NuVasive Inc (NUVA) 2022 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to NuVasive's Second Quarter 2022 Earnings Conference Call. I would now like to introduce your host for today's conference call Ms. Juliet Cunningham, Vice President of Investor Relations at NuVasive. Please go ahead, Ms. Cunningham.

Thank you. Good afternoon, everyone. Joining me today are Chris Barry, Chief Executive Officer; and Matt Harbaugh, Chief Financial Officer. Chris will provide an overview of NuVasive's second quarter 2022 business results and trends as well as innovation highlights. Matt will review our detailed financial results and full year 2022 outlook. And then we'll host a question-and-answer session. .

The earnings release, which we issued earlier this afternoon, is posted on the IR section of our website and has been filed on Form 8-K with the SEC. We have also posted supplemental financial information on our IR website.

As a reminder, this call is being recorded, and an archive will be available on our website later today.

Before we get started, I'd like to remind you that our comments during this call will include forward-looking statements, which are based on current expectations and involve risks and uncertainties, assumptions and other factors, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

The factors that could cause actual results to differ materially are described in NuVasive's news releases and periodic filings with the SEC. Except as required by law, we assume no obligation to update any forward-looking statements or information, which speak as of their respective date.

In addition, this call will include certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP financial measures are included in today's earnings release and the supplemental financial information, which are accessible from the IR section of NuVasive's website.

And now I'd like to introduce Chris Barry.

Thank you, Juliet, and good afternoon, everyone. Earlier today, we reported second quarter 2022 financial results. On today's call, I will review our performance for the quarter, share our progress on delivering multiple vectors of growth and provide an update on our innovation road map and how we believe it uniquely positions NuVasive to disrupt the future of spine surgery. After that, Matt will provide additional financial details on the quarter and commentary on the remainder of the year.

NuVasive delivered second quarter 2022 net sales of $310.5 million, an increase of 5.3% on a reported basis or 7.8% on a constant currency basis compared to the prior year period. In spite of a challenging backdrop of macroeconomic and market pressures, we saw procedural volumes increase over the prior year period and continued surge in demand for our existing innovation and new product introductions.

This is reflected in our performance in both the U.S. and international markets. Within our international business, we delivered another strong quarter of net sales, resulting in double-digit growth on a constant currency basis led by Europe and Latin America. In Asia Pacific, where COVID-19 challenges were most acute, we saw growth in the region led by Japan, where we continue to see strong execution by our team.

U.S. Spinal Hardware delivered low single-digit year-over-year growth, driven by continued growth in the X360 portfolio led by the XALIF procedure and strong demand for the C360 portfolio led by the Simplify Cervical Disc.

Our U.S. Surgical Support business performed well in the second quarter, supported by Pulse platform net sales. This was offset by a decrease in biologics, driven by a shift in case mix and lower attachment rates in the quarter. We're proud of our history as the leader in spine innovation, with spine's most comprehensive portfolio of procedurally integrated solutions. As we continue to integrate our industry-leading procedures with Pulse, we are well positioned for continued growth.

In addition to new Pulse sites going live in the United States, we achieved numerous key milestones with Pulse in the second quarter, including over 100 Pulse cases in early sites both in the U.S. and Europe, our first Pulse cases in Italy as well as our first Pulse case for pediatric scoliosis. Driving clinical utilization and adoption is key to the near- and long-term success of Pulse.

The Pulse software ecosystem integrates multiple technologies into a single platform and can be utilized in 100% of spine surgery cases. Unlike other enabling technology systems on the market, Pulse provides surgeons a seamless and efficient workflow through integrating 3D navigation, neuromonitoring, radiation reduction, imaging enhancement tools, patient-specific rods and global alignment planning.

A recent study published in scientific reports found that Pulse outperformed two other common imaging and navigation systems with respect to screw placement accuracy. Notably, Pulse, with Cios Spin from Siemens Healthineers, was significantly more accurate than Stealth with O-arm. We continue to make progress building out the broader Pulse ecosystem, and its extensible software architecture allows for the integration of current and future innovation.

The future of spine care will not start and stop with intraoperative surgical procedures, and we remain committed to leveraging the power of Pulse to extend from preoperative to postoperative spine care.

