based on our clinical trial outcomes, and we're working with the referring doctors to make sure that they're aware of the very positive results in their patients after the treatment. 12:08 Based on the success of our PDN referral sales team in educating these referring physicians, we're planning to expand this team by around 50% during 2022 and we'll be moving all of these team members from their current roles with our market channel partner to in-house Nevro team members.
12:26 Also encouraging is that our core SCS sales team, calling on our existing pain specialists, is gaining access to new implanting accounts that didn't previously implant or use Nevro products. PDN is opening doors for us with these customers, and many have already begun using Nevro not just for PDN, but for lower back and leg pain as well.
12:45 Our customers appreciate the investment we've made in our technology and the quality and outcomes of our trial and resulting approval, and the opportunity to treat a new class of patients that has for the most part not previously been treated by SCS. 12:59 We've also seen tremendous interest among our pain specialists to reach out to referring physicians in their own local communities to do patient outreach.
The number of pain physicians that say they are proactively seeking local PDN referrals has already nearly doubled from before our PDN approval to over 60%. 13:18 To facilitate such interest, we went live at the beginning of January, with a new co-marketing platform that provides marketing materials to those implanting physicians who want to do their own local outreach to referring physicians.
13:30 We've also executed dozens of PDN expert seminars for pain physicians ensuring these doctors are educated not only on how to treat PDN patients with 10 kHz Therapy, but also how to achieve the significant clinical outcomes that we reported in our trial. 13:45 At the end of November, three important clinical data publications for treating PDN with 10-K therapy were published.
This included 12-month data from our landmark PDN RCT published in diabetes care, as well as real world evidence publication. And finally, a comparative literature review of high versus low frequency SCS evidence, which is timely, both published in the journal of diabetes science and technology.
14:10 These three important clinical data publications further expand the growing body of positive clinical evidence uniquely supporting the use of 10 kHz Therapy for these PDN patients. Given the importance of clinical data to the referring physician in this community, we were also pleased to see a clinical compendium on the diagnosis and treatment of PDN published in late January by the American Diabetes Association.
14:33 Notably this compendium specifically now mentions high frequency 10 kHz spinal cord stimulation as a non-pharmacologic therapy recommended for PDN, which we believe is an important endorsement of our therapy by the ADA. This compendium was distributed over 40,000 ADA members and will be a valuable addition to our expanding arsenal of clinical evidence supporting the use of our high frequency paresthesia-free therapy.
15:00 In addition to supporting physician referral decisions, we believe these data along with the durability seen in the 18 month results that were presented at NANS in January, and our robust clinical dossier will help support expansion to payer coverage decision policies to cover our therapy. 15:16 Speaking of payer coverage, we were of course thrilled to see the positive decision by United Healthcare in early January to expand their coverage to include SCS for PDN patients effective on March 1 of 2022.
The United Healthcare is the largest private health insurance company in the U.S. with more than 39 million commercial healthcare members.
So, this earlier than expected decision is a major milestone that's expected to significantly increase patient access to the therapy. 15:43 And because United is so influential, we also believe their decision will positively impact the thinking of other payers.
Once it's effective on March 1, patient coverage will increase to approximately 35% of the addressable PDN population, up from about 25% today. 16:01 We're continuing our work and outreach to the payer universe to expand market access and drive adoption, which of course is the process that takes time.
Our two key strategies to achieve this are to develop positive coverage policies for PDN with these payers and at the same time use our HFX access team to insist with obtaining individual coverage on a case by case basis. 16:22 We continue our payer outreach and direct engagement activities and will provide updates on those payer decisions as they arise.
Our HFX access team is continuing to support prior authorizations at the patient level. And to date, we've seen a patient access rate of approximately 60%, which is approaching rates that we see in our core, our lower back and leg business.
16:43 Keep in mind that this rate is only for those PDN cases that have come through our HFX access group, and we also expect our payer coverage to increase gradually over time with a steady increase of positive coverage decisions occurring throughout the year. 16:57 Included in our 2022 sales guidance is a $25 million to $30 million contribution for PDN.
