Nevro Corp.

Good afternoon. My name is Mika and I will be your conference operator today. At this time, I would like to welcome everyone to NEVRA's first quarter 2021 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, you will need to press part one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would like to hand over the call to Julie Dewey for introductory remarks. Julie?

Good afternoon and welcome to Nevro's first quarter 2021 earnings conference call. We appreciate you joining us. I'm Julie Dewey, Nevro's VP of IR and Corporate Communications. With me today are Keith Grossman, Chairman, CEO, and President, and Rod McLeod, Chief Financial Officer. The format of our call today will be a discussion of first quarter trends and business results from Keith, followed by detailed financials from Rod, and then we'll open up the call for questions. Please note, there are also slides available related to our first quarter performance on the Nevro Investor Relations website on the events and presentations page. Earlier today, Nevro released its financial results for the first quarter ending March 31st, 2021. A copy of our earnings release is available on our investor relations section of our website at nevro.com. This call is being broadcast live over the internet to all interested parties on May 5th, 2021, and an archived copy of this webcast will be available on our investor relations website. Before we begin, I'd like to remind everyone that comments made on today's call may include forward-looking statements within the meaning of federal securities laws. Our results could differ materially from those expressed or implied as a result of certain risks and uncertainties. Please refer to our SEC filings, including our Form 10-2, to be filed later today for a detailed presentation of risks. The forward-looking statements in this call speak only as of today, and we undertake no obligation to update or revise any of these statements. In addition, we will refer to adjusted EBITDA, which is a non-GAAP measure that is used to help investors understand Nevro's ongoing business performance. Please refer to GAAP and non-GAAP reconciliation tables within our earnings release. And now I'll turn the call over to Keith.

Okay. Thanks, Julie, and good Wednesday afternoon, everyone. We appreciate your joining us. Today we reported first quarter 2021 worldwide revenue of $88.6 million. That's an increase of 1% compared to the first quarter of 2020 and an increase of 8% compared to the first quarter of 2019. First quarter U.S. sales of $74.7 million decreased 1% of a prior year, but increased 14% compared to the first quarter of 2019. International revenue increased 14% year-over-year as reported, or 4% on a constant currency basis to $13.9 million in the quarter. Compared to Q1 of 2019, international revenue decreased 15% as reported, or 21% on a constant currency basis. Both U.S. and international revenue continued to be impacted by COVID-related issues, although this impact certainly lessened as the quarter progressed. Overall, we were actually very pleased with how our revenue increased from the beginning of the quarter to the end. And as you've now heard from numerous companies, January was particularly impacted by an increase in COVID activity, along with much of February. March began to show encouraging improvement, and while the remaining recovery may be anything but smooth or linear, We still expected to continue throughout the year, with the U.S. market progressing probably more rapidly than most of our international markets. Compared to prior year, first quarter, total U.S. permanent implant procedures stayed roughly flat, with trial procedures declining 4%. However, we did see incremental improvement in trialing activity over the course of the quarter. Approximately 134 scheduled U.S. permanent implant procedures were canceled during the quarter due to COVID, and roughly 60% of these procedures were still unrecovered by the end of the quarter. That's a significant sequential improvement, by the way, compared to the fourth quarter of 2020. Not surprisingly, the majority of these cancellations occurred in the month of January. Trial and permanent implant volumes were impacted by a combination of patient reluctance to move forward due to COVID-related issues, And, of course, facility constraints on elective procedures due to COVID resurgence in certain geographies. We believe we continued our two-year trend now of U.S. market share gains in the first quarter. And anecdotally, we had a record number of new patient leads coming in from our direct marketing and education efforts, which we believe is typically an encouraging leading indicator of patient reengagement. So let me update you on the current state of the COVID impact on our business. We've continued to make progress so far in Q2 as patients begin rescheduling procedures and reentering the lead to trial to perm pathway. So as of today, it's clear that COVID continues to have an impact on patient demand for SCS and case scheduling, but this impact has started to subside and we're seeing fewer case cancellations. Encouragingly, we're starting to see some early signs that demand is coming back into SES therapy and expect this improvement to gradually continue as COVID infection rates decline, vaccine availability improves, and the market reserve reverts to some sort of normalcy. Although it's still early in the recovery, our best-in-class technology, recently upgraded Omnia platform, now powered by HFX Connect, superior clinical data, And our new growth drivers in painful