Nevro Corp.

Good afternoon. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Nebro Second Quarter 2022 Financial Results Conference Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. We ask that you please limit yourself to one question and one follow-up. If you feel your question has been answered, you may remove yourself from queue by pressing star 1 once again. I'd now like to turn the call over to Julie Dewey for introductory remarks. Please go ahead.

Good afternoon, and welcome to Nevro's second quarter 2022 earnings conference call. We appreciate you joining us. I'm Julie Dewey, Nevro's 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 second 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 second quarter performance on the Nevro Investor Relations website on the events and presentations page. Earlier today, Nevro released its financial results for the second quarter ended June 30th, 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 August 3rd, 2022, and an archived copy of this webcast will be available on our IR 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 annual report on Form 10-K, filed on February 23, 2022, for a detailed presentation of risk. 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'll 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-related expenses and credits, interest, taxes, and non-cash items such as stock-based compensation and depreciation and amortization. Please refer to the GAAP to non-GAAP reconciliation tables within our earnings release. And now, I'll turn the call over to Keith.

Thanks, Julie. Good afternoon, everyone, and thank you for joining us today. I want to focus my comments on our second quarter results, the current state of our business and recovery, and on the progress of our PDN launch. Following my comments, Rod will cover the specifics of our Q2 results and our guidance. Overall, we continue to move our business forward in Q2, evidenced by overall revenue that was in line, PDN revenue growth that continues to impress us, and adjusted EBITDA results that were above the high end of the guidance range. Despite these results, we continue to experience the lingering impact of customer facility and staffing issues that served to slow overall patient throughput, particularly of permanent implant procedures. And we believe our market is still moving down the path of a more durable recovery, though we believe the pace of that recovery may continue to be slower and more uneven than we'd originally anticipated, at least in the near term. There have been many encouraging elements of our progress today. We're particularly pleased with our revenue growth in the U.S. in the quarter, which was 14% ahead of our pre-COVID pace in 2019. We're also extremely encouraged by the progress of our PDN launch as we continue to drive patient referrals and have made continued progress with payers. We also believe we've begun to build some early momentum with our indication to treat non-surgical back pain patients. And finally, as we announced on Monday, we were able to reach a settlement in our litigations with Boston Scientific. Now, as part of that settlement, Nevro will receive a license to Boston Scientific's asserted patents, a covenant not to sue for any features embodied in current Nevro products, dismissal of all current litigations, a payment of $85 million in cash, and a release of the $20 million dollar verdict Boston Scientific was awarded by a Delaware jury last November. The release allows Nevro to reverse the $20 million loss liability that had accrued in the third quarter of 2021. The resulting accounting is $105 million positive P&L impact to Nevro in the third quarter of 22. Please note that we've not licensed or compromised in any way what we consider to be our core high-frequency IP, which ranges from 1.5 to 100 kilohertz. The license to paresthesia-free therapy we granted to Boston Scientific was limited to all frequencies below 1.5 kilohertz, which is where Boston Scientific has been competing. We remain the exclusive provider of our unique best-in-class HFX 10K therapy. The terms of the settlement agreement beyond what was stated in Monday's press release and the 8K we filed are confidential, so we'll not be able to answer many of your questions beyond what has already been publicly disclosed. But, of course, we're pleased to have this behind us. Now, let's take a look at actual procedure activity for the quarter. Despite the staffing shortage and capacity impacts, particularly late in the quarter, Q2 total U.S. permanent implant procedures increased 8% compared to prior year and 13% compared to Q2 of 2019, while trial procedures increased 14% compared to prior year and 4% compared to Q2 of 2019. I'm encouraged by the increase in trial procedures we saw in the quarter, And while we now expect normal seasonality in Q3, we continue to see encouraging year-over-year trial growth. Our data confirms to us that patient willingness to engage 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 trial procedures, we believe the SCS market is moving toward recovery and is positioned to return to more attractive revenue growth rates later in the year as the funnel of trial procedures continues to refill. Lingering staffing issues, however, put pressure on the scheduling of SCS procedures. Now, while this includes trial procedures, it's particularly evident in PERM procedures, which serves to lengthen our trial to PERM or T2P conversion curve, or the average time to convert patient trials to PERMs and therefore revenues. We expect this to improve later this