Rod MacLeod: Yes. If you — happy to, it’s a good question. And if you happen to go back to our last quarter, we walked through this a little bit as well on the call. But basically, as we’re in this transition phase moving from contract manufacturers to source product out of our Costa Rica manufacturing plant. There’s going to be a couple of months where some of the variances associated with the overheads will hit a little bit of a meaningful way in the second half of this year. And this really has to do with prior year when volumes and some of the mix shifted. So we’re going to take a little bit of a — we’re going to see some of those variances flow through in COGS in the second half of the year. But our long-term prognosis for the cost out of Costa Rica are still super strong.
The labor rates are good. The material costs are good. And we’re just going to have to work through a little bit of the choppy waters as we’re transitioning from the contract manufacturer to Costa Rica manufacturing.
Unidentified Analyst: Great, thank you.
Operator: Next, we’ll go to Shagun Singh at RBC.
Unidentified Analyst: Hey, this is Avi on for Shagun. Could you discuss the health of the spinal cord stimulation market in some detail? What’s contemplated in your 2024 guide? And what can we expect Nevro to get back into a share take position? Thanks.
Kevin Thornal: Yes. Look at the — we commented on the trials in the first quarter being largely in line with what we expected because of some softness in the trialing. What we know right now from the public companies that have announced is there’s really two of us that grew in the quarter. One of our competitors announced being down in the quarter, but we believe there’s a couple of private players that are also up. So three or four of us actually grew in the first quarter. So that’s encouraging. As far as what’s baked into the guidance, all of our trialing replacements, everything we talked about is baked into the guidance for the year, including ramping a little bit to our SI joint business in the back half of the year. Our sales reps ramping up throughout the year that were hired at the end of last year as well as those replacement cycles still likely going to be strong for those patients that have had unbelievable success with our technology over the last 10 years.
And so you add those altogether, and they’re all baked into the guidance and why we feel good about reconfirming guidance for the year.
Unidentified Analyst: Great, thanks.
Operator: We’ll move next to Bill Plovanic at Canaccord Genuity.
Unidentified Analyst: Hi, this is Zachary on for Bill today. Thanks for taking the question. On Vyrsa, was there any impact on Q1 revenue from that? I understand that you trained over 220 physicians. Was there any that saw any volumes that impacted revenue?
Rod MacLeod: Yes. As we’ve mentioned, we picked up a little bit of revenue from our SIJ business, but it’s immaterial, and they’ll continue to be immaterial as we’re ramping up that business.
Unidentified Analyst: Got it. And for my follow-up, you mentioned having R&D programs, new tech on the way in PDN. Could there be any integration with closed loop within your portfolio?
Kevin Thornal: Yes. So one of the things, just a quick technology sort of education here. So high-frequency closed loop is not needed. So closed loop technology that Medtronic announced in one of the private players has out there is basically to ensure that as the lead is next to the spinal cord. If it moves closer to or further away that you don’t get over therapy and maybe provide a little that or further away or moves further away where you don’t have a good enough therapy, that’s their way of really turning up the volume up or down based upon where that lead is placed. We don’t have that problem with high frequency. It’s like asking a Tesla owner where is your gas tank. We don’t need one of those on high frequency because we already with doing paresthesia-free, we don’t have to map the patient.
And as a result of that, we’ve always had great parts of FDA approval where you can drive a car with our therapy. You can go out and have do activities with our therapy because we don’t have any of those jolts or reduction in therapy based upon the lead location.
Operator: We’ll move next to Anthony Petrone at Mizuho Group.
Anthony Petrone: Thanks. I appreciate for taking our questions. A little bit just on the competitive dynamics and I have a follow-up on gross margin. Maybe just a little bit on Abbott’s presence there with the Turner, they obviously have a potential synergy there with their Libre franchise on the diabetic side. Just wondering if they’ve changed the dynamic on the PDN side, with a turn of potentially side-by-side with Libre? And then I have a quick follow-up on gross margin.
Kevin Thornal: Yes, so we’ve not seen that out there. There could be some potential where they would want to partner. We still stand by our clinical superiority that we have and the claims that we have with 10 kilohertz, specifically for PDN patients. If you think about it, and I’ve said this before, these PDN patients that suffer from painful diabetic neuropathy already have severe tingling and numbing in the leg. The last thing you want to do is add additional paresthesia to those patients. And with high frequency, we don’t have paresthesia. That’s not how our technology provides pain relief. And so it’s a perfect choice for physicians treating PDN patients. You can see that we’ve trained a ton of physicians that have these types of patients in their practices.
We have a sales force that’s out there educating those referring physicians into pain management offices and we believe we’ll continue to have superior outcomes clinically as we talked about in the earnings grip with [indiscernible] sensory study, we believe we may have a chance to have a powered study to be able to get additional claims in that space. And we know that we’re the only ones doing that clinical work. So we believe we’re still going to stand strong in that PDN market and lead the way.
Anthony Petrone: And just a quick one on gross margin fall. Maybe looking beyond 2Q, you do have HFX iQ at an ASP uplift and Costa Rica is going to be a meaningful contributor going forward. Just as you look ahead beyond 2Q, I mean, how do we think about those two dynamics playing out in the second half and maybe even to 2025 the gross margin uplift from higher ASP and then Costa Rica manufacturing? Thanks.
