Nevro - Q2 2020
August 5, 2020
Transcript
Speaker 0
Good afternoon, and welcome to Nephros Second Quarter 2020 Conference Call. I'd now like to introduce Juliet Cunningham, Nephros' Vice President of Investor Relations. Please go ahead, Ms. Cunningham.
Speaker 1
Good afternoon, and thank you. Welcome to Nevro's Q2 2020 earnings conference call. With me today are Keith Grossman, Chairman, CEO and President and Rod McCloyd, Chief Financial Officer. The format of our call today will be a discussion of 2nd quarter trends and business results from Keith, followed by detailed financials from Rod, and then we'll open up for questions. Earlier today, Nevro released its financial results for the Q2, which ended June 30, 2020.
A copy of our earnings press release is available on our Investor Relations website. This call is being broadcast live over the Internet to all interested parties on August 5, 2020, and an archived copy of this webcast will be available on our Investor Relations website. 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 actual 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 Q to be filed later today for a detailed presentation of risk.
In addition, we'll refer to adjusted EBITDA, which is a non GAAP measure that is used to help investors understand Nevro's ongoing business performance. Please refer to the GAAP to non GAAP reconciliation table, including in our earnings press release. And now, I'd like to hand over to Keith.
Speaker 2
Thank you, Juliet. Good afternoon, everyone. Thanks for joining us today. Today, we reported Q2 2020 worldwide revenue of $56,400,000 which while below prior year is significantly above our initial COVID adjusted expectations as well as those of our analyst consensus estimates. As I said on our last earnings call in early May, we expected the 2nd quarter to be extremely challenging given the global pandemic.
At the beginning of the quarter, many areas of the world were under shelter in place restrictions and elective surgery procedures were, of course, severely restricted. This led to a rapid and steep decline in our business, particularly in the month of April. As the quarter progressed, however, we were pleasantly surprised by the pace of improvements in U. S. Trials, permanent implant procedures and sales.
In fact, in the month of June, we returned to procedure volumes in the U. S. That were roughly even with June of the prior year. And this pace of recovery has continued in the month of July. Also as expected, international volumes during the Q2 of 2020 were severely impacted with OUS revenue decreasing by 65% year over year on a constant currency basis.
We continue to believe that international markets, particularly the U. K. And Australia, are likely to recover at a more uneven pace compared to the U. S, but we have seen some encouraging early signs of recovery in July. SCS procedures are performed, on, as most of you know, on an outpatient basis with relatively little OR time required and no inpatient or ICU resources typically consumed.
We've seen our customers return to performing procedures as quickly as patient willingness and facility safety requirements have allowed. While we expected to see a shift from hospital to ASCs or ambulatory surgery centers during the pandemic, our 2nd quarter site of care mix actually remained at roughly historical levels as hospital outpatient procedure volumes recovered more quickly than we initially anticipated. Though over time, we do still believe that the gradual shift toward performing SCS procedures in ASCs will continue to grow as a percentage of total procedures. We've been closely monitoring those areas of the U. S.
Where COVID cases have been more recently back on the rise. Thus far, we've seen only a small impact from cancellations and these were primarily due to patients' reluctance to enter a health facility at this time. Thus far, patients who are suffering from chronic and debilitating pain, especially those who have completed successful SCS trials already, are generally still moving forward with treatment. Obviously, this year has been unlike any other that we've experienced and visibility remains very limited. So we're still not providing financial guidance at this time, but we will share our current perspective and we'll continue to do so at regular intervals.
On our May earnings call, we said we expected Q3 to show continued incremental recovery from a Q2 that was then thought to be even more deeply impacted than it turns out to be. And that Q4 could even approach a more normal pace of activity. As we sit here today at the beginning of August, roughly half of the COVID related canceled or stranded trials and permanent procedures in the U. S. Have now been either completed or rescheduled.
We're carefully balancing the need to respond to these backlog cases with the need to also refill the trial funnel with new cases. At this time, we expect the majority of backlog permanent implant cases to be completed over the course of Q3, which leads us to believe that directionally, the revenue recovery curve appears to be playing out a bit faster than we originally expected. We now expect total Q3 revenue to show positive growth on a year over year basis, benefiting not only from backlog cases, but also the return of new trial and permanent implant activity. We believe Q4 will include a much smaller percent of backlog cases and will be largely driven by new trial activity that began to ramp back up in June July. On balance, we think this means that Q4 might be roughly flat to prior year Q4 results.
