Nevro Corp.

Good afternoon, my name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to Nevro's first quarter 2022 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, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I would like to turn the call over to Julie Dewey for introductory remarks. Please go ahead.

Good afternoon and welcome to Nevros first quarter 2022 earnings conference call. We appreciate you joining us. I'm Julie Dewey, Nevros Chief Corporate Communications and IR Officer. 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 business results from Keith, followed by detailed financials and guidance 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 ended March 31st, 2022. 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 4th, 2022, 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 FCC filings, including our Form 10-Q, 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. Non-GAAP adjusted EBITDA excludes certain litigation expenses, interest, taxes, and non-cash items such as stock-based compensation and depreciation and amortization. Please refer to GAAP to non-GAAP reconciliation tables within our earnings release. And now I'll turn the call over to Keith.

All right. Thanks, Julie, and good afternoon, everyone. Thank you for joining us. I'll focus my comments today on our first quarter results, the current state of our business and COVID recovery, and on the progress of our PDN launch. Following my comments, Rod will cover the specifics of our Q1 results and our guidance. Overall, Q1 was a quarter of solid execution and progress, evidenced by revenue and adjusted EBITDA results that were above the high end of the guidance range we communicated on our last earnings call. Although both U.S. and international revenue were impacted by COVID-related issues, primarily in the first half of the quarter, we were really encouraged by the level of recovery and procedures, which steadily improved throughout the quarter, a trend, by the way, that has continued through the month of April. We believe this is a positive indication that our market has started on the path of a more durable recovery and one that we assume will continue in the months ahead. Our excitement continues to grow for the PDN opportunity, which I'll discuss in a little bit more detail in a moment. as well as our recent FDA approval for a specific indication to treat NSRBP or non-surgical patients. All of this progress further differentiates our high-frequency, paresthesia-free SCS technology, and we're confident that we've laid a strong foundation for attractive future growth and we're well positioned for a strong second half of this year and beyond as the impact and uncertainties of COVID on our market continue to subside. Now, let's take a look at actual procedure activity. Despite the significant Omicron impact in January and into early February, Q1 total U.S. permanent implant procedures increased 2% compared to prior year and 14% compared to Q1 of 2019, while trial procedures increased 10% compared to prior year and 13% compared to Q1 of 2019. I'm encouraged by the recovery and trial and permanent implant volumes we saw in the second half of the quarter, and as I said, that has continued in the second quarter to date. Our data confirms to us that patients' willingness to engage in the therapy is still improving, and importantly, the underlying fundamentals of the addressable market and the opportunity for attractive growth rates remain intact. Based on this and the trend in procedures, particularly trials, we believe the SCS market has taken the first encouraging steps toward recovery, and is positioned to return to solid revenue growth in the second half of the year as the funnel of trial procedures refills in the first and the second quarters. And this is reflected in our guidance that we reiterated today. We're now nine months into our PDN commercial launch and are very pleased with our progress and success on all fronts, including educating and referring physicians, creating awareness with patients, and increasing access to our therapy. During the quarter, PDM trials grew 47% sequentially compared to Q4, despite not only the Omicron impact early in the quarter, but the typical downward seasonality that is generally seen in the FCS business from Q4 to Q1. PDM trials represented approximately 11% of our total US trial volume, up from 7% of our total US trial volume in Q4, and improved throughout the course of the quarter. As it relates to permanent implant procedures, PDN represented 7% of total procedures worldwide, which resulted in approximately $6 million in revenue contribution. Based on the demonstrated success we've seen today from our PDN referral sales team, we've moved forward with our plan to expand our PDN referral territories, and the hiring of additional sales reps is well underway. We plan to have these new PDN referral reps trained and in their territories by the end of Q2. That will bring the total number of PDN reps to between 45 and 50. Our existing SCS sales team calling on our pain specialists is seeing tremendous interest among these physicians to reach out to referring physicians in their local communities to drive awareness for 10 kilohertz HFX therapy for PDN. Now, as we mentioned on our last call, the number of pain physicians that say they're proactively seeking PDN referrals has nearly doubled from before our PDN approval, and that continues to grow. Our new co-marketing platform, which launched