Another key strategic growth driver for our company is cervical, which delivered greater than 20% growth in the U.S. for the third consecutive quarter. Surgeon interest in the C360 portfolio and specifically the Simplify Cervical Disc remains high. The Simplify Cervical Disc achieved multiple milestones in the second quarter, including first cases in Switzerland, Austria, the U.K. and most recently, Australia.

We're taking share and will continue to do so with the industry's most clinically effective cervical total disc replacement. To further enhance the C360 portfolio, which currently features the NuVasive ACP system with Advanced Materials Science interbodies and the Simplify Cervical Disc, we remain on schedule to introduce Reline Cervical this quarter.

Reline Cervical, our next-generation posterior cervical fixation system, is fully compatible with Pulse and integrates with our thoracolumbar Reline portfolio. This creates a single comprehensive posterior fixation system to seamlessly treat pathology from the occiput down to the pelvis. With yet another new product introduction joining the C360 portfolio, we continue to target and take share in the $2.6 billion cervical subsegment.

As the leader in less invasive spine surgery and in support of our multiple vectors of growth, we remain focused on new product introductions in international markets. In the $900 million anterior subsegment, surgeon demand remains high for the X360 portfolio. Within our Advanced Materials Science portfolio, we continue to introduce our market-leading interbodies in key markets around the globe. Modulus ALIF commercially launched in Australia in the third quarter of 2021, and we have seen significant growth in that market.

Modulus XLIF commercially launched in Japan in the second quarter, and we have performed nearly 500 cases to date. In addition, we received FDA clearance in Q2 for MOD-EX XLIF, our next-generation expandable interbody for lateral procedures.

Our R&D team continues to leverage our proprietary 3D-printed porous Modulus technology to other expandable interbodies and procedures. And we remain on schedule to launch the NuVasive tube system later this year. Our new tubular tractor system will be the company's first tube system and a key addition to our comprehensive portfolio of solutions to support less invasive posterior procedures.

Late last year, we welcomed the return of PRECICE titanium products from NuVasive Specialized Orthopedics in key global markets. Surge in demand and patient interest for PRECICE remains high, and we anticipate continuing to benefit from the products' return as we look to the back half of 2022.

In support of international growth and to further our industry-leading clinical professional development program, we held a ribbon-cutting for our new Singapore Experience Center in June. The new center features a dedicated Pulse demonstration site to provide hands-on experience with the platform, educational training rooms with advanced cameras and streaming capabilities for virtual learning and a technology rotunda with the ability for live and virtual demonstrations of our procedural offerings.

Our vision is bold, to change a patient's life every minute, and our purpose remains unchanged, to transform surgery, advanced care, and change lives. Like many companies around the globe, we're not immune to the challenging macroeconomic and market pressures. However, we are making progress on our commitments to deliver multiple vectors of growth through extending our leadership position in less invasive surgery, taking share in subsegments where we historically had underrepresented market share, delivering on our enabling technology road map and driving continued growth in our international business.

The future of spine surgery will not be solved with a new interbody or procedure. It will be defined by improving patient selection, selecting the right procedure in the most appropriate surgical setting, creating a patient-specific surgical plan, utilizing enabling technology for intraoperative execution and enabling postoperative outcomes management for the patient, the surgeon, and provider. As a company, this is our focus. We're building upon our industry-leading procedurally integrated solutions and deep know-how to redesign the future of spine care.

In closing, we're excited about the opportunity before us and believe that NuVasive will make surgery more intelligent. This, in turn, will fundamentally change the quality of care patients receive by providing smarter and more clinically validated tools to surgeons. Simultaneously, this will unlock value and support our progress against our vision to change a patient's life every minute.

I will now turn the call over to Matt to discuss the company's financial results in more detail.

Thank you, Chris, and good afternoon. Today, I will provide an overview of our second quarter 2022 financial results and drivers as well as update you on our full year 2022 outlook. Our detailed financial results have been provided in today's press release. During my remarks, I will be discussing both GAAP and non-GAAP measures and refer you to our press release for GAAP to non-GAAP reconciliations.

I'll begin with worldwide net sales. Our second quarter results reflect strong net sales growth compared to the prior year period as well as sequentially. That said, our bottom line results were pressured by macro environmental issues, including inflationary costs, supply chain delays, volatility of foreign exchange rates and the ongoing impact of COVID. I will provide greater detail on these challenges as we dive deeper into our results. Importantly, procedural volume remains strong, and we continue to execute well on our new product introductions.