That's up 5x the contribution in 2021. With broader penetration and a larger revenue contribution expected in 2023 and of course beyond.
17:14 The revenue ramp is expected to build gradually this year as patients continue to move through the referral of the trial permanent implant pathway, but also as awareness increases among referring doctors and patients and access with payers expands. 17:27 Despite the Omicron challenges in Q1 and what is the typical seasonal drop from Q4 to Q1, we're encouraged by the continued growth of PDN volumes in Q1 2022 thus far.
17:40 In summary, our launch is still in its early stages, but the first six months have reinforced our excitement of our PDN indication, how impactful this will be for providers and patients, and we're looking forward to continuing to develop this exciting growth platform. 17:55 We also received FDA approval of our PMA supplement to add explicit label claims for our proprietary therapy in the treatment of non-surgical refractory back pain, that happened in the beginning of January.
Patients who suffer from retractable back pain without prior surgery, have limited treatment options if they're not a candidate for surgery. And this FDA approval marks another milestone on Nevro’s commitment to expanding access to HFX and our SCS portfolio.
18:21 This approval is specific to programming that includes Nevro’s proprietary 10-K therapy and differentiates Nevro’s solution as the only SCS system with specific labeling to treat both PDN and NSRBP patients, and access to more therapeutic programming options. Coupled with the publication of the 12-month follow-up date of our NSRBP trial in the Journal of Neurosurgery: Spine, this approval will be used to support continued market penetration and importantly market access initiatives to further expand payer coverage.
18:53 So, in closing, we continue to believe we're really well positioned to emerge from this pandemic with vigor and ready for longer-term attractive growth, a process that we're beginning to become more optimistic has at least begun. We're a leader in three large underpenetrated SCS segments that should continue to grow for years to come.
19:11 We're uniquely positioned for recovery and renewed growth with our differentiated high frequency paresthesia-free therapy with industry leading outcomes and new indications in PDN and NSRBP. We remain very bullish on our ability to continue to capture share of this market over time with better technology, better outcomes, and solid execution.
So, our fundamentals remain intact, and I really believe we're well set-up for 2022 and beyond. 19:37 So with that, I'll pass the call over to Rod to provide further details on our fourth quarter results and our guidance.
Rod?
Rod MacLeod
19:44 Thanks, Keith, and good afternoon, everyone. I'll begin with our worldwide revenue for the fourth quarter of 2021, which was $102.8 million, a 6% decrease both as reported, as well as on a constant currency basis, compared to $109.7 million in the prior year period, and a decrease of 10% compared to the fourth quarter of 2019.
20:09 As a reminder, this quarter included the same number of selling days as Q4 2020 and Q4 2019 and two less selling days in Q3 2021. U.S.
revenue in the fourth quarter of 2021 was $88.4 million, a decrease of 7%, compared to $94.6 million in the prior year period, a decrease of 10% compared to $97.9 million in the fourth quarter of 2019. 20:40 International revenue was $14.3 million, a decrease of 5% as reported or 4% constant currency, compared to $15.1 million in the prior year period, and a decrease of 13% as reported or 17% constant currency, compared to $16.5 million in the fourth quarter of 2019.
21:05 Similar to the headwinds seen in the U.S., international revenues continued to be impacted by COVID-related issues as well, including both patient behavior and healthcare facility restrictions. Gross profit for the fourth quarter of 2021 was $69.1 million, a decrease of 11%, compared to $78.0 million in the prior year period and a decrease of 15%, compared to $81.3 million in the fourth quarter of 2019.
The decrease in gross profit compared to the fourth quarter of 2020 was attributable to decreased revenue. 21:45 Gross margin decreased to 67.3% in the fourth quarter of 2021, compared to 71.1% in the prior year period and 71.0% in the fourth quarter of 2019.