year and into 2023. In the meantime, even though trial performance continues to improve, albeit at a somewhat slower pace than we planned, This lengthened conversion curve has much to do with how we're thinking about second half and particularly third quarter revenues. Our updated guidance that Rod will discuss in more detail later takes this into account, though it's important to remember that this revised guidance still reflects total revenue growth for the second half of the year of 7 to 12% on a constant currency basis. In July, our team completed some market research with hundreds of implanting SCS physicians and chronic pain patients and we reviewed recent claims data as well. In general, this survey work confirms that things are getting better, if not at the pace we had originally planned. In our physician research, 55% of those surveys noted higher monthly trial volumes in the last few months as compared to last year, though not quite yet back to 2019 levels. The primary market dynamic that physicians told us was having an impact on SCS procedure volume was staffing challenges, though patients' financial concerns was also cited by some. For the month of July, 92% of physicians told us they continue to experience staffing challenges such as office turnover and newer, less experienced office staff, which impact patient scheduling, office efficiency, and importantly, OR scheduling, and therefore overall procedure throughput. Fortunately, 53% of physicians noted they're also seeing an influx of new patients who delayed treatment due to the pandemic, whom they believe will be the drivers of market recovery. Now, in our patient research, they told us they've had difficulty scheduling appointments with pain providers, which is, of course, consistent with feedback we received from the physicians I mentioned a moment ago. Not surprisingly, patients also expressed sensitivity around higher copays and deductibles. Now, this has always been the case, though we were certainly not surprised to hear it in this current environment. Encouragingly, 45% of patients say they are seeing their pain doctor more than last year, and 88 patients who delayed or canceled a pain procedure in the last six months said they plan to have the procedure before the end of this year. Now, turning to claims data for actual procedure volumes in the U.S., SCS trials and PERM trends are consistent with that survey work. Based on the latest third-party claims data for actual procedures, U.S. permanent implant procedures for the total U.S. market in the first five months of 22 were up 1.5% compared to prior year. but are still down 4% compared to the same period in 2019. NevroPerm procedures, on the other hand, were up 5% for the first five months of 22 compared to the same period last year, and up 13% versus the same period in 2019. These data are particularly important because while revenue growth numbers can be impacted by a number of things, including timing of shipments, these procedural growth numbers more accurately indicate what products are actually being implanted in patients, and they're a really good indication of share trends. For the first five months of the year, compared to 21 and 19, never outpaced market procedure growth rate by 350 and 1700 basis points, respectively. So we're confident that we continue to win competitively. Remember, these are actual procedures, not reported revenues, so the prior year period comparables are not impacted by things like stocking issues from 2019 that some of you might remember, for example. Regarding our PDM performance, we've now passed the one-year mark for our commercial launch, and we're really pleased with what we're seeing. We've educated and driven awareness with thousands of referring physicians and patients and significantly increased patient access to the therapy. During the quarter, PDN trials in the US grew 45% sequentially compared to Q1, despite the lingering market issues that I've been describing. PDN trials represented approximately 14% of our total US trial volume, up from 11% of total US trial volume in Q1, and they improved throughout the course of the quarter. As it relates to permanent implant procedures, PDN represented 11% of our total procedures worldwide, And that resulted in approximately $11 million in PDN revenue contribution. And that's an increase of 83% sequentially compared to 6 million prior quarter. We've now completed the planned expansion of our PDN referral territories, bringing the total number of PDN reps to approximately 50. These additional reps have been trained and they're all now in their territories. Our existing SCS sales team, calling on our pain specialists, continues to generate interest among our implanting physicians to reach out to referring physicians in their local communities and drive awareness for our therapy for these patients. 