Q4 2023 Nevro Corp Earnings Call
Participants
Angie McCabe; Vice President, Investor Relations & Corporate Communications; Nevro Corp
Kevin Thornal; President, Chief Executive Officer, Director; Nevro Corp
Rod MacLeod; Chief Financial Officer; Nevro Corp
Kallum Titchmarsh; Analyst; Morgan Stanley
Larry Biegelsen; Analyst; Wells Fargo
Shagun Singh; Analyst; RBC Capital
Adam Maeder; Analyst; Piper Sandler
Joanne Wuensch; Analyst; Citi
Presentation
Operator
Good afternoon, and welcome to Nevro's fourth-quarter and full-year 2023 earnings call. (Operator Instructions)
I would now like to turn the call over to Angie McCabe, Vice President, Investor Relations and Corporate Communications for Nevro. Please go ahead.
Angie McCabe
Thank you, Regina. Good afternoon and welcome to Nevro's fourth-quarter and full-year 2023 earnings conference call. With me today are Kevin Thornal, our CEO and President; and Rob McLeod, our Chief Financial Officer.
Before we get started, please note that our earnings release and the supplemental presentation accompanying this call are available on the Events and Presentation page of the Investors section of our website at nevro.com. Also this call is being broadcast live over the Internet to all interested parties and an archived copy of this webcast will be available in the Investors section of our website shortly after the conclusion of this call.
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. Results could differ materially from those expressed or implied as a result of certain risks and uncertainties. Please refer to numbers, SEC filings, including our annual report on Form 10 K for detailed presentations of risks. Forward looking statements in this call speak only as of today, and the Company undertakes no obligation to update or revise any of these statements. In addition, management will refer to adjusted EBITDA. A non-GAAP measure used to help investors understand Naver's ongoing business performance. Adjusted EBITDA excludes interest taxes non-cash items such as stock-based compensation, depreciation and amortization, litigation related expenses and credits, changes in the fair market value of warrants and other adjustments such as gain from extinguishment of debt and restructuring charges. Please refer to the financial tables in our earnings press release issued today for reconciliations of GAAP to non-GAAP financial measures. I will now turn the call over to Kevin. Kevin?
Kevin Thornal
Thank you, Angie, and good afternoon, everyone, and thank you for joining us today. We're pleased with our fourth quarter performance and the progress we are making on advancing our core three pillar strategy for the fourth quarter of 2023 and as compared with the year ago period. Today, we reported worldwide revenue of $116.2 million, an increase of 2% on both a reported and constant currency basis and ahead of the guidance that we provided on our third quarter 2023 earnings call PDN sales grew 29% to nearly $22.4 million. Us trials were down just under 1% and in line with our expectations and net loss from operations of $11.8 million and adjusted EBITDA of positive $8.4 million, also ahead of our expectations. For the full year 2023, worldwide revenue was $425.2 million, an increase of 5% on a reported and constant currency basis. Also in the fourth quarter of 2023, we acquired versus technologies, which we are very excited about as it provides us with entry into the very high growth, sacral electric or SI joint fusion market and have announced a debt refinancing last year, we developed and implemented our strategy to improve our commercial execution and strengthen our foundation so we can deliver stable, consistent performance, achieve long-term profitable growth, enhance stockholder value and continue to provide best-in-class therapies for patients suffering suffering from chronic pain.
On today's call, I'll highlight key items that demonstrate the progress we are making on a number of fronts. Rod, will discuss our fourth quarter results and 2024 guidance for both the full year and force first quarter. Our strategy consists of three pillars. The first is commercial execution. We are laser focused on improving our execution to remove sales barriers, enhance customer experience and drive long-term profitable growth. Tunes improved sales productivity. We made some changes to the commercial team's competitive compensation structure and completed our commercial realignment. For example, because healthcare is locally delivered and consumed, we implemented a more geographically focused reporting structure. We also rolled out new incentive based compensation plans that include rewarding sales reps who deliver accelerated growth as well as incentivizing sales leaders to focus on delivering profitable growth. In addition, our market development team is now focused on increasing awareness of SCS as a treatment therapy beyond painful diabetic neuropathy. As a reminder, there are significant growth opportunities in SCS, including nonsurgical back pain and traditional back and leg pain and we have been at the forefront of driving awareness of new indications and our differentiated technology, as demonstrated by our success in PDN. Importantly, we continue to focus on improving physician engagement and education. Last year, we completed several large new hire training sessions, conducted our first SI joint lab with advisers implemented new professional education programs such as continuum of care courses for pain, interventionalists and surgeons and trained over 100 fellows.
The second pillar of our strategy is market penetration through expanded indications. HFXIQ. line extensions, a robust R&D pipeline, strong clinical evidence and targeted additive acquisitions. We are seeing increased adoption of HHFXIQ. since its full market launch last March. HFXIQ. represented 53% of our permanent implant procedures in Q4 of 2023, and adoption will continue to grow throughout 2024. Our data proves that with the HFXIQ. system, combined with the cell phone app, which since proactive alerts, physicians clinical burden is reduced by 40% and patients get back to pain relief, 75% faster than patients who are using a traditional remote to provide even more patients with access to the benefit of HFXIQ. within the next few months.