Obviously, this view assumes that we do not see new COVID related shutdowns of elective procedures like those we saw in March April. And I would caution everyone that, of course, these remarks do not represent formal company guidance and that the COVID-nineteen situation does remain very dynamic and our views will change as the facts evolve. Our dedication to patient support and long term outcomes is fundamental to our company and it's an area in which we've continued to invest. During the Q2, we expanded our digital physician education programs and remote patient support programs to an enthusiastic response from our customers. Since this pandemic began, our customer care teams have conducted approximately 100,000 phone calls with patients.
During these calls, we helped more than 11,000 of those patients optimize their therapy remotely. In addition, we launched Omnia in both Europe and Australia and are ramping up our efforts in those markets as we see early signs of COVID recovery. Our supply chain has remained healthy and our balance sheet provides us great resilience with over $560,000,000 in cash and investments at the end of June. Our expenses have been managed prudently throughout the period, but without eroding our team, our core capabilities or our ability to reemerge from the worst of the pandemic with vigor. We continue to invest in R and D to evolve our product capabilities and expand our total addressable markets with new clinical data and patient indications.
On the clinical and regulatory side of things, we've continued a strong cadence of remote clinical support for our 2 large scale RCTs or randomized controlled trials. Our PDM study continues to move forward and we've had a very high percentage of study subjects in the control arm cross over to the SCS treatment arm at 6 months as permitted by the trial protocol, which we believe is a strong indication that our therapy addresses a critical and unmet need in these patients. We still plan to present the next round of follow-up data from this trial at the NANCE conference in January of 2021. We're in early discussions with FDA regarding our submission strategy and we're still targeting an FDA approval in the second half of twenty twenty one as we've said before. On our non surgical back pain study, we continue to expect to present our 3 month data at the NAMS conference in January with journal publication submissions thereafter.
Finally, CMS published their proposed rule for outpatient payment policies just yesterday. There will be a comment period now followed by the publication of the final rule in the fall, the changes from which will be effective for 2021. Both hospital and ASC facility fees were increased between 2% 5%, which we view as a positive for the therapy. CMS has also proposed a requirement for prior authorization of SCS procedures for Medicare fee for service patients in the hospital outpatient setting only to begin in July of 2021. This is a process we already deal with, of course, in the vast majority of our business already.
In other words, for both our private pay patients and our Medicare Advantage patients. So if necessary, we'll be prepared to do so with this smaller segment of patients as well. We'll provide an update next quarter following the publication of the final rule. Since the global pandemic began, our highest priorities as a company have been, and I've mentioned these to you before: number 1, the health and safety of our customers, their patients and our employees number 2, the support and coverage of our customers as their clinical case activity begins to ramp during this period the integrity and readiness of our supply chain the prudent stewardship of our balance sheet and finally the maintenance or improvement of our competitive position and our capabilities in order that we might exit the crisis just the way we came in back in the Q1 with really positive momentum. And thus far, I think we've achieved these five goals and we'll continue to work hard in the coming weeks months further our progress.
I'm really grateful to the entire Nevro team for their continued dedication and support of our customers and our patients. They've shown really impressive resilience, dedication and grit throughout these very difficult last 4 or 5 months and their dedication to our mission to meet the needs of our patients and the clinicians who treat them has been a source of real inspiration. Now before I turn this call over to Rod McLeod, I'd like to say how happy we are to have him join our executive team. He's a great fit with the Nevro culture and he's hit the ground running. Rod's skill set and experience will help our organization to achieve our goals of profitable growth, business process evolution and value creation for our shareholders.
And I'd also like to again acknowledge and thank Andrew Galligan for his many contributions to Nevro over the past decade as well as his invaluable and ongoing help with Rod's transition. We all wish him and his wife the very best in their retirement. With that, I'll pass the call over to Rod.
Speaker 3
Thanks, Keith. I'm very happy to join the Nevro team at this pivotal time and look forward to contributing to the company's future success. I'll begin with our worldwide revenue for the 3 months ended June 30, 2020, which was 56,400,000 a 40% decrease compared to $93,600,000 in the prior year period. 2nd quarter 2020 revenue was negatively impacted by COVID-nineteen restrictions on elective surgical procedures around the world. U.
S. Revenue was $51,000,000 a 35 percent decrease compared to $78,100,000 in the prior year period. Year over year U. S. Trials declined by approximately 37% and permanent implants declined by approximately 34% during the Q2 of 2020.