This decrease was primarily due to the impact of a targeted evaluation program that largely concluded in Q4, as well as the continued investment in Nevro’s Costa Rica manufacturing facility, both of which decreased margin by a combined 336 basis points. We are still targeting shipping product from Costa Rica in the second half of 2022.
22:26 Operating expenses for the fourth quarter of 2021 were $95.3 million, a 21% increase, compared to $70.9 million in the prior year period and a 3% increase from $92.9 million in the fourth quarter of 2019. 22:44 Looking at operating expenses year-over-year, the increase was primarily related to personnel related costs, legal fees, PDN marketing and selling related activities and travel, meeting, and conference expenses, partially offset by management's continued initiatives to drive leverage throughout the business.
23:04 Litigation fees in PDN expenses accounted for 4.9 million of year-over-year increase in operating expenses and accounted for an additional 9.9 million in operating expenses relative to 2019. To absent all litigation related and PDN expenses, our operating expenses would actually be less than 2019 by 7.5 million or 8%.
23:28 Legal expenses associated with patent litigation fees were 6.1 million for the fourth quarter of 2021, compared to 5.1 million in the prior year period and $1.7 million in 2019. We will continue to defend ourselves in our ongoing disputes relating to spinal cord stimulation technologies and continue to protect our innovations and paresthesia-free SCS therapy.
23:54 Net loss from operations for the fourth quarter of 2021 was $26.2 million, compared to a loss of $0.9 million in the prior year period and a loss of $11.7 million in the fourth quarter of 2019. Non-GAAP adjusted EBITDA for the fourth quarter of 2021 was negative $7.5 million, compared to positive 15.7 million in the prior year period and positive $1.5 million in the fourth quarter of 2019.
24:27 The reduction in revenue and increased investments in PDN and litigation drove the unfavorable operating income results versus 2020 and 2019. We believe that once we begin to recover post-COVID and with ongoing PDN investments, that roughly 110 million in quarterly sales is our breakeven point.
24:49 We continue to focus on cash preservation, while balancing the need to reinvest in the recovery process in our new growth drivers of PDN and NSRBP. Cash, cash equivalents, and short-term investments totaled $362 million as of December 31, 2021.
This represents a decrease during the fourth quarter of 2021 of 14.5 million, which was primarily due to cash used in operations. 25:18 Turning now to guidance.
It's important to note that we will be using non-GAAP financial measures to describe our outlook for the business. Please see the financial tables in our press release issued today for GAAP to non-GAAP reconciliations.
25:35 Keep in mind that the guidance that we are providing today is highly sensitive to the company's assumptions regarding the pace, and sustainability of COVID recovery and its related impacts on patient willingness to seek elective care, healthcare facility restrictions, and healthcare facilities staffing limitations, all of which are difficult to predict. 25:56 If these assumptions differ from the actual case of COVID recovery, and its impact on the company's markets than the company may need to change or withdraw this guidance in the future.
As Keith mentioned earlier, the impact of COVID Omicron surge continued in the first quarter of 2022. 26:15 While the improvement in the search has already begun, we expect first quarter of 2022 worldwide procedures and revenues will be strongly impacted by Omicron and COVID-related issues and of course, even in normal years, we always see a seasonal decrease from the fourth quarter to the first quarter.
26:33 Given this backdrop; we're guiding the first quarter worldwide revenue of approximately $85 million to $87 million. All of these markets factors related to COVID that Keith discussed applied equally to PDN volumes as well.
However, we believe PDN revenues in Q1 will actually still be slightly ahead of Q4 given the underlying momentum in this indication. 26:59 We are projecting Q1 2022 margins of 66.5%.
Margins will be a bit lower than our normal run rate, due to the lower revenue figure, as well as continued and planned investment in bringing our Costa Rica manufacturing site online. These lower margins from Q4 2021 and Q1 2022 are short-term in nature, and we fully expect to return to high 60% margins later in the year with a positive impact from our Costa Rica facility impacting 2023 and beyond.