We expect to expect to launch a solution for roughly half of these patients who do not have an iPhone, including those with an alternative device in 2023. We also continued to penetrate the SCS market with our expanded indications in the PD and nonsurgical back pain patient populations. Pdn accounted for 24% of our permanent implant procedures in Q4 even with our success in PD and the market remains underpenetrated at nearly 1%. We are focused on further developing this market with our best-in-class technology and superior clinical data showing that patients treated with 10 kilohertz therapy experienced durable pain relief and significant improvements at 24 months. This is one of our key competitive differentiators because competitor devices are purposely designed to cause a tingling sensation to mask pain, which is a common symptom PDN patients already experienced. In contrast, our 24 month data shows that PDN patients experienced durable pain relief without the use of paresthesia. Notably, we recently announced the publication of a consensus statement summarizing recommendations based on outcomes from a December 2022 global interdisciplinary panel at the worldwide diabetes Virtual Global Summit statement, which was published in Diabetes Research and Clinical Practice recommend SCS therapy and particularly high frequency, 10 kilohertz SCS to treat refractory PDN symptoms that aren't adequately addressed by first and second line treatment enrollment in our PDN clinical sensory study now stands at 98 patients. The study is designed to more objectively prove the sensory improvements that we observed in our initial clinical randomized clinical trial or RCT and to receive an SCS indication beyond pain. We believe that this, along with our 24 months data and differentiation of our innovative therapy will help us further penetrate the PDN market and achieve our goal of having 10 kilohertz therapy referenced and additional Society guidelines for the treatment of refractory PDN it is also in January, we announced that Caroline health will be publishing a new interventional pain management policy that expands SCS coverage for PDN effective April 14th, 2024, as a result, PDM patient coverage will expand by nearly 43 million additional lives, bringing total U.S. covered lives to approximately $250 million. We are excited to continue working with physicians to expand awareness and offer this therapy to more patients suffering from PDN.
Turning now to our first ever acquisition, we are excited about the Versum transaction for several reasons. First, we now have access to a large and fast-growing market that SI joint market is currently valued at $2 billion in the U.S. alone, and we expect the increasing adoption of minimally invasive surgical procedures in this space to be a growth driver.
Second, many physicians who perform SI joint procedures are also performing SCS implant procedures, and we are now able to offer them more options to treat patients suffering from chronic pain. This has the added benefit of strengthening our relationship with these physicians as many of them are already our customers. Third, we are leveraging our commercial sales force and their current physician relationships to help drive adoption and growth. It should be noted that when fully trained, we will have the largest SI joint sales force in the market.
Finally, it broadens and diversifies our pain portfolio portfolio. We estimate that approximately 15% to 30% of patients with chronic lower back pain had pain that originates in the SI joint, and we now offer options to treat patients with both mechanical and neuropathic pain. We also offer one of the most comprehensive portfolio of products in the SI joint space, we are in the process of transitioning versus products to never naming and branding. In the interim, the current portfolios comprised of never OBI-1, never Onpro and never fixed, never will be one integrated SI joint fusion system with transacting technology will be our flagship product is there is no other device like it on the market. Never OBI-1 is proven to immediately transfer the SI joint to allow long-term fusion. Also, our proprietary instrumentation allows for optimal intra-articular SI joint preparation, which is critical to achieve joint fusion.
Finally, never V1 comes with 3D printed bone growth enhancing technology, which helps promote bone cell growth. And as a result, Fusion with this full suite of products, we are able to accommodate the different SI joint approaches available sites of service and CPT. codes to meet the preferences of different physicians and varying patient needs, ultimately helping to improve the quality of life and health outcomes for patients. In early January, we launched training for our sales reps for all three of our SI joint products and will continue to train both reps and physicians throughout 2024 as we ramp up this business. In addition, our limited market release started this month and while early overall physician feedback has been positive so far, importantly, coalition clinicians and medical societies expect that we will continue to generate the clinical evidence and SI joint space just as we have done in SCS, which is important in driving physician adoption and payer coverage.
Regarding our R&D pipeline, we continue to work on developing new revenue streams that will leverage our largest asset, our sales force and expanding into new indications for SCS. We won't go into detail here for competitive reasons. But as I previously communicated, one of the reasons why I joined Nevro was because of the impressive pipeline of products. Finally, our third strategic pillar is profit progress. Our goals are to improve efficiencies through streamline processes, scale our Costa Rica manufacturing facility, and have disciplined expense management. While there is more to do. We are making progress on this front with our leaders and teams across the organization. In January, we implemented a restructuring which included laying off 5% of our employees while this was a very difficult decision. It was necessary to position Nevro for long-term growth and profitability. Roger will talk about the expected financial impact, the impact of the restructuring in his remarks. As I mentioned, we are leveraging ourselves force that already column physicians that treat pain to drive profitable growth in SI joint. These procedures will require limited postoperative patient follow-up by our commercial team, allowing sales reps to grow revenue without adding patient support team members. We also continue to scale our Costa Rican manufacturing facility, which is supported by world-class manufacturing experts and technology. We will leverage it as we expand the business through new products via an R&D and tuck-in acquisition.