International revenue was $5,400,000 a 65% decrease on a constant currency basis compared to $15,500,000 in the prior year period. The decrease in international revenue is primarily due to the impact of COVID-nineteen related government restrictions on elective procedures implemented in Europe and Australia. As Keith mentioned, we expect the OUS recovery to be more uneven than what we're seeing in the U. S. Gross profit for the Q2 of 2020 was $35,300,000 a 45% decrease compared to $63,900,000 in the prior year period.
Gross margin was 62.5% in the 2nd quarter compared to 68.3% in the prior year period. Compared to the prior year period, the decrease in gross margin in the second quarter was primarily attributable to a onetime charge of approximately $2,500,000 related to older generation product that we deem to be in excess of forecasted demand as well as a lower revenue base. Operating expenses for the Q2 of 2020 were $70,600,000 a 22% decrease compared to 90 point $5,000,000 in the prior year period. The favorable Q2 2020 decrease in operating expenses was primarily due to reduced travel related expenses, temporary salary reductions and decreases in discretionary expenses during the COVID-nineteen pandemic as well as the impact of management focus on driving leverage throughout the business over the longer term that had already been initiated in 2019. 2nd quarter 2020 operating expenses included an increase of 1 point $5,000,000 in our bad debt reserves and legal expenses associated with patent litigation were $2,300,000 for the Q2 of 2020 compared to $3,900,000 in the prior year period.
We expect that operating expenses will return to a run rate roughly similar to Q1 of this year as revenue recovers. Net loss from operations for the Q2 of 2020 was $35,400,000 a 33% increase compared to a loss of $26,600,000 in the prior year period. Adjusted EBITDA for the Q2 of 2020 was negative $22,100,000 a 98% increase compared to negative 11 $100,000 in the prior year period. Adjusted EBITDA excludes certain litigation expenses, interest, taxes and non cash items such as stock based compensation and depreciation and amortization. Please see our financial tables for GAAP to non GAAP reconciliations.
During the current pandemic and world economic conditions, we continue to focus on cash preservation while balancing totaled $562,300,000 as of June 30, 2020. Net cash increased during the Q2 of 2020 by $314,800,000 primarily as a result of approximately $313,500,000 in funds, net of underwriter fees and expenses received from the company's April 2020 public offering to common stock and convertible senior notes. As a result, total weighted average shares outstanding were 34,000,000 for the Q2 of 2020. That concludes our prepared remarks. I'll turn the call back over to Juliet to moderate the Q and A session.
Speaker 1
Thank you so much, Rod MacLeod. Appreciate it. I'd like to open the line for questions now. And we'd ask that just in the interest of time, you limit yourself to one question and one follow-up. Operator, can you please go ahead?
Speaker 0
Thank you. Your first question comes from Larry Biegelsen with Wells Fargo. Your line is open.
Speaker 4
Good afternoon, guys. Thanks for taking the question. Keith, I wanted to ask you two questions on the update you provided on the call. I'm sure there will be a lot of questions on the recovery. But on the pipeline, I just want to confirm that the non surgical refractive back pain study has completed enrollment and implants in all patients.
And then on PDN, the crossover you talked about, Keith. How do you think that will impact the 12 month results? And what are the implications? Why did you call that out? And I had one follow-up question.
Speaker 2
Okay. Thanks, Larry. Let me take them in order. On the NSRBP study, yes, where patients are all enrolled at this point. We expect there to be around 140 patients to reach the 3 month endpoint sometime later this fall and to be able to present a 3 month data at NANS as I said.
So no real changes there. On the PDN trial, I think I just wanted to call out the crossover impact, because as we look at the presentation of data, it was clear to us that maybe not everybody understood that element of the protocol. So we'll have at 6 months, some very clean data between comparison data between the treatment arm and the control arm. At 12 months, the data gets a little bit more complicated, though we'll continue to get a lot more treatment arm data, which will be very useful. This has been a part of the protocol from the beginning, but we thought maybe underappreciated by some.
So that was really the only reason to call it out.
Speaker 4
That's helpful. And Keith on the Medicare fee for service hospital outpatient update you provided for the prior authorizations. I guess the question is why do you think they're doing it? And what percent of implants could that impact fall under that setting? And what do you think the impact could be?
Thanks for taking the questions.
Speaker 2
Yes. Well, I think they again, this is a proposed rule, not a final rule. And CMS was clear that they were doing it because of the increased rate of utilization of SCS over the last decade or so and particularly over the last 3 or 4 years. So that's the reason they're doing it. At least that's the stated reason.
In terms of the impact on the business, we think around 25% of our business is Medicare in the hospital setting. So again, about half of our patient treatments in the U. S. Are in the hospital and sort of in the range of half of our patients are Medicare versus private pay. So you've got about 25% of patients of our patients that are subject to this.