27:36 Turning to operating expense, we expect Q1 2022 operating expense to finish at about $93 million with PDN and litigation expenses accounting for around $9 million of that spend. We expect first quarter of 2022 non-GAAP adjusted EBITDA to be approximately negative $19 million to negative $20 million.
28:00 The full-year guidance provided today is highly sensitive to the company's COVID recovery assumptions, which include a measured pace of recovery to continue beginning in Q2 and throughout 2022 in the U.S. and key international geographies.
28:17 Of course, if recovery is delayed or patient willingness to seek treatment is slower than anticipated or alternatively if recovery is faster or there is a larger recapture pent-up demand than anticipated, than any or all of these factors could quickly and easily impact our guidance range. 28:36 With that in mind, we currently expect worldwide revenues for full-year 2022 of approximately $415 million to $430 million, which represents a 7% to 11% increase over the prior year.
This range assumes $25 million to $30 million in PDN revenue in 2022. 29:00 We expect full-year 2022 non-GAAP adjusted EBITDA to be in the range of negative $8 million to negative $18 million, which compares to a non-GAAP adjusted EBITDA loss of $17.2 million in 2021.
29:17 For full-year 2022, gross margin is expected to be approximately 69%, as we will be incurring about 100 basis point impact to margins as we continue to build-out operations in the Costa Rica plant this year. We’re very excited about the Costa Rica expansion and believe it will deliver gross margin expansion to mid-70% range over the next 3 years to 5 years.
29:42 Operating expenses are expected to be approximately 378 million to 380 million for 2022, including combined litigation expenses and ongoing investment in PDN market development of approximately $40 million. We do want to provide you with information on the expected cadence of our business to assist you in modeling our quarterly performance during 2022.
30:09 We expect very modest revenue growth in Q2 2022 over prior year. The two quarters in the back half of the year are expected to have roughly equivalent revenue growth rates over Q3 and Q4 of 2021 as we assume we will benefit from an improving COVID environment, the recovery of the SCS market, and accelerating progress in our PDN launch.
30:34 Finally, I think it's important to review our progress on our journey to drive growth and scale profitably in our core business. For example, let's take a quick look at our operating expenses as a percentage of revenue.
Over the years, operating expenses, excluding litigation and PDN have gone from 91% of revenue in 2019 to 83% of revenue in 2020. The 81% of revenue in 2021 are expected to finish 2022 in the high 70s.
31:05 Many of the changes we continue to invest in including our Costa Rica facility, development of the PDN market, and Omnia upgrade to facilitate greater commercial productivity are designed to provide continued improvement in our financial leverage as we grow. 31:21 We believe that with these investments, we can create even greater leverage in the coming years, so please keep in mind that even including all of the investors I've just mentioned, our total 2022 operating expenses will be about 4% higher than those in 2019.
31:39 In closing, we made good progress in the fourth quarter and remain on track to drive growth and scale profitably in our core business in the years ahead. We enter 2022 in a great position strategically with best-in-class SCS Technologies, remaining share gain opportunity, future growth opportunities in PDN and NSRBP, superior clinical data and a strong commercial organization.
32:05 We continue to advance our operating margin expansion effort with programs such as Costa Rica, PDN, and Omnia upgrades, which are all expected to provide continued improvement in our financial lever as we grow. That concludes our prepared remarks.
32:20 I'll turn the call back over to Julie to moderate the Q&A session.
Julie Dewey
32:26 Thanks, Rod. In order to get through the question queue efficiently and take as many questions as we can, we ask that you please limit yourself to one question only and perhaps one very brief follow-up.
You can then rejoin the queue and if time allows will take additional questions. Operator, we're ready for Q&A instructions.
Operator
32:49 Thank you very much. [Operator Instructions] And your first question today comes from Chris Pasquale at Guggenheim.
Chris Pasquale
33:12 Thanks for taking the questions. I want to start with the guidance and a couple of points here.
One, if I backout the PDN contribution, it looks like it implies about 2% to 5% growth for the core business. So, is that in-line with how you're thinking about the SCS market broadly and given the easy comps, particularly in the back half of the year?