in January, enables interested and planting physicians to implement their own local marketing programs to their referring physicians. When pain physicians initiate local outreach and marketing, we've seen that PDN can rapidly become a very meaningful percentage of their monthly patient volume. For example, as we look at our top PDN implanting positions, we've seen that for some, PDN can quickly grow to 25% to 45% of their monthly trial volume. Further up the patient demand funnel, our direct-to-consumer campaign continues to be a strong source of qualified PDN patient leads. More recently, we're now starting to see a higher percentage of PDN patient trial procedures coming from our DCC efforts as our HFX coaches and our sales team members continue to nurture these leads. This process, by the way, typically takes months to quarters in our core market DTC efforts as well. Roughly 1,300 of these qualified leads have now been handed over to our field team, and in the month of March, 16% of our total U.S. PDN trial procedures came from these DTC patient leads. We're looking forward to participating in the annual American Diabetes Association, or ADA, scientific sessions in New Orleans next month. We'll be sponsoring a product theater presentation in the main exhibit hall on Sunday, June 5th. And I'm also pleased to announce that our late-breaking scientific abstract detailing the 24-month data from the original 10K arm of our Senza PDN trial was accepted for presentation. And this will be the first time 24-month data will be presented for the 10 kilohertz arm. We expect the complete 24-month data to be available in Q4, and our plan is to submit that data set for presentation at NANs in January. and then publish as soon as we can thereafter. In terms of payer coverage, we're continuing our outreach to the payer universe to expand market access and drive adoption. In the first quarter, we made significant progress with the positive decision by United Healthcare to expand their SCS coverage to include PDN patients as well as the Medicare coverage update by Noridian. This now means that five of the seven regional Medicare area contractors, or MACs, now provide access for PDN patients. Both of these updates became effective in the first quarter, increasing formal policy coverage to approximately 43% of the addressable US PDN population. And that's up from, as a reminder, 25% at the end of 2021. In addition, UnitedHealthcare also recently updated its policy by adding explicit language requiring FDA approval for SCS devices that are used for specific indications, including PDN. We believe this was United's intent all along, but now their policy very clearly states this, and that update to the policy will become effective on June 1st of this year. Overall, however, this will be a process that takes time, as we indicated to you at the beginning. Some payers will make updates based on the 12-month data, just as UnitedHealthcare and Noridian did, while other payers will wait for longer-term follow-up data or even increase patient and provider demand. For example, Aetna and Cigna recently reviewed all of their coverage policies and didn't include expanded coverage to include PDN in this particular review. As we publish more and longer-term data and more patients are presented for treatment, we'll continue to work with these and other payers to make the right data-backed decisions. This is a pretty typical part of the process, and I'm sure most of you have seen this process play out with other new products and indications. Remember that almost the entirety of the payer universe covers SES therapy for lower back and leg pain indications, and we believe this will ultimately be the case for PDN as well. Also remember that coverage policy decisions are important, but they're just part of our efforts. We continue to seek individual patient coverage on a case-by-case basis through prior authorization procedures and the appeal of payer denials, including with payers who don't have a specific PDN coverage policy. For example, our HFX access team has been successful in securing coverage for many PDM patients, including those covered by payers like Aetna and Cigna, and we do not expect that this will change going forward. In fact, for those PDM cases that have come through our own HFX access group, we've seen an approval rate of nearly 70%, which is approaching approval rates that we see in our core back and leg patients as well. Our reimbursement team is continuing to work closely with commercial payers and the remaining regional Medicare contractors to expand PDN coverage for our therapy. And we believe our strong and growing body of published peer reviewed and clinical and real world data will be the basis for further covered decisions by other major health plans this year and beyond. Included in our 2022 sales guidance is now a $27 million to $32 million contribution from PDN. And we're really encouraged by the continued growth of PDN volumes in the first quarter. And as I've mentioned, that continues into the second quarter. In summary, we couldn't really be more excited about the progress we've made so far in PDN and how impactful we think this is going to be for providers and their patients. We're really encouraged by the high levels of interest among referring physicians and patients, early trial volumes, and most importantly, the consistent and validating clinical outcomes in those patients who have already received their permanent