Before I hand the call over to Rod, I want to make a couple of final comments, but first, I want to thank our Nevro team members for their focus on executing our strategy and steadfast commitment to freeing patients from the burden of chronic pain.
Second, we recently held our 2024 national sales meeting for our US-based commercial team for many of the participants. This was their first never a sales meeting and team member show great enthusiasm for our core business, new entry into the SI joint space and excitement for our future. We are dedicated to our mission and are building on the progress we made in 2023 to stabilize and strengthen our foundation, which will allow us to transform our business through the opportunities that lie ahead.
10 kilohertz therapy, which is supported by superior clinical data in multiple RCTs across several indications is enabling us to provide patients greater access to our innovative therapies. Our goals remain the same to execute our strategy and capitalize on meaningful leverage opportunities to drive profitable long-term growth, positive operating cash flow and increase shareholder value.
I'll now turn the call over to Rod for a discussion of our fourth quarter financial results and 2024 guidance.
Rod MacLeod
Thanks, Kevin, and good afternoon, everyone. for the fourth quarter of 2023 as compared with the prior year period of worldwide revenue grew to $116.2 million, an increase of 2% as reported and on a constant currency basis, both the current and prior year periods had the same number of selling days. Pdn represented 20% of permanent implant procedures worldwide, resulting in approximately $22.4 million in PDN indication sales and growing 29% over prior year. U.s. revenue grew 2% to $101.5 million. International revenue was $14.7 million, increasing 4% as reported and flat on a constant currency basis, gross profit increased 8.3% to $81.5 million and gross margin increased 400 basis points to 70.1%, driven primarily by a shift to higher margin products as well as well as lower scrap related charges. In the current period.
Operating expenses decreased 1.4% to $93.3 million, primarily due to reduced spend across the business, offset by 3 million of onetime versus related spend. Excluding diversity related expenses, operating expenses finished down 5% versus prior year. Litigation related legal expenses were $2.9 million compared with $1.2 million in the fourth quarter of 22. Cash, cash equivalents and short-term investments increased 2.5 million from sent from September 30th, 2023 to $322.7 million as of December 31st, 2023 cash activities include 47 million in net funds received from our November 2023 debt restructuring, offset by $40 million in cash paid for our acquisition of Versa. As we previously announced, we acquired Versar for 40 million in cash at closing on November 30th, 2023, and agreed to pay up to an additional $35 million in cash or stock tied to the achievement of certain development and sales milestones. The transaction was immaterial to our fourth quarter revenue results. As Kevin commented in his remarks, we believe that physicians will begin treating patients in need as we train them on the procedure over the next few months, we continue to expect the transaction to be accretive to both revenue and adjusted EBITDA this year. The first half of the year will focus on training physicians and never commercial field personnel. While the second half of the year will begin to reflect increasing revenue traction. As a reminder, for 2024, we expect revenue contribution from SI joint to make to be immaterial to the overall year. Also on November 30th, 2023 we announced the restructuring of a majority of our debt, pushing the maturity out to 2029 through a six year $200 million term loan credit facility. The proceeds were used to repurchase the majority of our 2025 convertible notes as well as for working capital and other general corporate purposes.
Turning now to a discussion of our 2024 full year and first quarter guidance. For the full year 2024, we expect worldwide revenue of approximately 435 to $445 million, representing an increase of 2% to 5% over full year 2023 on a reported and constant currency basis. As a reminder, our major competitors have all reported their most recent quarterly results. It appears that the SCS market grew in the low to mid single digit range, excluding what we believe is primarily replacement activity by one of our competitors. We expect gross margin to be approximately flat with 2023 gold gross margin of 68%. Our Costa Rican manufacturing facility continues to produce excellent results on low labor and material costs for manufactured products. However, higher than the initially projected inventory levels and higher Omnium mix will delay the full margin expansion impact a few quarters. We're excited about the cost improvements Costa Rica can deliver, and we continue to project longer-term gross margins in the mid 70s. Assuming pricing holds at current levels, we expect operating expenses to be in the range of 390 million to 3 and a 92 million and largely flat compared with 2023. Our 2024 operating expense guidance includes ongoing litigation expenses and investments to drive growth in our PDN and our SI joint fusion product portfolios. We expect adjusted EBITDA to be negative 8 million to negative $14 million. This includes a 14 to $15 million benefit from our restructuring, which we announced and implemented in January 2020, for which we expect will be largely offset by normal operating expenses including inflation, merit increases and other acquisition related expenses. To help with your modeling, we expect normal seasonality with Q1 sales to be up to be our lowest quarter, down approximately 16% from Q4 2023. We are projecting the remainder of the year to play out and historical fashion for Q2 demonstrates a pickup from Q1. Q3 is flat to down sequentially from Q2, and then we finished with a strong Q4. These revenue results was slightly stronger. Second half growth also reflects what Kevin mentioned earlier regarding our efforts to improve our commercial execution. Similarly, operating expenses will follow our typical seasonality with Q1 as our large largest spend quarter due to events such as our national sales meeting, the NANS conference and SI joint training for customers and our field team. For the first quarter of 2024, we expect the following worldwide revenue of approximately 97 to 99 million, representing an increase of 1% to 3% over the first quarter of 23 on a reported and constant currency basis, operating expenses of approximately 105 million, which include higher than normal spend related to restructuring costs and SI joint training and adjusted EBITDA to be approximately negative 15 million to negative $16 million. Adjusted EBITDA will exclude a 5 to 6 million restructuring charge related to the January layoffs. As we previously communicated, beginning in the first quarter of 2024, we will no longer provide a breakout of our PDN indication sales.