Second quarter worldwide net sales were $310.5 million, an increase of 5.3% as reported and 7.8% on a constant currency basis compared to the prior year period. This growth was driven by higher procedure volume and continued positive momentum from our new product introductions, including the Pulse platform and our C360 portfolio, led by the Simplify Cervical Disc. International sales of $73.6 million in the second quarter demonstrated continued strength with double-digit constant currency growth compared to the prior year period. These results were driven by Europe, Latin America and Asia Pacific, particularly in Japan. NuVasive Specialized Orthopedics, or NSO, also contributed to international results. driven by strong demand for our PRECICE titanium products, which returned to market in late 2021.

Turning now to U.S. net sales by product line. U.S. Spinal Hardware net sales were $165.1 million in the second quarter of 2022, representing a 3.1% increase over the prior year period. Cervical grew more than 20% for the third consecutive quarter. This performance was led by our C360 portfolio, specifically the Simplify Cervical Disc, which continues to experience strong surge in demand.

U.S. Surgical Support net sales were $71.8 million in the second quarter, an increase of 6.2%, driven by Pulse sales.

Moving to operating results. Non-GAAP gross profit in the second quarter was $224.7 million compared to $217.1 million in the prior year period. The year-over-year increase was primarily driven by higher procedure volume. As a percent of net sales, non-GAAP gross margin was 72.4%, a decrease of 120 basis points compared to 73.6% in the prior year period. The year-over-year decline was primarily driven by pricing pressure that was once again in the low single digits, partially offset by a decrease in inventory charges in the quarter.

Second quarter 2022 non-GAAP operating expenses were $184.2 million, an increase of 4.6% compared to $176.2 million in the prior year period. The year-over-year increase was primarily driven by variable expenses on higher net sales, freight costs and our continued investment in R&D to further our core spine and enabling technologies product portfolios. Increased cost due to inflation negatively impacted several expense areas, including fuel surcharges on freight shipments, increased travel costs and higher compensation costs.

Non-GAAP other income and expense was $8.4 million of expense compared to $1.7 million of expense in the prior year period. The increase was primarily driven by unrealized foreign currency losses in the second quarter of 2022. During the quarter, a number of foreign currencies weakened against the U.S. dollar.

Second quarter 2022 non-GAAP operating margin was 13%, a decrease of 90 basis points from the prior year period. The year-over-year decline was primarily driven by lower gross margin, continued R&D investments and higher costs due to inflation.

Non-GAAP tax expense in the second quarter of 2022 was $7.2 million compared to $8.1 million in the prior year period. Our second quarter 2022 effective tax rate was 22.5%. On a GAAP basis, we reported a net loss of $900,000 or diluted loss per share of $0.02 in the second quarter of 2022 compared to net income of $1.8 million or diluted earnings per share of $0.03 in the prior year period. Included in our GAAP results for the second quarter were unfavorable impacts of foreign currency exchange fluctuations of approximately $25 million associated with the weakening of the Australian dollar against the U.S. dollar principally related to our 2021 acquisition of Simplify Medical.

On a non-GAAP basis, we reported second quarter net income of $24.8 million or diluted earnings per share of $0.47 compared to net income of $31.2 million or diluted earnings per share of $0.60 in the prior year period. The year-over-year decrease in non-GAAP earnings per share was primarily driven by unfavorable currency exchange rate fluctuations. Notably, FX accounted for approximately $0.06 of negative EPS impact during the second quarter of 2022.

Free cash flow for the second quarter of 2022 was $26 million versus $19.3 million in the prior year period. The increase was primarily due to increased operating cash flow offset by continued investments in our capital expenditures to support our net sales growth and new product launches.

As of June 30, 2022, we had cash and cash equivalents of $226 million. Our $550 million revolving credit facility remains undrawn.

Now I'd like to provide our current perspective on the state of our business for the second half of 2022.

Stepping back for a minute. When we shared our full year 2022 financial guidance in late February, we issued a range that was wider than what we would have provided historically given the many uncertainties surrounding the macro environment, including inflation, currency fluctuations, supply chain, COVID and geopolitical issues.