And of those, about onethree are under Medicare Advantage. And they're already subject to a pre auth a prior auth requirement anyway. So by our numbers, this is a new requirement for what amounts to 16%, 18% of our overall cases. Keep in mind that we have a dedicated in house group, the NevroCare group that works with prior auth in private payers and Medicare Advantage payers already. And so this is a while we don't necessarily think it's a great idea or consistent with the best care for these patients, particularly given the government's focus on opioid sparing approaches.
Nonetheless, it's a relatively minor effect on the business and we're already set up organizationally to handle this process.
Speaker 4
Thanks so much, Keith.
Speaker 2
Okay.
Speaker 0
Your next question comes from Robbie Marcus with JPMorgan. Your line is open.
Speaker 5
Thanks. Can you hear me okay?
Speaker 2
We can, Robbie. Hi.
Speaker 5
Great. Hi. So congrats on a much better than expected quarter. You beat out a lot of your peers pretty handily. And the Q3 commentary was definitely better than I think most people were expecting and great to hear for you and patients.
So I was wondering if you could give us a little bit of what you're seeing on the ground. How much of the Nevro recovery do you think is share gains in Omnia? How much do you think might be geography? How much is market driven? Just any commentary.
And then I'll ask my follow-up as well here. We've got 1 month in the bag for Q3. If you could give us any trends you're seeing in July so far that give you confidence in that would be great.
Speaker 2
Okay. Sorry, Robbie, you really cut out on the end of that. I heard something about Q3 and didn't hear the tail end of it. Okay. Not sure if we lost Robbie.
Let me take a stab at where I think Robbie was going. On the on our recovery, look, I think that's a great question, and I really wish I had an equally great answer. We don't have a lot of visibility to share for reasons that I've talked about before. Our competitors, where that business lives within their business, the materiality of that segment, what they report, don't report, etcetera. It was our sense coming into COVID in Q1 that we were continuing to gain share.
The Omnia launch in the U. S. Was really just getting up and going. And we felt fairly certain at that time that we were picking up share. It's our sense and it's just that anecdotally that through the course of the pandemic thus far, that despite the negative impact on the overall market, that we think we've continued to pick up share.
We think some of our capabilities in terms of remote interaction with the patients, the Omnia launch in particular and other things have led to that conclusion. But as I said, it really is just sort of a sense on the ground of how things were going during the worst of the pandemic. And then I think as we reemerge from this, it is certainly our hope and our continued sense that, that trend continues. It really is the feeling of our team on the ground and it's a bit more anecdotal than I would like right now. We hope to have a little bit more clarity as Q2 information gets out there, gets a little better digested and we get some information that we don't have now.
In terms of geography, I don't really think geographical mix played much of a role there. We're pleased with, I think, the early response to recovery that we've seen in the OUS markets, but it's been very recent and very short term. I think we've seen a beginning of a recovery in the month of July that's encouraging, but it's early. We're seeing maybe in July internationally what we began to see in late May June in the U. S.
In terms of the Q3, which and I'm not sure I heard all of your questions, but I think we're going to probably leave it at the remarks we've given. We're early in the Q3. We're effectively 1 month in. What we did want to give is exposure to the fact that, A, we're beginning to see some early recovery outside the U. S.
That we didn't see over the course of most of Q2. And that domestically, which of course is a majority of our business, that the trend that we saw into May June of recovery, that continues. And so we're continuing to see a very broad response to the Omnia platform, to our remote capabilities that we offer along with the Omnia platform and to the efforts of our team in the field, which I think have just been terrific. So I think we'll leave it at that for Q3, but we're feeling pretty good about where we are right now.
Speaker 0
Your next question comes from David Lewis with Morgan Stanley. Your line is open.
Speaker 6
Good afternoon. Thanks for taking the question. Keith, just a couple for me. The first thing is just your commentary in the back half of the year. And obviously, you're kind of discussing a faster work down of the trial implant patients, which is maybe sort of pulling some growth out of Q4 to Q3.
Speaker 2
I was wondering if you
Speaker 6
could just talk more granular in terms of how you're seeing the progression to the end of the year in Q4? And specifically, a couple of trends that we're hearing from SCS Implanters that their new patient flow is probably a little lower than it used to be, but they're prioritizing SCS a little more. And I'm just sort of wondering how you see these dynamics sort of playing out and how it may or may not be related to Q3 being a lot better and Q4 being more neutral year on year? And I just had
Speaker 2
a quick follow-up after that. Yes. I think everybody understands how revenue is generated in this business model. We start with a patient who's a lead for pain therapy. They decide to go to a trial.