In closing, we made significant changes in 2023 to strengthen our foundation and further position our business for long-term profitable growth. And we know that we have more work to do. We are excited about the opportunities ahead of us and remain committed to executing our strategy to deliver enhanced stockholder value.
Regina will now open the call for questions.
Question and Answer Session
Operator
(Operator Instructions) Kallum Titchmarsh, Morgan Stanley.
Kallum Titchmarsh
Please go ahead and thanks very much for taking the question. Just wanted to dig into the 2024 guidance a bit more if possible, you're guiding for between 2% to 5% top-line growth. I know you've historically called out the SCS market growing around 6% to 9% historically, and you've obviously got some some softer comps from 23 sales force restructuring is now in place to just be helpful if you could help us to reconcile that guidance in relation to the broader market? Is this just being conservative or is there something else we should be considering here?
Kevin Thornal
Yes. Thanks for the question, Calum. Really, if you look at the last few quarters of our competitors. And now this is a quarter where we already have all of our three competitors. Public company make their announcements. They are flat to down in maybe some of the US markets there, we believe will outperform some of our competitors in this space, given our ramp up a new sales force as well as you know, the excitement around new products and the indication growth with PDN and nonsurgical back pain. So on that gives us a little bit of a pause as we're looking for the year and don't want to get out in front of our skis and think that the market's going to be already overnight back to that 6% to 9%. So right now with the market looking to be mid low to mid single digit growth. We felt this is a good guidance for us to start off the year.
Kallum Titchmarsh
Got you. And just one more follow-up, if that's okay. On PDN, obviously no indication specific guidance as expected, but just eyeballing the street, I think the estimate here is just under 30% growth year over year. How do you feel about that number, given the tougher comps that will come into play, I think we saw kind of around that level in 2023 Q4. Just curious how we should be thinking about a setup here for the rest of the year in absence of the guide? Thanks.
Kevin Thornal
Yes, Kallum, we're not, as we said, will not be providing guidance or breaking out PDN going forward. I you know, as we said in the past, right, we really think the right way to look at the market is from an overall SCS perspective and all of our competitors and PDN now they've posted they've been in it for a couple of quarters. The last couple of quarters have been in that kind of flattish to maybe low single digit growth. And and the way Kevin just outlined, our overall SCS growth for this year, I think is the right way to think about it.
Operator
Larry Biegelsen, Wells Fargo.
Larry Biegelsen
It has on the contrary back on for Larry. Just a question on Bursa. So the market for SI fusion devices seems to be crowded, how do you plan to differentiate Versa and never have built its reputation on clinical data? I guess what's the plan to develop that?
I'm Versa?
Yes. Obviously, it's a crowded space, but also it's a fast-growing space. And we looked at a lot of different companies as we were evaluating getting into the space and almost all of them do some of the smaller private companies were growing double digits. That's what gave us confidence that this was a fast-moving space and in addressing a clinical need for patients. And the reason why we acquired versus they had all the products that you could utilize for this category of all three and allograft a screw as well as a transfection device. And so that gave us confidence that it was the right company to go after. Additionally, as I mentioned, we have by far the largest SI joint sales force now in the market, especially once we get them all trained that which will take some time. So we feel that in combination with the relationships we have with the SCS implanting physicians and our reps' relationships with those physicians that we'll be able to utilize those relationships to be able to get off to a fast start once they're trained.
Angie McCabe
Okay. Thanks for that. And for my follow-up, what are your expectations for our new SCS competition in 24? And I guess how does that influence your ability to take share in the year?
Kevin Thornal
As a reminder, we're the only high-frequency 10 kilohertz therapy out there and everybody else is coming into the market that are all low frequency with a few different bells and whistles competing against each other. And just listening from commentary from from those other those other companies, we believe that the target that they're going after is physicians that are still believers in the low frequency technology. So we'll continue steadfast in following our clinical superiority and our clinical studies that we have out there to differentiate us from the competition. And so while we never want to look away from any competitor. We believe that our guidance incorporates having those two new players in the market.
Operator
Shagun Singh, RBC Capital.
Shagun Singh
Great.
Angie McCabe
Thank you so much.
Kevin, I was wondering if you could talk a little bit about your key priorities and goals for 2024 when we can expect never to kind of get back into the share take position? Because, you know, it seems like a 24 outlook doesn't reflect that.
And then lastly, I was just wondering if there are any updates on acquisitions and how you're thinking about further filling the bag?
Kevin Thornal
Thank you for taking the question, of course, of course, yes, you know, as we've said last year, you know, I came onboard end of April and Greg Miller, our Chief Commercial Officer came on in the summer and we looked at the realignment of the sales force and the talent that we had in certain positions and really started to make some of those changes. And as a result, as you know, it takes six to nine months for some of these reps to get up to speed. We had some of the largest sales training classes in the history of the Company in the third and fourth quarter. So yes, we expect that now they're starting to hit their stride a little bit as we get into mid, probably Q2 and Q3 this year. And then obviously, we threw in a new acquisition to him to learn all at the same time, while we know that longer term, this is going to be a great market, will take us some time to get them up to speed on. But we do we do like our chances in competing head to head with our competitors with the new sales reps we have out in the field.