As a reminder, based on our strong first quarter results in May, we raised the lower end of our non-GAAP net sales growth range from 6% to 9% to 7.5% to 9.5% on a constant currency basis, however, we purposefully did not change our non-GAAP operating margin guidance range of 13% to 14.5% due to these macro environmental uncertainties.

Unfortunately, the macro environment has remained uncertain, and we can reasonably expect these pressures to continue. On the positive side, procedure volumes are healthy, and we are executing well on our multiple vectors of growth strategy. We're seeing continued success with our new product introductions, especially with both the Simplify Cervical Disc and Pulse. In addition, we expect low to mid-double-digit growth in our international markets.

Taking into account current macro conditions, we have updated our full year 2022 financial guidance accordingly as follows. We reiterated our full year guidance for reported net sales growth of 6% to 8% compared to 2021. We updated our GAAP diluted earnings per share guidance from a range of $1.05 to $1.35 to a range of $0.95 to $1.25, reflecting current foreign currency expectations. And finally, we maintained our prior non-GAAP diluted earnings per share range of $2.15 to $2.45 that we provided on May 4, 2022.

We are working diligently to navigate and manage the macro environmental challenges that we face. We remain confident in the underlying health of our business, our continued strong cadence of new product introductions, and the many opportunities that lie ahead.

Now I'd like to ask the operator to please open the call for questions.

(Operator Instructions) Our first question comes from Josh Jennings with Cowen.

I wanted to ask on Pulse and primarily my -- I'm curious about, realizing it's still early days, are you seeing increased utilization and pull-through of Nuva's spinal hardware in your initial Pulse accounts and how is that trending? And sorry, this one question on Pulse with two parts. I mean any updates on the robotic module development program?

Thanks, Josh. Thanks for the question. So yes, we're early days on Pulse. The goal is obviously getting broad utilization. We've got a limited number of sites. But encouragingly, we are seeing some pull-through when you look at those sites compared to the base business of other sites.

So simple answer is we are seeing pull-through. Now putting a magnitude on that at this point is probably a little early. But the fact is, it is a -- it seems to be a stickiness that we've been looking for and hoping for, at least the initial placements of the technology.

Yes, robotics. As we talk about Pulse, we've always talked about the fact that we wanted to be really a suite of technology. Obviously, that incorporates all the different technologies I mentioned in some of the prepared remarks. Robotics will be a part of that. We continue to make progress on the robotic development. No updates at this point on time lines, but good progress, and we look forward to really equipping Pulse with robotic module as well as many other technologies in the near future.

Our next question comes from Vik Chopra with Wells Fargo.

So I guess one -- first question I had was pricing. Can you just talk about how pricing was in the quarter? And what's your ability to take price in this inflationary environment? And then I had one follow-up. .

Yes, Vik, this is Matt. Thanks for the questions. Pricing was kind of in line with what we've seen before. Obviously, it is a headwind for us, but it was in the low single digits, which is very normal. As far as taking price, difficult to do it on products that have already been introduced, but obviously, we're thinking about it as we bring new technologies to the marketplace, whether we need to be more aggressive on pricing.

Great. And then just one follow-up. Just on procedure volume. Can you just talk about what impact you've seen in Q2 from hospital staffing shortages?

Yes. Thanks for the question, Vik. We still see it. The interesting thing is we're seeing procedures scheduled and then we're seeing procedures canceled from time to time. And that could be staffing-related or it could be patient-related, somebody tests positive. So they're still -- it's still really choppy and lumpy. We saw good volume, but a lot of that had to do with the fact that we've really entered in markets that we didn't really have any business in, very, very low share, like cervical.

So even with some of the downward pressure, we saw good volume growth, but we also saw a bit of mix pressure there as well. So some of the complex cases were a little pressured. Some of the thoracolumbar where we have high share, a little pressure there, still flattish, but pressured. And in areas like cervical where we think we're taking a lot of share, we saw those volumes are really high. So mixed bag, but overall, we feel good about the volume that we saw in the quarter.

Yes. And I would just add globally. We were really pleased with the results in our international businesses as well. We've said it all along, low to mid-double-digit growth and they were squarely in that zone. So another good quarter for our international team as well.

Our next question comes from Joanne Wuensch with Citibank.

Did I miss it, but did you quantify what you think your new FX headwind will be versus your old?