And if that trial is successful, they're then a candidate in most cases for a permanent implant. And all of that plays out over a period of months and sometimes quarters. What that means is we have a lot of visibility to revenue over the over 6 months forward based on trial activity. But it also means when you go through this rather unique period where trials get shut down for a period of time that you've got 2 things going on at the same time. You've got some pent up backlog demand that you're hoping that you'll get back or at least most of it, but you also have this gap in new organic trial activity.
So you have to refill that trial pipeline. And that refilling, that gap plays out over a period of, as I said, weeks months or even longer. It's a new way to look at the business. We've never gone through this experiment where we've just interrupted the flow for entirely for a couple of months. So we're probably learning as we go.
But where we are right now is as and we have a lot of visibility in these patients when their cases are scheduled, etcetera. We believe between those that have taken place in July and those that are scheduled for the balance of the year that most of those, again, absent some new and unforeseen broad scale COVID spike, most of those will be recaptured in Q3. So we balance that against the trial activity where we had a near complete blackout there for part of the second quarter and the activity we've seen organically beginning to start again in June July. And we look at Q3 and we come up with a comment with a prospect that drove the commentary today, which is we think Q3 will actually be in a year over year positive situation driven some by the organic trial activity we've seen in June July that will drive some permanent implant activity in Q3, but probably more by the backlog cases that we think are coming in much more quickly than we had originally modeled, which is a very good sign, by the way. What that means is Q4 is more dependent upon the organic trial activity of the prior weeks months.
And again, so you're making up for that tough time you had in Q2 and then you're looking at a trial funnel that you're attempting to refill. So a little bit less visibility to Q4, but nonetheless, we think Q4 will do very well under those circumstances. But because of the lower impact of the or from the backlog cases, we're thinking it's somewhere kind of in the neighborhood of flat year over year. Then as we come into 2021, 'twenty one will, of course, depend entirely on our success in generating new trial activity between now and the end of the year as we think backlog cases will play a really a de minimis role in 2021. Does that help, David?
Speaker 6
It does, Keith. I think it's very, very clear. Thank you. And then just a quick follow-up maybe for Virat. I'm just thinking about your commentary on OpEx recovery.
It still sounds like you've got a shot at getting to EBITDA breakeven by the end of the year. And just sort of wonder, as you think about coming out of COVID, how are you thinking about sort of profitability heading into the forward year when you think about NSRBP? And then I sort of consider the crossover update on PDN to be a positive in terms of the ability to commercialize that product maybe faster. So when I think about the pipeline drivers in 2021, can you get to EBITDA profitable in the Q4? And can you sustain that momentum in the forward year given some of the investments?
Thanks so much.
Speaker 2
Okay. Let me jump in with part of that. So I'll let Rod talk a little bit about kind of expenses and how we see operating expenses come back up. In terms of profitability, David, it's a good question. We don't have guidance in place for the rest of the year and certainly not for next year.
But I think look, generally speaking, we would expect the productivity of our sales level going forward to be comparable to whatever we thought it was going to be before. So while there's always puts and takes on the operating expenses and projects that you decide can go away and others that get added based on big tectonic shifts like this. In general, if we thought we were going to be productive from an earnings standpoint at a certain revenue run rate before, we probably continue to feel that way. So I think it really will depend on revenue and when we see it getting back to comparable levels and getting back into a growth mode. I don't expect that we'll guide you to different expectations on the bottom line on a like for like revenue basis.
You want to talk a little bit about Q3 expenses?
Speaker 3
Yes. On operating expenses, as we mentioned, we finished Q2 at $70,000,000 And we do anticipate that as business continues to ramp up in the second half here, we do expect those to return to kind of normal sort of levels like we saw in Q1.
Speaker 0
Your next question comes from Margaret Kaczor with William Blair. Your line is open.
Speaker 7
Hey guys, good afternoon. Thanks for taking the question.
Speaker 2
Hi, Margaret.
Speaker 7
I wanted to follow-up a little bit on PDN and MSR VP in a variety of ways. So I don't know if you were able to host any virtual education sessions at this point, given that lull in April, if you were able to take advantage of that dead time to just start creating that market and maybe lay that groundwork. And as we think about 2021, I know it's very early and we haven't even seen the data, but what's the timeframe of launch? Is it going to be kind of slow and steady, limited trial, and then kind of ramp more broadly? Or walk us through the strategy there?