Maybe if you could speak to why that's the right level? And then for PDN, do you need any more significant reimbursement wins over the balance of the year to get to the 25 to 30 or do you think you can achieve that just with 35% of patients you have now?
Thanks.
Keith Grossman
33:50 Thanks, Chris. Well, I think on the core market, the underlying implied guidance for the non-PDN part of our business, sure, it implies the lack of visibility you expect us to have right now and maybe some resulting conservatism.
As Rod described, it also implies a very different trend in the first quarter or two then in the second. 34:14 So, we expect the market to begin reverting to more interesting growth rates in the second part of the year.
But if the market comes back a little faster, if pent-up demand comes back a little faster in the core market, and certainly, we think there is potentially at least room for upside. 34:34 From a PDN standpoint, no, I don't think so.
I mean, we assume internally that we'll continue to get additional wins from a market access standpoint, but the guidance that we've given today doesn't necessarily rely on a specific outcome or any, kind of heroic increase from where we are today.
Chris Pasquale
34:59 Okay, thanks.
Operator
35:04 And the next question will come from Adam Maeder at Piper Sandler.
Adam Maeder
35:09 Great. Thanks so much for taking the questions.
Maybe just to start, wanted to ask for just some incremental color on the Q1 guidance, just puts and takes, there's Omicron, there’s seasonality, the guide at 85 million to 87 million implies, I think down 15% to 17% sequentially versus Q4 2021, which appears to be a little bit less of a sequential step down versus what we've seen historically. So, maybe just help frame that up for us and broad strokes kind of how you're thinking about the month of March and what's needed to arrive at the Q1 guide?
Thanks so much.
Keith Grossman
35:46 Yeah. I'll take it at the high level and then invite Rod to add anything else he’d like.
I think, anytime we're sitting in the middle of the quarter and giving guidance for that quarter, the guidance is more about the mechanics of trials to date, some estimate of trials in the coming weeks, but much of the activity that will be driven by trials is already baked into the trial performance we've had up to this moment. So, it's less about sequential or year-over-year growth assumptions and more about bottom up mechanics.
36:22 In terms of the impact, we came into, I think the Omicron impact really sort of peaked in early January. So, what we saw is an impact on trial rates in the second half of December and throughout most of January.
And that drove not just some suppression of trials, but it also drove some cancellation of cases, now we'll get those back, of course, some this quarter, some beyond, but it also lengthened as we said, that the distance from trial and conversions. 36:58 So that curve can sometimes get accelerated when you’re catching up, and if sometimes gets stretched out when you get hit with something like this.
And again, if it's trials that haven't yet converted, you typically get all or most of those back at a later point anyway. So, kind of how we're thinking about Q1 and the impacts.
I will comment on that month of March, but Rod, just everything anything else you want to add to that?
Rod MacLeod
37:25 I think you covered it well Keith. The only thing that I would say is, it is hard to parse out what's the impact of Omicron versus seasonality in the first 90 days of this year, but like a lot of other businesses, we've definitely been impacted by some of the headwinds that Omicron created especially in January?
Adam Maeder
37:50 Got it. Thanks so much, Keith and Rod for taking the questions.
I'll leave it there.
Keith Grossman
37:55 Okay.
Operator
37:58 Thank you. We go next now to Larry Biegelsen at Wells Fargo.
Unidentified Analyst
38:03 Hey, good afternoon. Can you hear me okay?
Keith Grossman
38:07 You bet.
Unidentified Analyst
38:08 Hey, this is [Dick] [ph] in for Larry. Thanks for the questions.
Just maybe two for me. I guess the first one is, how do you disproportionately benefit on the PDN indication, now that the FDA is granting PMA’s based on small studies and payers like United are granting broad coverage?
And the second question I had was, I'm just wondering if we could put a finer point on the cadence for the rest of the year? I think, I heard you mention modest growth in Q2, so does that imply improvement from Q1 revenues and then maybe a bit more color on the back half of the year.
Thanks so much.