And the second question is as far as on how long it may take them to get up to speed, like we said, nine months would be hitting most of those at the Q2 mark, right in since I started.
Angie McCabe
And you also asked about what other acquisitions we might be thinking about to fill the bag with.
Yes, and Kevin can comment on this as well that you know, we I think with everything Kevin just outlined, we got a lot of effort and energy go into training our sales force on Versa, getting the physicians in the field trained and that you don't maybe let us get a couple of quarters under our belt and we can talk a little more about that and what some other future opportunities might be.
Operator
Adam Maeder, Piper Sandler. Please go ahead.
Adam Maeder
Hi, good afternoon and thank you for taking the questions. Two quick ones from me. I wanted to ask about pricing in 2024 and how we should think about that with the continued launch of IQ and maybe just flesh out what's assumed in the guidance for price.
And then the second question, I feel like I have to ask about the new revenue streams comment, Kevin and new indications for SCS. And I know you're not going to say a ton here. But is it fair to assume that this is still in some way shape or form still pain related? Or is it something else? And how do we think about timing there? Is this potentially a 24 event or 2025?
Angie McCabe
Thank you.
Kevin Thornal
Yes, I'll take the second first and then turn it over to Rod?
Yes, on the new product development, you caught that right now, we are working with our R&D teams is what I when I joined the company. I saw some of the places that they were going. And as we've talked about, we said we want to leverage our largest asset that we have in the organization, which is our over 500 person sales organization, and we will stay really close to home and make sure that it are their products that can leverage those call points and those sort of education and what our what our reps do extremely well, which is sell on clinical superiority and great customer centric and sort of mindset in the DNA that we have, where those never loyalists who love working with us like what we bring to the table there. So we'll stay close close to home and won't do anything crazy that would dilute our sales channel.
And then Rob, take first of all.
Angie McCabe
Yes, Hi, Adam. On pricing. The way to think about it is if you think about the average selling price of one of our implantable devices and as that mix continues to shift towards IQ. We should overall see that average price go up a little bit. So from a modeling perspective, flat to slightly up is probably a pretty reasonable assumption.
Operator
Joanne Wuensch, Citi.
Joanne Wuensch
Good afternoon.
Kevin Thornal
This is actually Anthony on for Joe and thanks for taking our questions. And first on the sensor study, I know it's pretty early, but I guess just thinking broadly, is this opportunity more about getting additional patients in terms of indication, maybe patients aren't experiencing chronic pain, but have no neurologic related sensory issues or is it more about just bolstering the evidence that you have is you can maybe get some more payers under your belt and get into guidelines.
Angie McCabe
But I just had a follow-up.
Kevin Thornal
Yes, it's both, Anthony. So number one is this will be the first indication that's outside of pain. So having that sensory indication will be new. And we have the first to market and likely more difficult for others to sort of tag onto that one because there's a lot of things that we're looking into that will come out of that clinical study. So it's more than just a typical digital better.
And what was your responder rate?
We're going to actually be showing biopsies in other clinical on benefits of the technology. And then the second is for sure, right now, as you know, we have just a plethora of information and clinical study evidence for 10 kilohertz on on pain, but we've only had first specifically on PD, and that's a large RCT study. And this will allow us to have a second really large study showing significant differences between us and low frequency. And we believe that gives us an opportunity to have to be into additional guidelines and make maybe strengthening the guidelines, which we're in we look at most of the societies, they typically require more than just one RCT. prior to them really recommending a strongly in their guidelines. And so this will give us a better chance of doing that in addition with payers as well.
And you had a follow-up.
Yes, just some sort of in the same vein, I know you just announced, Caroline, I think it was in January 40 to 1 million lives. Are there any other really big or substantial wins left on the payer side either for PDN and NSRBP or is it just more sort of smaller insurance carriers at this point?
Yes.
You know, there's it's so diluted there, right? There's a lot of different local payer decisions. There's Matt you know, obviously the Medicare decisions and all that as well. And I'm really proud of our team. Our team is the one that put together the clinical evidence that got the PDN indication in the first place. And it was our clinical evidence that was utilized to be able to gain those all of the Medicare reimbursement for PDN, which we're now fully covered on. So we still have a few that we'd like to take down. But don't forget, we have a team of people that are here to help our customers through the price the process of prior authorization. And also on how you look at denials and getting those overturned, we have a really high success rate. And so what that does once we gain that those new coverages is this allows us to go through the process much quicker and with a lot less friction in the system. So we're going to continue to do that and leverage all of our clinical efforts. So there'll be a few more to come here in the future as well.
Your next question comes from the line of Anthony Petrone with MS euro group. Please go ahead and I think you might be on mute.
Operator
Our next question will come from the line of Richard Newitter with Truist. Please go ahead.
Angie McCabe
Hi, thanks for taking the questions. Maybe just to start the Versa, I'm curious, as you know, you begin the commercialization here. You expect your initial users, the physicians that are already performing SI Joint Fusion?