Speaker 2
Okay. Well, of course, the timing will depend on our in large part, I think well, on the continued readout of the data, of course, but on our discussions with the FDA. So we're in the midst of those right now. Based on what we know as we sit here today, we still believe we'll be in a position to file with the FDA in time expect an approval and prepare for a launch in the second half of twenty twenty one. So I think between now and then, it really will be more preparing for market launch.
I think we said maybe last quarter that around the end of the year or early next year, we'd probably begin to talk to you a little bit more about launch details, tactics, market development, that kind of thing. But really the timing, hasn't changed much on that. And if it does, it will be probably primarily driven by expectations of the FDA from a submission standpoint because those discussions are still ongoing. Margaret, does that answer your question?
Speaker 7
Yes. So it sounds like maybe it's a little bit early to assume you guys are doing too much work outside of just preparing for the submission. And I'm going to repeat it back to you just to make sure. And then maybe you'll start to pick those up as you go into the first half of next year.
Speaker 2
Well, we're doing actually a ton of work internally on preparing for market entry. It's just nothing that we're ready to talk about publicly yet.
Speaker 7
Okay. Got it. No, that's helpful. And then just as a follow-up, as you guys think about strategies going into this year, where you started, what have you changed? What have you kind of maybe pulled back on spend on versus maybe accelerated spend on, just broadly speaking, again, going into 2021 plus strategically?
Thanks.
Speaker 2
Yes. Well, I think that we've made some prioritization changes in our product development roadmap and so in our product pipeline. We have what we believe are certain advantages in our patient treatment infrastructure. Some of those are product centric, some of those are not in terms of our ability to track and interact with our patients and our customers remotely. I would say that generally speaking there are things that we can do to expand that profile and we're working on those things now and we've prioritized those a bit more aggressively.
More to come on that in the next couple of quarters. But that's something that we expect to be talking to you about probably in the first half of twenty twenty one or so. I think we've gotten much more proficient at virtual interaction with our customers from a training standpoint, because we've had to like so many companies. We had the advantage of having data on 55,000 to 65,000 patients to be able to talk to our customers about the ability to interact with those patients throughout the pandemic. And that's an area where we've continued to expand and develop.
And I would say probably aside from that, the PDN area is one that we continue to grow in our enthusiasm. And so we've spent a bit more time, maybe than I even would have thought a couple of quarters ago in preparing for that market opportunity. And that will play a larger role in how we think about a number of our go to market initiatives. And again, we'll have more to say on that in the next couple of quarters.
Speaker 7
Wonderful. Thanks, guys.
Speaker 0
Your next question comes from Bob Hopkins with Bank of America. Your line is open.
Speaker 8
Okay. Thank you and good afternoon.
Speaker 2
Hi, Bob.
Speaker 8
Hey, Keith. Thanks for taking the question. First question for me is, are all of your U. S. Centers that were kind of active at the end of 2019 actively kind of implanting or trialing now?
And as a sort of a follow on to that, to the degree that you're sending and I'm specifically focused on U. S. Centers and to the degree that you're seeing variability and I assume you are across the U. S, what are kind of the main drivers of that variability? And does it give you a roadmap for getting slower centers back on as you work your way into the back half of this year?
Speaker 2
Yes. I don't have the current data point in front of me. I think the last version of that particular data I saw at the end of the quarter. But at that time, if we looked at the centers in the U. S.
That were active pre COVID in the Q1, of those centers, I think we were generating activity in a very high percentage. I think it was greater than if memory serves, I think it was greater than 90% of those centers had come back into activity. So we're not seeing big chunks of our customer base that remain dormant or inactive. So I think this is pretty broadly shared recovery. Obviously, there are some areas that have recovered more robustly than others.
I think it depends on very, very local and specific circumstances, but it also clearly is tied to local COVID activity and response to infection activity. For example, we saw in the I believe it was in the last week or so of July, we saw a little bit of a decline in case volumes in areas like Texas and California. But interestingly, they were just as we saw in June in Texas, they were rescheduled. So this seems to be kind of the pattern that we're going through right now that we see temporary blips that we don't see many cases being just canceled and put in indefinite suspension like we did back in April. There's more of a let's push it out a couple of weeks kind of mentality.
So we're and that's as you might expect extremely difficult to forecast. But I would say from area to area there's not a lot of variability that I could easily explain aside from local COVID conditions on the ground.