Keith Grossman
38:45 Okay. Why don't I don’t take on the studies and the payer decisions and I'll let Rod talk about cadence.
So, first of all, I don't know that, look, I would stop short of saying FDA has made some sort of broad policy decision about how they're going to make approvals in this indication or any other going forward. I think they evaluate every physician on its own.
39:06 We may find that the next one is different or not. I just don't know, but look our expectation, given this approval is that our competitors will probably think very hard about doing the same thing.
About submitting old data that they hadn't thought about submitting before either because they didn't think it was complete enough or good enough for both, they may rethink submitting that, if they believe they have a chance. 39:34 So, our fundamental assumption is that we could have more of these kinds of approvals and I'll come back to, sort of what that means for us and how we think about differentiating ourselves.
So, I think most of you probably understand the answer to that already. From a payer standpoint, look, we've got one significant payer decision, it was done quickly.
We think we said in the last call, we were really pleased by how fast it came from. 40:04 We were probably a little bit disappointed in the wording of that in a couple of ways and we'll continue to work with United on that issue, but we did from a payer standpoint, there are [indiscernible] out there in other segments of MedTech where commercial payers have begun to make differentiated decisions.
And decisions based on data superiority. And we think we haven't seen a better justification for that treatment than the one we're currently living right now.
40:35 So, we're going to be making and already are making a very strong case with not just United, but other payers about how they should be treating category versus therapy versus specific therapy approvals and payer decision. So, I think the jury is really out there, but regardless of what happens in the FDA approvals and the payer decisions, what we want is a broad and open playing field.
40:59 We want access to these patients based on the indication and based on the data and their lack of options. And as long as we have that, if you look at the difference between our high frequency data and paresthesia low frequency data, they're just not close.
These aren't really, very colorful arguments on the other side. And they're not nuance.
41:22 I mean, they're really apples and oranges. So, I think we're going to find.
And we tried to we tried to make this clear in our remarks today, but that's a message that will resonate and is already resonating with our customers, our competitors’ customers, and I think we will resonate with payers as well. 41:38 So, does it mean we get or could it mean rather we get a smaller percentage of a larger market with other competitors, but maybe that's possible.
And this is such a large market that may not be at bad outcome, but we'll see how those things take out over time. Regardless, we think we've got a really phenomenal opportunity based on what we're seeing so far.
42:01 And Rod, do you want to talk a little bit about Cadence and the rest of the year?
Rod MacLeod
42:06 Yes, sure. Thanks, Keith.
Yeah. So what we said in our comments was that 2022 second quarter, we're anticipating modest growth over Q2 of 2021 on a worldwide basis.
And Q3 and Q4 second half of the year, were we're thinking about the growth in those two quarters versus the prior year's Q3 and Q4 that the growth rates will be roughly equivalent in Q3 2022 and Q4 2022.
Operator
42:55 Thank you. We’ll go next now to Robbie Marcus at J.P.
Morgan.
Unidentified Analyst
43:00 Hi. This is actually Lilly on for Robbie.
Thanks for taking the question. I have two quick ones.
Last call, you had said that, you had cleared much of the backlog that had been built up, do you think that that's grown substantially in recent months with Omicron and what are you thinking about your ability to recapture those procedures in 2022? And then second, on PDN, I know it's still early days, but have you seen or do you expect to see any sort of halo effect in the core back & leg business from this [launch] [ph]?
Do you see this helping you get into any competitive accounts at all? Thanks.
Keith Grossman
43:38 Yes. Rod, I'll let you take that the first part and I'll take the second.
Rod MacLeod
43:43 Sure. With regards to backlog, while we did see some cancellations, if you remember, Omicron started to really hit in kind of the midpoint of December, the latter part of Q4.
So, we anticipate that we'll be able to recapture a significant number of those. Our team historically has a great track record in working with the patients and getting them rescheduled.
44:11 So, whether that all falls in Q1 or Q2 remains to be seen, but we do anticipate that we should be able to capture a fair number of those patients that were impacted late in December and early in 2022.