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 approval, and that continues to grow. At the end of June, nearly 60% of our implanting physicians had received one or more PDN patient referrals. When pain physicians initiate local outreach and marketing and share individual patient successes, we've seen the PDN can rapidly become a really meaningful percentage of their monthly patient volume. For example, if we look at our very top PDN implanting physicians, we've seen that for some, PDN can quickly grow to as much as 25 to 45% of their monthly volumes. Further up the patient demand funnel, we continue to invest in and strengthen our direct-to-consumer campaign in order to acquire and activate qualified patient leads. The percentage of PDN patient and trial procedures coming from our DTC efforts is growing as our HFX coaches and sales team members continue to educate these leads. As a point of reference, in the month of June, 16% of our US PDN trial procedures came from these DTC patient leads. At this year's ADA scientific sessions in June, we were excited to share for the first time the 24-month results from the 10K or treatment arm of our landmark SAMHSA PDN trials. which continue to clearly demonstrate the safety, durability, and consistency of pain relief and other outcomes that can be achieved with HFX for PDM. While prior research has looked at the benefit of SCS for treating pain related to diabetic neuropathy, this is the first time that neurological improvement after SCS has been studied. Our data showed a 72% neurological symptom improvement, a 69% average reduction in sleep disturbance, and an average improvement in quality of life that was three times the minimal clinically important difference. No traditional low-frequency SCS treatments have demonstrated such positive results in treating these patients, and we believe there's a significant opportunity to expand this innovative treatment option to PDN patients who are unable to find relief with any other options. We're also pleased that the complete 12-month results from the CENTA PDN trial, which included health-related quality of life outcomes published in the Mayo Clinic Proceedings in early July. These results demonstrate improvement in several important health-related quality of life metrics in patients with PDM, including significantly less pain interference with sleep, mood, and daily activities. Importantly, a 12-month 10 kilohertz SCS treatment resulted in improvement in overall health-related quality of life that was two and a half to four and a half times higher than the difference that is considered clinically important. We expect the complete 24-month data to be available in Q4, and our plan is to submit that data for presentation at NAMS in January 23 and to publish as soon as we can thereafter. In the critical area of payer coverage, a number of coverage updates among Blue Cross Blue Shield or BCBS insurers were announced to explicitly cover PDN during this past quarter. These included updates from BCBS providers in Alabama, Hawaii, Idaho, the Pacific Northwest, Illinois, Montana, New Mexico, Oklahoma, and Texas. Combine these BCBS updates represent nearly 23 million commercially insured covered lives with nearly 50% of the addressable US PDM population now covered under a formal policy update for PDM. That's up from 25% as recently as the start of the year. We attribute this recent momentum from these plans to our proactive engagement with Evidence Street, their national health tech assessment arm. Evidence Street's June update of the SCS evidence-based review incorporated our clinical evidence on PDN, which we submitted to them in January. Remember that coverage policy decisions are important, but they're just part of our efforts. We continue to see a high level of patient coverage on a case-by-case basis through the prior auth process and the appeal of payer denials, including with payers who do not have a specific PDN coverage policy. For PDN cases that have come through our own access group, our cumulative approval rate as of the end of June climbed to 84%, up from about 62% at the beginning of the year. Based on our strong PDN performance in the first half of the year, our 22 sales guidance now includes a $42 to $45 million contribution from PDN, up from our original guidance of $25 to $30 million at the beginning of this year. Moving on to non-surgical back pain, after receiving FDA approval of this indication in January, we began commercial activities to expand access to HFX therapy for this population. We saw sequential growth in NSPP trials during Q2, with these trials coming from both current and new users. This is a large and under-penetrated market, as we've discussed, 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 NSBP has historically made up around 30% of our patients, only about 5% of this large patient population are currently receiving this therapy. Our strategy focuses on the identification and education of patients already at these existing pain practices who have not had prior surgery and who are not candidates for surgery. So far, these customers are excited and receptive to our outreach, and they're actively looking for patients to treat. We also continue to prepare for the launch of our next generation product platform. This new system will be the first significant step in leveraging the over 80,000 patients and 20 million clinical data points in our HFX cloud database to intelligently inform the delivery of our superior high frequency therapy. We plan to begin a limited market release once we receive FDA approval, which we hope will come before the end of 22. Now we'll provide a lot more detail at that time, but we're really excited about the power of this platform and what it can do for us and our patients immediately and over time. So in closing, we made encouraging progress in our core SES and PDM businesses in the second quarter. And while clearly the challenges of the last couple of years are resolving a bit more slowly than we hoped, we're seeing the start of what we believe will be continued recovery in our markets as well as cause for real excitement in our emerging growth drivers. And with that, I'll pass the call over to Rod to provide further details on our second quarter results and on our guidance. Thanks, Keith, and good afternoon.