Speaker 8
Okay. So that's helpful. So as a follow on to that, it sounds like Q4 will be a true reflection of underlying demand because you're saying you work through the majority of the backlog and rescheduled procedures by that time. So if we and I realize this is a big assumption, but if we make the assumption that COVID is under much better control in the United States by the Q4, what would be the variables that would prevent kind of a more normalized growth rate in the Q4 versus the flat that you're not guiding to, but talking about today?
Speaker 2
Yes, I think that's pretty straightforward. It really is just the revenue in Q4 Q4 will be a function of the trial activity in Q2 and Q3. So we have a relatively predictable curve of conversion from of patients from trials to implants. When you take that curve and you just lop a couple of months out of it and then you spend the next couple of months after that refilling the pipeline, you have an impact that you're certain to see over the next couple of quarters. It's like steering the proverbial ocean liner.
It's hard to change it overnight. So even if our activity continued to be very robust coming out of Q3 and Q4, we still have that fact pattern in our history at that point of kind of a big gap in Q2 that's going to kind of continue to roll through that conversion curve. So that really would be the only thing Bob that I would focus you on.
Speaker 8
Okay, great. That's helpful. Thank you.
Speaker 0
Your next question comes from Joanne Wuensch with Citibank. Your line is open.
Speaker 1
Good afternoon, everybody. Thank you for taking the question. Hi. I actually have 2. You're well into the AMIA launch.
And I'd be curious if you could give us anything quantitative or qualitative on how that's been received and what you think is happening in the competitive landscape in response to that? And then my second question is along the similar lines, which is can you just sort
Speaker 7
of give us a big picture view of where the sales force is today and Tempo and how they're preparing in this recovery?
Speaker 2
Sure. So I'll take them in order. So the I think the response to the Omnia launch has been very good. And as I mentioned in my remarks, we've now just launched Omnia in Europe and Australia following approvals there respectively. I think the Omnia launch is doing as well as we could have hoped on a relative basis.
Obviously, COVID interruption aside, we felt extremely good about what Omnia was doing in the U. S. In the Q1 coming into COVID. And again, from a relative standpoint, we think we continue to do well with Omnia. The response has been very good.
We measure the response in Omnia based upon adoption initially by our current customers and that adoption has been very strong. So if we look at the percent of our utilization that's coming from Omni, I would say we're probably on to maybe slightly ahead of the curve that we had in our projections when we launched Omnia late last year. And I think it's playing a role in the share that we have in the splitter accounts. And again, those are accounts that use both Nevro and at least one other supplier's products. So I think, Omni, those are sort of general comments, but I think we're very pleased with the Omnia launch adjusted for COVID, of course.
From a sales force standpoint, I just couldn't be more pleased with the response from our sales organization. We kept them extremely busy during the worst of the pandemic. We never really shut down. We did have cases that continued and our field team continued to cover those cases. They shifted gears very quickly to reach out to all of our existing patients to begin optimizing therapy more aggressively, capturing results, feeding that back to their customers.
They've transitioned to helping our customers refill their trial funnel very actively and employ some of the tactics that we employed for some of you who remember back in the spring of 2019 when we were attempting to refill the trial funnel as well. And so they're doing a terrific job. I think that they've acquitted themselves very well relative to our competitors. I think our customers really appreciate that. And I just couldn't be more pleased with the way they've handled themselves and our business through this whole episode.
You asked one other question and that was competitive response. I think the competitor's response to Omnia has been largely as we described last quarter. We saw right around the 1st of the year just before NANDs, one of our competitors acquired a new waveform and they've been actively promoting that waveform as well. We haven't seen a dramatic effect on the market or share as a result of that, but we know that they're very active. Our other competitors have had minor product improvement kind of introductions that are good to see, but haven't necessarily changed the overall dynamic between us as competitors.
Speaker 7
Thank you.
Speaker 0
And your next question comes from Danielle with Leerink. Your line is open.
Speaker 9
Hey, good afternoon, guys. Thanks so much for
Speaker 2
taking the question. Hi, Damon.
Speaker 9
Hi. Just a quick question on the recovery and then I have a follow-up on Omnia. So on the recovery, do you have any sense, Keith, of whether patients are getting lost or dropping out? So of the canceled or deferred procedures, do you assume any of those do sort of fall out of the system for whatever reason? That's my first question and then I'll follow-up with Omni after.
Speaker 2
Yeah. I think it's about what we assume maybe a little bit better. So we assume that through that interruption, you internally that we would see some of those patients go away. I don't think you can go through something like that without and think that you're going to capture or recapture 100% of the patients that were in your funnel before. But I think our recapture rate has been at or better than what we assumed.