Keith Grossman
44:33 On the PDN question, yes, we do expect it. We talked a little bit about this in the past, Lilly.
We do expect it to have a halo impact. I can tell you anecdotally that's already happened.
We’ve had an active program over the last quarter or more to really make sure not only our own active customers understand the PDN opportunity, what they should be doing, but also customers that have historically not been our customers for lower back & leg pain, and we've had a lot of interesting progress, I think with that latter group. 45:11 So, we expect it would help us with our core business.
I think we're seeing that it has helped us and I think that will, I think that will continue.
Unidentified Analyst
45:23 Great. Thank you.
Operator
45:29 Thank you. We go next now to Matt Taylor at UBS.
Unidentified Analyst
45:34 Hi. This is [indiscernible] calling on for Matt.
Hope you guys are doing well? Just had a question on, another one on guidance, do you think you could parse out how you're thinking about the differences in recovery through 2022 between the U.S.
and OUS market?
Keith Grossman
45:55 Sure, Mike. I can take that.
We're largely thinking about them recovering in a similar fashion, namely that Q1 is being impacted by Omicron and a little bit of seasonality. We expect to start to see a little bit of recovery in Q2 and then more of a recovery in the second and half of the year.
And the way we're thinking about both the U.S. and the International markets is that they are going to largely follow along those broad assumptions for market recovery with COVID.
Unidentified Analyst
46:37 Okay, great. Thanks.
And just one quick follow-up. I believe you had mentioned the staff shortages and center capacity constraints, you think they are likely to improve for the rest of the year.
I was just wondering if you could comment on the visibility you have into those trends?
Keith Grossman
46:56 Yes. Well, I think in terms of the first one, we have a lot of visibility.
So, in fact we literally track at a center at a time. And so, we know exactly how many centers were closed in our core group of customers on the second of January versus the twelfth of January.
And we keep track of those, and I would say that number of centers that we're restricting are completely close to electric procedures, probably peaked around the middle of January and it is, do we still have some centers that are restricting or closed for elective procedures, but not many. I think it's probably 20% of the original number, just a month ago.
47:43 So, we track them. We have a lot of visibility and we're down to what is at least as of today, a very small number of centers and I expect that will go close to zero here in the next week or two based on what we're seeing.
47:59 In terms of staffing, we have less of a crystal ball there. Our expectations were formed in our market research, our discussions with administrators and doctors, their directional in nature.
And we read some of the same things that you read in terms of what's happening from a macro standpoint. So, our assumption is that that does get better over the course of the year based on those inputs, but we don't have a unique data source other than what I just said on that one.
Unidentified Analyst
48:31 Got it. Thanks much.
Keith Grossman
48:33 You bet.
Operator
48:36 Thank you. [Operator Instructions] We will go next to Danielle Antalffy at SVB Leerink.
Unidentified Analyst
48:47 Hi. This is [Arian] [ph] on for Danielle.
Thanks so much for taking the questions. Just a quick one on NSRBP, I know you mentioned that you're seeing halo effect from PDN, just wondering if you're seeing a similar trend from NSRBP and if there's any kind of pull through from that indication to the core market?
Thanks.
Keith Grossman
49:12 Yeah. It's a good question, but I think it's probably a little too early to give you much of an answer.
What we said was that we really needed the data we needed to publish and we would like to have an FDA approval to go alongside it. We've gotten all those things, but we've gotten them fairly recently.
49:29 So, I think it will take some time to really impact payer policy, payer decision making. And so, we probably need another couple of quarters to answer that with any clarity.
We've also said from the beginning, this is more of a sector effect that we, kind of expect this because there was really not a bright line between approval and non-approval, our on-label off-label for this particular claim among all of our competitors. 49:57 So, I would suspect that more payers than not will make decisions that are not specific to technology that we'll certainly try to influence that.
We've always thought this is more of a sector impact and not just a Nevro impact. So, I think this will take some time.