Yes, we haven't quantified it on a full year basis, but we did include it in our thinking around reiterating our guidance range. So we didn't change anything from what we said on May 4 as it relates to non-GAAP numbers.

So we've included that in our thinking. We did say on the call that we had a $0.06 impact to EPS. So you can back calculate that. Hard to give you a hard number right now because it's volatile. The currencies that we saw the greatest fluctuation from an operational viewpoint were Japan and the euro. So we spend a lot of time watching those fluctuations. And obviously, it's pronounced across the industry. But as we have been growing our international business, obviously, it creates more fluctuation for us.

And the impact on revenue in the quarter and in your guidance?

Yes. We didn't disclose the impact on our revenue. But obviously, you can look at it on a constant currency basis versus not. And you can pretty much figure out exactly what the calculation is.

And the guidance aspect of it? I'm sorry to push on this.

Yes. Just look at the table that we provided in the release, and it will give you all your answers.

Okay. Then I'll ask a more product-specific one. Could you quantify how Simplify sales were in the quarter? Or qualify if you can't quantify [it]?

Yes. We were really pleased with the results in Simplify. We had a nice jump from what we did in the first quarter. So we're really pleased with the results. We really don't want to get into just talking about Simplify because it's really about the cervical portfolio, and it's about C360, Simplify, new products that are coming out later this year.

The way we think about it is, if you ask yourself, are we being successful in cervical, this is our third quarter in a row where we grew greater than 20%. So very notable results.

Our next question comes from Shagun Singh with RBC Capital Markets. .

So just a question on guidance. So on sales, you've raised your ex FX outlook and maintained reported growth despite higher FX pressure. I'm just trying to understand what's driving this underlying momentum. You did call out some of the products. But I'm just curious what trends you're seeing into Q3, so in July and maybe, I don't know, two days of August. And then any contribution from backlog? And then on EPS, you've maintained your outlook despite the Q2 miss. So can you just talk about maybe the timing of expenses or R&D projects, inflation, supply, FX? And what are you factoring in that gets better in the second half?

Thanks, Shagun. I'll take the first one, and I'll let Matt cover the second part of the question. So we're seeing underlying momentum in some of the key investments we made. I've talked over the last several quarters about this idea that we've sort of shifted from that singular focus on XLIF to really broadening our focus across many different subsegments and also continuing to see growth, as Matt just talked about, in our international markets.

So those are really the two contributing factors. New products, things like Pulse, obviously, the focus we have in cervical, our international growth, all those things, I think, give us a lot of confidence that we continue to -- even in challenging macroeconomic situations, continue to deliver on the top line.

So with that, I'll turn it over to Matt on the second part.

Yes. So with regard to your question around maintaining our earnings per share guidance and keeping the operating margin range the same on a non-GAAP basis. Look, we said on the last call that there were a lot of swing factors going on. And in the prepared remarks, you heard us talk about incremental freight charges, travel charges, increased compensation costs. We have taken all that into consideration, and it's the reason why we gave as wide a range as we did, both from an operating margin as well as a diluted earnings per share perspective. But we're still comfortable based on everything we know right now that we can navigate these headwinds.

We have looked hard at our expenses, and we're looking where we can find the right of offset to deliver on this guidance. But we feel good about the fact that we didn't need to change guidance from where our thinking was on May 4.

Our next question is from David Saxon.

Congrats on the quarter. I just had one on kind of the cadence for revenue through the back half. It looks like last year, sequentially, third quarter was down around 8%. So just wondering, I think you have a larger NSO benefit in the third quarter and then with Simplify and Pulse continuing to ramp, is -- could we see something better than that? Or should we be thinking in line with what you saw in the third quarter of '21 sequentially?

Yes. Typically, our two highest quarters are the second quarter and the fourth quarter, and you didn't see that in last year's results. We came in at $270.8 million, which I'm sure you know, last year. You got to remember the third quarter of last year, the Delta variant was putting pressure on procedural volumes in that quarter. So it's not a good apple-to-apple comparison. I would say we still -- we see the third quarter being below what we just posted today for the second quarter, and then the fourth quarter will ramp back up.

And to answer your question on NSO. Yes, traditionally, historically, the third quarter has been the highest quarter, although in the results we announced today, they had a very strong second quarter as well.