Kevin Thornal
Or are you planning on first focusing initially on building practices kind of from the ground up?
Yes. Obviously, patients are at all of those different locations, but I think the smart play here is to leverage the relationships that we have that are already never loyalists that are also interested in are already doing the procedure on. And so as we look at the limited scale of what we're doing with trays and all of the manufacturing and training and everything else, the first place we're starting are with those people that are the closest to us. And our team also those that have maybe been involved in clinical studies with Nevro in the past people that we have a good relationship with. We'll start there, but then continue to expand because this is, we believe, a really good device for patients to experience. And so we we don't want to hold back and just go to one area of the market, but we have to make sure that we do it in a cadence that was safe and effective for the physicians to learn not only the procedure, but also some of them will need to learn our all of our different tools and things that need to go through and also our sales reps to feel confident standing in the operating theater and helping those physicians through their first three or four or five cases to get them comfortable.
Angie McCabe
Got it.
Kevin Thornal
Thanks, Kevin. You've obviously been very thoughtful so far as you've been guiding and execution is clearly incredibly important. So congratulations so far on the success on that.
Angie McCabe
I'm just curious, as we think of your just your first kind of full year outlook.
Kevin Thornal
I think you know, if we if we think about the different buckets of the total market growth share gain, potential, CDN differentiation and maybe even overage reverse. So you tell me what the buckets are, but where do you feel most confident you've baked in conservatism away? Where would you expect to see potential overages relative to the guide if it were to come? Where are you most confident in that?
Yes. Thanks for the question there. And then for the kudos, it's also we still have a long way to go you know, what I'm most confident in is our team. We've spent six months of the last year, both of people that have been here for many, many years, including decades on some as well as new people coming on board. And I feel really good about the energy and passion and what we've done to realign our sales force and adding the new talent there. That's what I'm probably the most proud about. However, obviously, you know, there's there's headwinds and tailwinds that come and go and I always like to have more opportunities in different revenue streams to do that. And I feel that the verse acquisition with three different products, the three indications that we now have on SCS because it gives us a chance to maybe counteract any of those headwinds with some good tailwinds as well. And so right now, it's too early to tell on, but I really like where our team is sort of coming out of the national sales meeting. We've got a global sales meeting coming up here next week, and I think we'll exit that one also feeling good about heading into the year with our team.
Our next question comes from the line of Brandon Baskin with William Blair. Please go ahead, everyone.
Angie McCabe
Thanks for taking the questions. Maybe first one on the PDM side, are there any metrics that you can give us on PDN, maybe like referring number of referring physicians become same-store growth kind of figures. So just trying to understand like where you are in the terms of the adoption curve and especially how durable this can be with the physicians today?
Yes.
Kevin Thornal
You know this that we're showing right now is that we're still under 1% penetration. I mean we are in the missionary selling phase, and I described that as you know, we're building believers that they didn't learn this in their schooling.
Angie McCabe
Right.
Kevin Thornal
And so this is something new for those endocrinologists or podiatrists or any of the other referring physicians. And so in some of those territories, you know, there may be one or two big endocrinologist groups that provide that's providing a lot of that growth in a city. And then there's another city where there's 10 different podiatrists that are referring one patient each month to the surrounding physicians. So it's kind of hard to do a blanket statement, but we do feel that we're going to continue the efforts of missionary selling and going out there and showing the clinical superiority of our technology versus any of the others that have the indication. But none of the clinical evidence had to prove that. So I'd say we're so early into this that right now, we're taking anybody this those first movers that say, you know what? I have put my first three or four patients through that come back with unbelievable results.
So now I'm highly confident in referring these patients again, go back to the comments in the prepared remarks. We've had not only great clinical evidence, but also now consensus statements and then people coming out showing the great results from PDN. So I think we still have a long way to go, and we're excited about helping that patient population.
Angie McCabe
Okay. And maybe one last one for me. Kevin, you've been in the seat coming up in a year soon, and you've been looking at this core SCS market. What do you think needs to happen here now that you've had a little more experience with that to get from this flat to down to that, maybe closer to the high single digit range. It seems to be one of the markets that still hasn't seem to have recovered post COVID. So curious what your thoughts are as you gain more experience.
Yes.
Kevin Thornal
Look, we have to control what we can control. And the one thing that we know we can do is our increase our TAM, our effectiveness in the sales force. That's why it's one of the top three pillars. And we feel great about the teams that we have coming into this year where they are and regardless what the market growth is, it's our job to go out and take share. And I always say we have a moral obligation to do so because of our superior clinical evidence, it's our job to win to get patients that we believe implanted with a product that is better for them. Now it's obviously of the doctors opinion on what they want to put through, but we obviously are confident in our on our technology from a market growth standpoint, don't forget the core SCS market also includes nonsurgical back pain and we believe PDN and also new indications that we're continuing to work on from our clinical evidence standpoint. So we believe that the entire SCS market has opportunity to not only recover, but also to experience growth in the future to predict that would be impossible. But I like our chances now with a diversified product portfolio, including that and now our entry into SI joint, regardless of what the core back and leg market does we have a lot of other growth drivers that have led us to the 2% to 5% guidance growth for 2024.