Will there be a halo effect, there probably will be in some cases, I would expect the halo impact to be a little bit smaller. What I do expect for NSRBP is that over time, it provides a nice tailwind to just overall market growth rates because this is a really untapped untreated patient population and if payers are finally looking at the data and making positive access decisions, it's going to make a difference.
That's the impact I think it will happen, but I think it will take time to play out.
Unidentified Analyst
50:51 Okay, great. Thanks so much.
Keith Grossman
50:53 You bet.
Operator
50:55 Thank you. We go next now to David Rescott at Truist Security.
David Rescott
51:01 Hey guys, thanks for taking the question. I guess first one from us.
I guess now that NSRBP and PDN are both on [label] [ph] in the past you've commented on kind of what your thoughts are on the size of those markets or what’s the thought of those markets are as a percentage of the existing SCS and plans. So, I guess, now that both of these are on label, do you have any better insight as to how large the segments currently are or are they necessarily any different from what you've been thinking about in the past?
Keith Grossman
51:33 No, I don't think so. We’ve sized, we've been pretty careful in the way we've sized the TAMs.
And I don't think there's anything about the current approval, the labeling, the data, anything else that changes our definition of the Tam. So, the potential market, I think remains as we've defined it.
51:49 In terms of the actual market growth, the TAM penetration that we see, first of all, NSRBP is just simply way too early for us to really start to put some numbers around that. And in the case of PDN, I think I would say that's probably a little bit too early as well.
I know our competitors stepped in with a very specific market number for a few years out, we'll see. But it's certainly a market that we think is going to get very large.
52:20 We think it's going to become a significant part of the SCS market globally, but in terms of trying to predict what's the PDN market going to be in 2025 or 2026, I think we'll leave that to others until we get a little bit more experience.
David Rescott
52:39 Okay. That's helpful.
I guess just on, NSRBP as well, I know it's early days of expansion here, but do you have a sense for where the incremental growth or if has been an incremental growth from that segment have come from? I mean is it from newer physicians who are now picking up, now doing implants of this therapy for NSRBP patients or is it potentially just an improvement in coverage [indiscernible] for patients who previously may have gotten to end coverage just given the absence of label there, exclusive label there?
Keith Grossman
53:11 And David, you're talking specifically about NSRBP?
David Rescott
53:15 Yes. Broadly [indiscernible] as well.
Keith Grossman
53:22 Okay. Well, I would expect the both pretty much mirror the existing population.
I don't think there's an identifiable segment of the interventional pain community that say, we’ll involve themselves in one indication and not the other or skip both and just stick with traditional fail back surgery patients. Certainly in the case of NSRBP, these are patients that would kind of come through the same funnel.
53:49 They would probably come from the same PCP or surgical referral pathway. They are patients that they see anyway.
They probably would be more, sort of about trying to get a string of referrals in this category and trying to get patients approved knowing that they can now talk to payers and get payers what they want. So, I think it's really just, kind of amplifying the funnel of patients that already exist in the case of NSRBP, and I think it applies to all of our customer base.
54:25 In the case of PDN, I don't think there are many pain physicians that don't believe in the potential that wouldn't like to see more of these patients and treat them. These patients do really well on high frequency therapy.
They are actually pretty predictable in their outcomes. They're good patients to treat for a lot of reasons.
So, I think they're – I think this category patients treated with high frequency is a really interesting stream of patients, not just from a quality care standpoint, but for a lot of reasons. So, I don't think there's going to be any segments of our customer base that don't want to participate in this area demographically.
I think it's going to be pretty much across the board.
David Rescott
55:13 Okay. Thanks for taking the questions.
Operator
55:18 Thank you. And there are no further questions at this time.
I would now like to turn the conference back to Mr. Grossman for closing remarks.
Keith Grossman
55:26 Okay. Right on time.
Thank you everyone for your time with us today. Everybody stay well.
We look forward to updating you again next quarter.
Operator
55:36 Thank you. This concludes today's conference call.
You may now disconnect.