diabetic neuropathy and non-surgical refractory back pain give us confidence in an improving full year outlook. I really think we're well positioned for attractive and sustainable growth as the pressure of COVID on our business continues to subside. Now, switching to PDN or painful diabetic neuropathy. As I said on our last earnings call, our goal is to get off to a fast start in the second half of the year in referral and trialing activity thus setting the stage for a meaningful revenue impact in 2022. I provided a fair amount of detail on our last call regarding our market development and launch plans for PDN, but I'd like to take just the next few minutes to update you on the recent progress that we've made over this quarter. We were, of course, delighted to see the six-month results from our landmark SENSA PDN randomized clinical trial were published on April 5th in JAMA Neurology. This represents an exciting and we think an important milestone accomplishment on our pathway to securing FDA approval for PDN. In addition, our 12-month PDN results have been accepted for presentation at this year's American Diabetes Association meeting, and that's at the end of June. We plan to submit these 12-month results, including the six-month crossover patient data, for publication later this year. In addition, the health economic data will be submitted for publication later this year, analyzing the long-term outcomes of PDM patients treated with our 10K therapy. The FDA continues to review our PMA supplement submission for use of our sensor system for the treatment of chronic pain associated with PDM. At this point, we believe our submission is on track, and we haven't changed our assumptions about approval in the second half of the year. If approved, the sensor system would be the only SCS system with an FDA-approved indication for treating PDN. Now, remember, there are over 5 million patients in the U.S. alone diagnosed with PDN, and approximately 2 million of these patients are refractory to or failing conventional medical management and in need of a new solution to treat their chronic pain. That represents a roughly $47 billion prevalence pool in the U.S., and an estimated annual incidence market of approximately $5 billion, again, in the U.S. But much more importantly than that, it represents a very large number of patients who suffer intensely from this condition, who don't currently have good treatment options, and by the way, who are disproportionate consumers of healthcare resources. We really think we can play a new and meaningful role in helping many of these patients. Our PDN commercialization team is hard at work preparing for a successful U.S. launch following receipt of FDA approval. Recall that our two overarching goals for this launch are one, to generate awareness, and that's with both patients and referring physicians, and two, to expand market access with increased third-party payer coverage. To ensure we reach these goals, we're investing in a broad commercial launch strategy, including a dedicated PDN field organization to educate those highest volume referring doctors, as well as targeted professional education programs and digital as well as various other outreach initiatives to PDN healthcare practitioners and also to patients. We've already hired almost all of our PDN field team and will begin extensive training this month. Following FDA approval, this dedicated PDN referral selling organization, along with remote selling resources, will be ready to begin calling on doctors that are treating the most PDN patients right now, including primary care physicians, endocrinologists, internal medicine specialists, and podiatrists. We also know, as we've said before, that these diabetes patients take a very active part in their care, and they're highly engaged online. Given this high level of engagement, Nevro is beginning to invest in patient education around PDN. On the market access front, we've already started approaching payers with the goal of expanding policy coverage to include PDN patients where it doesn't exist today. Our initial outreach included contacting the top payer organizations, such as United and Cigna, to provide them with information on our FDA submission and our JAMA neurology publication. So far, it seems like the data is going to be compelling for those payers, particularly given this patient population where they just haven't received much traction with other therapeutic options that they're paying for. We even achieved our first PDN coverage win before our data was even published with a small preferred provider network in the Midwest. While some payers have told us it will require 12-month data, we expect to have that data by the time we receive FDA approval. So with this in mind, we expect our commercial coverage to increase over time as additional commercial payers expand coverage throughout 2022. I also want to give you a brief update on our early international PDN activities, which are in the very initial stages. Similar to the U.S., our primary international PDN launch goals are to drive education, awareness, and expand access for 10K therapy for patients failing conventional medical management. We created advisory panels with local diabetes pain and neurology experts in Australia, Germany, and the UK. We're piloting new sales resources to drive education and awareness with the primary physicians treating PDN in each country. We're also collaborating with local diabetes pain and neurology societies to work towards an update to clinical practice guidelines for the treatment of