Operator
Your next question comes from the line of Bill Plovanic with Canaccord Genuity. Please go ahead.
Well, you know, I mean the good evening.
Angie McCabe
Thanks for taking my question. The first question is and maybe I heard this right. Did you say you think the Versa will contribute EUR2 million in 2024? And then what do you think just total growth like as we think of the US/OUS split for the global business? Like how are you thinking about that? And then I have a expense question.
Kevin Thornal
Okay. Some good job getting in three as always, Bill, on the first one?
No, I did not say $2 million in 2024. I just commented that for our overall guidance for all in Nevro, we said 2% to 5% is our is our guidance range that we put out there, which includes which includes everything. As far as the global breakout, we think that we have some opportunities. We really feel good about our leadership and our Internet and international teams and our opportunities now that are in international markets, there is still a lot of pent-up demand and a lot of hospital staffing shortages that still were going on, believe it or not in 2023 and likely a little bit into 2024. But we believe our international team has a good opportunity next year and in so doing, we also believe that our U.S. team is much better off now than we were back in the summer or back when I when I joined. And so we feel confident that our that our teams are ready for 2024 and probably equal growth spread globally.
Angie McCabe
Okay. And then on expense management, I mean, listen, the fourth quarter was excluding that one-time charge for the deal is $90 million, right? You're annualizing at three 60, you're taking a 5% headcount reduction, but you're guiding OpEx much higher. I'm just trying to kind of understand what the puts and takes are, especially the commentary also on the gross margin at 68 when you just put up a 71. I mean, it's a it seems like from an expense standpoint, um, I mean that that's a real low bar unless I'm missing something.
Yes.
So a couple of things.
Good question, Bill. For fall, margins were 70.1, not not 71 for Q4 and also remember the seasonality of our spend. So Q4 is actually one of our lower operating expense quarters. So that's not necessarily the best one to take for to annualize of for Q1, we're anticipating it will be close to 105 million. There there are some restructuring charges in there that we that are running through operating expenses that are driving that up a little bit. And if you remember last year, we did a little bit over $100 million in operating expenses in Q1 as well. So I'm yes, we do we and we do have the impact of the 5% layoffs that will be probably benefiting from throughout the year in our in our P&L, but there is also the traditional home merit increases, inflationary pressures. We do have to invest in Bursa this year to train reps and physicians on. So all of those kind of as we as we said, will largely offset them that the layoffs, the benefits we get will receive from that and will basically lead us to a roughly flattish operating expense on what the 2% to 5% guided top line growth.
Your next question comes from the line of Anthony Petrone with Musiwave group. Please go ahead.
Thanks. And apologies. I have hopping between calls. So sorry about that. I actually want to go to just looking at broader market conditions as an ancillary to spinal cord stim, meaning spine procedures look like they've actually rebounded here based on some of the competitor results you have in the past seen pull through from failed back and leg surgeries, we're seeing spine come back. Should we still be thinking about that, let's say, as you know, nine to 12 months out, that could be a driver is that the right way to think about that.
And a quick follow-up for Kevin would be it looks like after the close here, you have a new Board member. So maybe talk about just high-level strategy as the Board shifts here a little bit. Do you think we have a strategy that's largely intact with tuck-in acquisitions and a refocus on the core or could we expect a slight deviation? Thanks.
Kevin Thornal
Yes, thanks, Anthony. And no problem. So you on market conditions, you know, spine sometimes can be a good analog and then sometimes it's not right.
Angie McCabe
We do.
Kevin Thornal
We do know that there are a lot of different procedures that some patients need to go through before they can get to a spinal cord stimulation approval for implementation. And as a reminder, if you jump off that journey, you don't get the start we left off. You have to go back to go and sort of go through that conservative care before you get there. So that says a lot about that lagging. I don't know, nine to 12 months is the right number there, but we are we do like some of the trends that we're seeing in other procedural growth and rebound that we're hearing from sort of markets that are sort of peripheral peripherally close to us, but it will take the time for those patients to sort of go through that continuum of care before they get to spinal cord stimulation implant. One of those is obviously mechanical back pain as well before you treat neuropathic back pain, which is what led us to get into the SI joint procedure market. That's like I said, 15% to 30% of patients will experience both mechanical as well as neuropathic pain. So that gives us a chance to maybe grab some of these patients a little bit earlier in their continuum of care. And as far as far as the close as well with the Board yet we routinely work with our shareholders is something that we do. We talk to them after all of our calls, we're excited to have her on our Board. As we mentioned in the announcement, it was local down the street here for us and he's got extensive experience in it. Acquisition's financial acumen and he's also worked on the other side and as an investor as well. So we believe he is going to be helpful for us. And so right now, we believe we have good alignment and a good cooperative cooperative agreement with our with our shareholder and the change in our Board. I do want to make sure that through this, it gives us opportunity to say thank you to one of our board members that will be outgoing towards the opening period this summer with Frank and he will be leaving our Board in the summertime, and he has been instrumental to our growth and instrumental for taking us public for taking us through a lot of variations that we've had through the business. And we wanted to thank him for his time. And it's been a long-standing has been a long-standing Board member and has been with the Company for a really long time. So we do not believe that our strategy will change. And we have good supported Board members with the plethora of experience both in medical devices and financial acumen. So we believe we will stay the course here think about it.