And as I mentioned, it certainly has been quicker. What we've seen, particularly in the U. S. Market, is that our doctors and our centers, both hospitals and ASCs, have been very, very motivated to reenergize this therapy in their practice and in their site. And patients have actually been pretty aggressive about wanting to get back on schedule for this particular therapy, which sort of reinforces our view that these are not your typical elective patients.
These are patients that really require some sort of therapeutic intervention and they're very determined and motivated to seek and get that therapeutic intervention. And so I think all of those have played together and we've lost maybe the same to fewer of these patients than we might have thought.
Speaker 9
Okay. That's great. And then on curious if you could give and I know COVID confuses this or clouds this a bit, but where you're seeing the most success with Omnia? Is it in switching competitive accounts or driving higher volume at existing higher Nevro share, I guess, I should say, at existing Nevro users? Any color you can give there?
Thanks.
Speaker 2
That's a hard one coming out of COVID. And we've just launched it outside the U. S. So I think it's one thing we can clearly evaluate is the success we've had in when I say competitive accounts, I really mean accounts that we share with competitors. So I do believe that we've seen a share impact from Omnia.
In terms of overall utilization in any given customer, it's hard to see through the fog of COVID to really answer that question. So maybe give us another quarter to answer that more clearly.
Speaker 9
Okay, totally fair. Thanks so much.
Speaker 0
And the last question that we have time for today comes from Kalia Krum with Troist Securities. Your line is open.
Speaker 9
Hey, guys. Thanks for taking our questions. So you guys have put in a lot of sort of cost saving initiatives early on during the pandemic. So I mean, first, at this point, have any of those initiatives been lifted? Or what do you need to see in order for to return those investments to historical levels going forward?
Speaker 2
Yes. I think it's a really it's a line by line management evaluation. We did put in place salary reductions early on. Those were reinstated at the beginning of Q3. Other than that, I think everything we're doing, we're sort of following the revenue recovery and looking at reinstating certain plans kind of 1 at a time.
So I think Rod gave a little bit of guidance of what to expect for operating expenses. I think we'll continue to find some efficiencies. And I would remind you, Kayla, what we said coming into the year, which was we felt like when we gave our original guidance, we felt like we could continue to bring operating expenses down as a percent of sales and even down to some extent on an absolute basis despite the growth that we were projecting. So a lot of what we were doing already continues in the background. The things that we cut specifically for COVID, some of them were active, some of them were passive.
An example of the latter would just be travel expenses. And an example of the former would be hiring freezes and not hiring new people until we know where the business is going, etcetera. So it's hard to give you one categorical answer to that question. We're really looking at these one at a time. But, we've got a lot of confidence in where the business is going long term.
We've got balance sheet capacity. So we're not going to hold off on an expense if it's part of our long term growth objectives.
Speaker 9
Great. That makes sense. Thanks, Keith. And then, just something we've been hearing a lot more about is just telehealth. Telehealth is here to stay.
So I'm curious just how you're strategizing around that. I guess, are you finding that pain patients are just as easily diagnosed by telehealth? Or how could this sort of shift impact your business and the referral channel? Thank you.
Speaker 2
Yes. It's a great question. I think, look, from our standpoint, telehealth really comes into what we do in 2 ways. 1 is maybe as it's tied to our direct to patient or direct to consumer initiatives. And what we were doing there would be described as telehealth anyway in terms of capturing those patients, qualify them and then helping them find a clinician where they would seek care.
The other way it comes into our own business model is in managing the patients once they've received a trial and or a permanent implant. And that's an area where we've made a big investment over a long period of time and where we've actually increased the utility of that capability more recently as we've done and this was pre COVID, we were already targeting to do more and more of our patient follow-up, telephonically anyway. I think the more important part of your question is whether or not our customers will continue to use telemedicine in a way that makes it easier for patients to be seen, to be assessed and to even be treated. I suspect we will. I can't quantify that for you, but I think our customers are like lots of other specialties where they've jumped into and embraced telemedicine pretty aggressively and pretty quickly and I think they see the benefits And I think our patients do too.
So my sense is we'll see a longer term impact from telemedicine that will increase capacity on the part of our doctors' office practice and otherwise. But I think it's going to take a little time to really size that up.
Speaker 9
Thanks so much.
Speaker 0
And with that, I turn the call back to the presenters for any closing remarks.
Speaker 2
Okay. Thank you everyone again for joining us on the heels of another rather extraordinary quarter and we'll look forward to talking to you again at the end of the following quarter. Thanks.