PDN. Unsurprisingly, there's been some impact from COVID on our ability to execute our plans as quickly as we would like, but we continue to make progress and look forward to providing status updates on these initiatives later in the year. The clinical evidence, including last month's GM Neurology publication demonstrating that high-frequency spinal cord stimulation provided exceptional relief for PDM patients is beginning to create a lot of excitement in the pain and the diabetes communities. And we're eager to bring this treatment opportunity to the millions of PDN patients who are suffering and unable to find relief with currently available pharmacologic options. At the end of April, we introduced HFX, a comprehensive new brand identity that combines Nevro's innovative high-frequency SCS technologies, advanced therapies, and end-to-end patient support. Today, we're known for our highly differentiated HF10 products, but the value of our technology that our technology provides to patients and customers is really much greater. Under this new HFX brand identity, we'll be able to bring products, services, and support together under one cohesive, durable framework that supports today's solutions and, importantly, some of our planned future offerings, whether those are new products, innovations in waveforms, in frequencies, services, clinical data, or unique forms of patient and customer support. Our recent Omnia upgrade, known as HFX Connect, is in full market release, and we plan to upgrade the majority of our existing US user base by the end of the year. We expect a full market release in Australia later this month, with regulatory approval expected in Europe later in the year. The HFX Connect upgrade enables us to be more responsive to patient needs because now, instead of needing to schedule an in-person visit to optimize the patient's therapy, our HFX coaches can remotely optimize the patient's therapy right when it's needed by the patient. Now, this is because Omnia, powered by HFX Connect, has both more pre-populated programs than any other IPG and the programs with the highest likelihood for success. These programs are based on our proprietary therapy algorithms, which were informed by therapy outcomes data from over 70,000 patients stored in our HFX Cloud. Complementary to these pre-populated programs are patient-dedicated HFX coaches, who not only work with patients directly to optimize their therapy remotely, but also follow a proactive patient outreach plan also informed by data in HFX Cloud. so much more than just another app where patients can answer questions and send them off to someone. This is a dedicated team of 70 to 80 professionals assigned to each patient who are in touch with that patient on a regular basis, answering questions and optimizing care and drawing on the immense knowledge base of our HFX Cloud data. Importantly, all of these changes are also going to make our sales team much more efficient over time and will be a critical part of the efficiency with which we scale over the next few years. The FDA also approved our new trial stimulator, and it's currently being evaluated in a limited market release. The new trial device is designed to provide improvements in patient comfort through a smaller, more contoured, cable-free system that allows patients to focus more on their pain relief and less on the device itself. The new trial stimulator also comes with increased programming versatility, so patients can evaluate our proprietary 10K therapy, as well as a broad range of other waveforms prior to receiving permanent implant. I'd like to also highlight that we published our first ESG report in the first quarter, which is available now on our website. We recognize the growing importance of broader corporate responsibility to many of our stakeholders, and while we're still early in that ESG journey, we believe our commitment in these areas will inspire our entire NEVRO team to continue acting as responsible corporate citizens and strengthen our trust with our investors and various other stakeholders. And we look forward to continuing to expand our ESG initiatives in the years to come and helping thousands of patients every year. In closing, I believe we're really well set up for the remainder of 21 and beyond, and we remain very bullish on the longer-term growth drivers for our business. We're uniquely positioned in a still under-penetrated SCS market that should continue to grow for years to come, with a market share position we think should still grow over time. We've started to see incremental improvement in our business and promising signs that patient volume will continue to increase as COVID subsides and patients seek care and make their way back to SCS therapy as the year progresses. Our PD and launch preparations are on track, and we continue to develop the non-surgical portion of our market using NSRBP data. Our recent approvals of the Omnia upgrade powered by HFX Connect and the new trial stimulator will provide momentum throughout the year. And we're continuing to manage expenses and drive operating leverage without eroding our teams or our core capabilities to drive growth. And leveraging the income statement, of course, remains a top priority for us in the coming years. And lastly, I want to once again express my appreciation to the entire network team for their efforts in the first quarter as they continue to navigate the impacts of COVID while moving the company forward. And with that, I'll pass the call over to Rod to provide further details on our first quarter results and our guidance.