Your next question comes from the line of Suraj Kalia with Oppenheimer. Please go ahead.
Angie McCabe
Good afternoon, Kevin, Rod, can you hear me alright?
Yes.
Yes, perfect. Thing, Kevin, on I know your one year anniversary is coming up and I was curious if you could just frame a couple of things for us.
So Kevin, as you looked at the business. Our recollection is roughly about a third of the traditional SCS for Nevro was from NSRBP. Has that changed? Because I sense a shift in the tone on the call more so towards traditional opportunities versus PDN. So if you could just characterize where NSRBP today, that would be great.
And the second question, Kevin, if I could. Our field checks have told us that Verso did roughly around seven eight ish million 23 and was on track for doing 15 and 24. Correct me if I'm wrong so that we can slice and dice it in terms of FY 24 guidance.
Thanks for taking my questions.
Kevin Thornal
Yes, the first one, no, I think we have a lot of opportunities for the core markets, which we say back-end leg as well as on nonsurgical back pain and PDN. And so we take all comers. There are patients that probably experienced both of those at the same time, for instance, you might have back and leg pain and also be suffering from painful diabetic neuropathy at the same time. So no, we believe that the market still has a big opportunity. Nonsurgical back pain is still the largest opportunity that we have on and failed back surgery would be second and then PDN just because it's still early in the game would be the third. So not really a lot of change there other than the fact of where you're seeing a really tremendous growth in the PDM space because we're coming from a brand new start of that.
As far as on field checks, you know, we're not commenting anything on there.
One thing I will add is just we are moving from a primarily distributor model to a direct model. And so it will take us time to make sure that we have our direct sales force, but trained and up to speed as well as scale that organization from, you know, Bob, an operational perspective from both manufacturing and for some of the trays that are needed to perform the procedure.
Your next question comes from the line of Mike Velac with Wolfe Research. Please go ahead.
Angie McCabe
Pretty good afternoon.
Kevin Thornal
Thank you. I'll just ask and get on versus So like I it sounds like you don't want to say a number about what's built into the 24 data.
Angie McCabe
I can appreciate that.
Kevin Thornal
I suspect on calls like this moving forward, we'll be asking what the number is at least to get a level set. So maybe I'll ask it for a third time here. At the end of the period, we can you can you can you comment about what's considered in the 2024 guidance for Versa revenue? And if not, just the.
Yes, I'll make it formally making a note and we'll probably be asking every quarter on calls like this until you give it to us or at least frame it. So thanks for taking the question, guys, and I completely appreciate the desire to want to know where we are right now. It don't forget we're still early in this was a really small company with some really great technology that we're excited about in our market checks and due diligence showed that we think we have a differentiated device in the wind device, which is the flagship one. So we did that and I just mentioned we are going from distributor to direct. And so that takes some time to ramp up. The organization is so not material right now, but it's just not the right time to start breaking that out but we can appreciate that, that will be something that will be desired into the future.
Our next question will come from the line of Robbie Marcus with JPMorgan. Please go ahead.
Angie McCabe
Okay, great. Thanks for taking the question and congrats on a good quarter. And maybe I want to ask Reverset, but maybe as you help us understand the assumed ramp in sales growth in the second half of the year. And net ROEs had several guides that were back-end loaded, some like in 2022, it worked out others that did. And so I think investors want to help understand the drivers there. You talked about the sales force restructuring in oh, we were under the impression Versal was also about 7 million on track to do about 15, 16 this year. Is that really where it's coming from? Is it a sales force, some revamp and selling more SCS?
I think it is at organic and inorganic and I understand immaterial, but the guide, the guides a few percentage points. So even $4 million is I know it's a percent. So maybe help us understand exactly where it's coming from and get confidence in the back half ramp?
Kevin Thornal
Thanks.
Joe. There's really it's really all the above. I mean, as we as we mentioned, I think in the past the hard part was we did have PDN as a new indication and nonsurgical back pain. But but it was a prediction of a little bit more of a market recovery that all boats would rise with the rising tide a little bit there on top of the foundation that Keith prior to me that it's set up professionalize the organization and we have the opportunity to jump off all the hard work that he's done and that had been done here by the Nevro team prior. But at the same time we did, we did have some muted, call it restructuring realignment of the sales force and also some some turnover that we caused by upping some of the sort of the sales talent in a couple of spots across the organization, which does take some time to get up to speed, right? So that's a little bit of why it's back-end loaded. The other part is just seasonality I mean, you look at all four of us in this space. Q4 is always much bigger than Q1 or Q2, and it's just seasonality with people's co-pays and everything else that happened. So that's just natural seasonality has been there for decades in this space. And then lastly, yes, I mean, it's not material right now in our business going from really small to what we yes, we're expecting that to do better every single quarter as we move forward. And so we have a new device, a new market that we're in three new devices that are new new markets that we're in. And so I think that that helps justify a little bit of the back end of the year, specifically since we need to train. So many of our reps out there trained 20 reps is a lot different than training over four or 500 odd to be experts in this device. So it will take us some time to do that.
Operator
Ladies and gentlemen, that does conclude today's call. We thank you all for joining, and you may now disconnect.