Okay. That's helpful. And then just my second one on Simplify. Any way to quantify the kind of halo effect it's having? I mean it seems like it's driving you strength across the cervical portfolio, but are you also seeing it pull through across the broader spine portfolio?

Yes. Thanks, David. We are. That's one of the things that give us a lot of confidence. We've seen greater than 50-plus surgeons that really didn't have anything to do with us that have not only started picking up the Simplify product but also the broader C360. We also have greater than 100 of our surgeons that have been introduced that we see other parts of the portfolio kind of coming into.

So the simple answer is, yes. We want to continue to see that, put some quantification around it over time. But early indicators would say there is a halo effect. It is giving us better exposure. It will be, as we talked about, we think, a door opener for the broader NuVasive portfolio. So early days here, but encouraging results thus far.

Yes. The other thing I would add on that is we also talked in the prepared remarks around the first cases globally. So we're now introducing Simplify in Switzerland, in Australia, in the U.K. and so on, in Austria. So it's exciting times because we've got a really strong base setup in the U.S. market, and now we're starting to chip away internationally.

Okay. And if I could just ask a clarifying question, Matt. I think you said for the back half, low to mid-double-digit growth internationally. Did I hear that right? And is that on a reported basis or constant currency?

Yes. That's on a reported basis. Obviously, with currency fluctuating like it is, we're trying to give you a sense of what the underlying business is doing. And the guidance of low to mid-double digits, we introduced JPMorgan in January of 2020. So what we would say in any given quarter, you should expect the international business kind of in that 11% to 14% constant currency range.

Our next question is from Allen Gong with JPMorgan. .

I'll just put them both together. But when we looked at your gross margins, we obviously saw some pressure, as you highlighted in the prepared remarks, from pricing and inflation. So how should we think about the cadence of that either improving or staying a bit more pressured through the balance of 2022?

And then in 2023, assuming trends hopefully continue to get better, how should we think about the kind of leverage you can get on that line as you work through some costs that have been capitalized into your balance sheet?

Yes. So for this year, what I would say is the fourth quarter, because of what I said earlier, which is expected to be the strongest net sales quarter for us, you'll get a stronger operating margin number there. So we'll still continue to see the pressure in the third quarter because as I basically said, the second and fourth quarter are top quarters for net sales and that does have impact on margin, operating margin.

As far as 2023, look, I'd love to see inflation come down. The travel costs, as we calculated, are up very significantly, and travel is a big component of what we do at NuVasive. So I like to see that come down because that will reduce our travel costs, also with freight. Freight has been a challenge starting in the second quarter of last year, and we've seen that continue through this quarter.

But again, this is why we gave a wide range for the operating margin from the guidance, so that we could feel comfortable but accommodate some of these factors that are hard to predict.

Our next question is from Rich Newitter with Truist Securities. .

I wanted to just start off with the guide. First, on the earnings. I appreciate that you're keeping your guidance range unchanged. It was a large range. You called out $0.06 of currency impact in the second quarter. Is that a reasonable kind of rate to just kind of run through the rest of the year?

And if so, I guess, do you feel like you're more or less likely to be towards the midpoint or perhaps towards the midpoint to lower end of the range? Or were there enough offsets, especially with the increased rev guide, that you still feel comfortable with that midpoint of the range?

Yes. Hard to predict right now because our biggest quarter is in the fourth quarter, as we think about the balance of the year. Predicting currencies is very challenging. We've -- we just looked at currencies earlier today to see if there is any change in the numbers. And Japan has gotten a little favorable and Europe has gotten a little unfavorable. And net-net, they're falling out to the same place. .

With all this volatility, it would not be unwise to include in your model some impact. $0.06 may be a good number to use. But I do anticipate the volatility to continue in the back half of the year. It's unlikely that it will kind of go back to where we were in previous years, where the amount of impact was not very material.

Okay. Well, I guess just to follow up on that. I mean if currency rates were to remain constant and hold, right, is it safe to assume you're thinking about the range with kind of the midpoint and all parts of the range are on the table still? .

Yes, we pretty much took the impact we saw year-to-date at the end of June and said, if that continues, that would be the impact. And you can calculate that based on our first quarter and our second quarter release..

Okay. Great. And one more, if I can just squeeze it in. Any comments on kind of what kinds of trends you saw through June and even if you can, into July and August? I know it's fluid, there are vacations. We're kind of in an uncharted territory here in a post-pandemic period. So I'd be curious just what you're seeing there. Obviously, you raised your guide. So you're able to power through whatever might be seeing, but can you talk to the trends month-to-month?