implants. And we're looking forward to continuing to develop this exciting growth platform in the months and the quarters ahead. Moving now to NSRBP, or non-surgical back. After receiving FDA approval of this indication in January, we began commercial activities to expand access to HFX therapy for this patient population. We saw sequential monthly growth in NSRBP trials during Q1, with these trials coming from both current and new users. This is a large and under-penetrated market with approximately half a million patients annually in the U.S. who are not candidates for surgery and who have limited treatment options available when less invasive therapy and medical management are not successful. While NSRBP has historically made up around 30% of our patients, only about 5% of this large patient population are currently receiving SCS therapy. To further understand the unique needs of NSRBP patients, we conducted quantitative research in February of this year with 200 of these patients. Similar to PDN, this research validated our assumption that patient-to-physician education and support will be key drivers of a successful commercial execution strategy. There are a few important takeaways from our research, including these facts. Nearly 60% of these patients have been seen by pain specialists already. So these are patients who are already accessible to our current customers. 41% of this cohort said they are not satisfied with their current treatment and 90% of these patients say they are quote constantly searching for ways to treat their chronic pain. Only 48% of these patients have heard about SCS and two thirds of these patients believe that SCS as a treatment option would quote solve a problem or fulfill a need and finally 81% said they would do an SCS trial if it was recommended by their physician. But given that we're the only SCS company with published long-term outcomes data and a specific FDA-approved label for NSRBP, we think we're well positioned to serve these patients. So our strategy, not surprisingly, is focused on the identification and education of patients at these existing pain practices who have not had prior back surgery and who are not a candidate for surgery. In addition to focusing the pain physician's attention on these patients, we'll work towards broadening commercial payer coverage for non-surgical back patients by leveraging both our peer-reviewed published RCT data and our FDA approval. Medicare, through both national and local coverage policies, currently has broad coverage for NSRBP. And we've not experienced nor do we anticipate any coverage challenges as long as SCS is used consistent with these policies. On the commercial side, we estimate about 78% of covered lives are not explicitly covered for NSRBP. Another 21% of covered lives have a coverage policy written such that patients we believe are covered on a case-by-case basis, and only 1% of this patient population are in a policy where they are explicitly covered by the wording of that policy. Even if a patient is not covered, our patient access team is prepared to support case-by-case approvals through the prior auth process, just as we've done with these patients for years, though certainly now our case is much, much stronger. Over time, we expect NSRVP will be an important contributor to overall SES market growth for the treatment of back and leg pain as we, and eventually our competitors, continue to educate pain physicians and make progress on payer access initiatives. So, in closing, we made encouraging progress in our core SCS and PDN businesses in the first quarter and are seeing the first leg of what we believe will be continued recovery in our markets. We continue to believe we're well positioned for mid- to longer-term attractive growth, and I'm very optimistic as we think about the rest of this year. We participate in three large, under-penetrated SCS patient populations that should continue to provide growth for years to come, and we remain very bullish in our ability to continue to capture share of this market over time with better technology, better outcomes, and solid execution. Over these last two challenging years, we've worked hard to dramatically improve our company's position. We've introduced new products such as Omnia, HFX Connect, which included upgrades to Omnia to provide versatility to remotely optimize patient care, especially when paired with our HFX cloud database, our large team of HFX coaches, and our HFX access team. And finally, the introduction of a new smaller trial stimulator. We've received FDA approval for two new and very large populations of patients in PDN and NSRBP. And of course, we've published lots of new data in support of those approvals. We've strengthened our technology development roadmap and have very exciting things coming over the next five years with the next product platform coming toward the end of this year. Organizationally, we kicked off and have now nearly completed our in-house manufacturing capacity in Costa Rica. And we created a new commercial arm focused on the diabetes market, including a dedicated referral sales organization. So while it was a tough two years for the SCS markets, we've been very busy as a company preparing for this recovery phase. And as the market returns to normal levels of activity, we're set up well to drive growth this year and beyond. And with that, I'll pass the call over to Rod to provide further details on our first quarter results and on our guidance.