Yes. I mean I'll give you an overview of that, Rich. It's just been choppy. I mean, I'll just tell you, week-to-week, it's choppy. So it's really hard to trend out. Some normal seasonality appear to be in the numbers, which we expect in the back half of the summer, where specifically in some of the international markets and in the U.S., we just see increased levels of travel.

So what's contributing to the choppiness is still hard to sort of distill out. But clearly, I would say, on an average, we're seeing pretty good volume. On a week-to-week basis or a month-to-month basis, it's still a little up and down. So the simple word is choppy. But I would say underlying that choppiness is a trend line that at least shows volumes that exceed prepandemic levels or ride at prepandemic levels. So we think that's potentially a good floor. I just want to see a more predicted trend kind of start to form over the -- hopefully, over the next few months.

Our next question is from Drew Ranieri with Morgan Stanley. .

Maybe just a follow-up on Rich's questions. If you could go a little bit more into what you're seeing in terms of the market in general. Chris, you talked about your confidence in taking share in cervical. We're just wondering where you are thinking ahead in terms of the broader spine market and maybe what underlying growth was.

And then just to add a second question in there. Can you give us any type of preview of what we should be expecting on the upcoming Investor Day?

Yes, I'll try to glean it out. I mean it really -- if you think about our portfolio, where we had areas of strength, we saw more downward pressure from a volume perspective. Not negative comparatively, but down, just not the underlying growth that would have expected areas, some thoracolumbar procedures, posterior is down fairly sharply.

We were flattish in the Interior segment, and that's with some good growth in ALIF, where again where we're still taking share. Some of the complex cases were down. And then areas like we've made a lot of investment, like in cervical, I think even with the downward pressure, we saw some strength just because we were all out share taking.

So it's hard to kind of get to glean the underlying market growth. We look at the NCS data that we have and that would show that it was sluggish at best in the quarter. So we feel pretty good about our performance in general.

As far as Investor Day, I don't know that we've led anything else on it. We're looking very much forward to talking to everybody and kind of reshaping some of the narrative, filling in some of the blanks for everyone. So we're committed to it and scheduling, but I don't think we have any other updates other than that at this point.

Yes. The only other thing I would add on that is we do intend on doing a product fair. What we have found is that when people actually get to see the technology and talk to folks below Chris and I that know the products in and out, that people more fully appreciate the technologies that we're bringing forward, which obviously is manifesting itself in the strong growth we've posted today. So we will do a product fair and look forward to introducing the products at a deeper level.

Our next question comes from Jason Wittes with Loop Capital.

Just first off, in terms of the guidance, just a housekeeping thing. I see GAAP was lower but non-GAAP raised. Is that a onetime charge? Is that the difference between the two estimates or guidance?

Yes. It's just taking into consideration charges that occurred between GAAP and non-GAAP. The numbers you should focus on, Jason, are really on the non-GAAP because we're basically reconfirming that there are going to be fluctuations in GAAP, and you can see all that in the reconciliations that came out on the table release.

Okay. I thought so. And then the real question I wanted to ask was about Simplify and Pulse in terms of, it sounds like at least on Simplify, at least from some of the commentary you made, a lot of the growth is coming from new accounts. I assume those are accounts that had already been using disc and you're just placing some competing discs.

And then the same for Pulse. If you think about the customer or the users at this point, is that primarily your own customer base? Or is that also extending into new territories?

On Simplify, I would say that it's primarily cTDR users that are moving from other companies and there are several companies. But I would also say that it would feel, and again, we've got to see this turned out, that the market has accelerated a bit. And I think that may be some of it is our performance there and our introducing the cTDR, the Simplify Disc into the market.

So there is definitely some new interest in using artificial disc in the cervical space. But I would say the majority of our growth is likely from competitive users at this point.

As far as Pulse, it's a little tricky to say that they're clearly may have been using some of our hardware, but clearly not using anything navigation or anything enabling tech from us other than potentially our neuromonitoring systems or maybe in certain situations LessRay. So we think that anybody that's picking up Pulse right now is moving from a likely a predicate system that they've employed at some point. So new technology for us in the market, not new technology specifically in the market, in some cases, but new technology for us.

So that's one that we'll see trend out a little further. But as I said earlier, we are seeing some good pull-through. The accounts that we have installed Pulse in, we see a material increase in the overall business that we're getting those accounts.

Our next question comes from Matt Miksic with Barclays.

One follow-up on Simplify. Chris, you were just talking about the nature of growth and share gains. And wanted to get a sense of sort of -- if part of this has to do with taking surgeons and centers where you have good relationships, who may be using another disc and converting them to Simplify, if -- where you are in that. If, in fact, that's one the drivers, just trying to get a sense of how important that is and how much runway you have along that pathway of growth for Simplify. And then I have one follow-up.

Thanks, Matt. Yes, like I said earlier, I quoted the number that I've seen a few days ago, that 50-plus, maybe even 50 to 60-plus surgeons that sort of started out using Simplify have now adopted other parts of the cervical portfolio, which tells me that it's bringing along the anterior cervical plate, and we're launching RELINE-C later this quarter.

So we've got -- I think we've got a lot of dry powder still pent up, and we're just now getting out of the gate really with Simplify. We're still ramping up our capacity. We're still ramping up the number of sets that we're releasing. We're still entering new geographies, as Matt mentioned earlier. So I think we've got a good runway. And I think the artificial disc space in general will continue to grow faster than the relative cervical market, which is fairly large, but fairly flattish in growth. So $2.6 billion market, we think the cervical disc space is probably $250 million to $300 million.

I think the $250 million number is probably antiquated. So we look at more than $300 million growing near double digit, we think now. We've got to quantify that coming out of the pandemic, but -- so all those things considering the fact that we estimate we still have less than 5% share, we think we've got a lot of runway to really grow the cervical market.

That's great. I appreciate that. And then the follow-up, just a comment you made around sort of the systemic and supporting technology and patient follow-up, quality of outcomes being the things that are really going to change spine surgery going forward as opposed to sort of a new interbody maybe. But I wanted to get a sense of -- I think I know the answer to this, but I'm guessing that you have a fair amount of sort of new implants, revised implant systems and technologies in the pipeline.

Just love to understand how you're balancing your spend on R&D, which I know is significant to get particularly Pulse up and out the door to support that, but also to kind of continue to back it up with kind of things that NuVasive has been known for in the past, which is a steady flow of well-designed implant systems as well.

Yes, it's a great question and one that we've talked a lot about. When you think about kind of phase one, as I've sort of come in, I think NuVasive has always been known for fantastic instrumentation, great implant technology. And there's still work to be done there. By no means are we finished, and we'll continue to refresh the portfolio as we see innovation opportunities. The R&D team does a phenomenal job there. .

But having said that, I believe that what happens presurgery and what happens post surgery are part and parcel to the overall success for that patient. And choosing the right patient with the right procedure, a patient presents with a pathology and there's just unlimited options that they pursue. So we got to get smarter as an industry and ensure that the pathway is clear and it's data-driven.

And then what happens post surgery? What can we measure? There's a lot of things that we can measure and there's clearly a lot of things that we can't measure, what the impact of the surgery was on the patient longer term and all the patient-reported outcomes, which is, are you still in pain, not in pain.

So I think there's more we can do, and there's technology out there that we think we can incorporate. So we believe that our proceduralization strategy is -- truly sets us up uniquely specifically as we add in something like a Pulse system to really start to think more broadly about the whole patient care continuum.

And that's where we're looking for. We're looking -- we continue to really hone in our focus on measuring what's unmeasurable and providing support in areas that we don't necessarily today. And we think doing those things will increase the overall outcome for the patient and as we said, create value for us and our shareholders.

There are no further questions at this time. I would now like to turn the floor back over to Chris Barry for closing comments.

Thanks, Maria. And thanks, everyone, for joining us today. I just want to just reiterate the fact that we're excited, happy with the performance in the quarter, continue to focus on this idea of multiple vectors of growth, extending our leadership in less invasive surgery, taking share in those underrepresented segments, delivering on enable technology road map and our starting point here is Pulse and then obviously continue to drive our international growth. And as I just mentioned with Matt, ultimately extending the parameters innovation to really create a more intelligent spine surgery.

So with that, I'll thank you all for your participation, and we look forward to speaking with you again in the next quarter.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.