Nevro Corp.

Good afternoon. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to Nevro's fourth 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 at that time, simply press star followed by the number one on your telephone keypad If you'd like to withdraw your question, again, press star 1. Thank you. I would now like to turn the call over to Julie Dewey for introductory remarks. Please go ahead.

Good afternoon, and welcome to Nevro's fourth quarter and full year 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 fourth 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 fourth quarter performance on the Nevro Investor Relations website on the events and presentations page. Earlier today, Nevro released its financial results for the fourth quarter ended December 31st, 2022. A copy of our earnings release is available on our IR section of our website at nevro.com. This call is being broadcast live over the internet to all interested parties on February 16th, 2023, and an archived copy of this webcast will be available on our IR website. Before we begin, I'd like to remind everyone the comments made on today's call may include forward-looking statements within the meaning of federal securities laws. Our results could differ materially from these 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 to be filed 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-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 release. And now it's my pleasure to turn the call over to Keith.

Thank you, Julie. And good afternoon, everyone, and thank you for joining us. I'm going to focus my comments today on our fourth quarter results, the current state of our business and recovery, the progress of our PDN launch, and the limited market release of our new HFX IQ system. Now, following my comments, Rod will cover the specifics of our Q4 results and our 23 first quarter and full year guidance. Overall, we continue to move our business forward in Q4, and we're entering 23 with, I think, some real positive momentum. Our revenue was at the high end of our guidance. U.S. procedure growth rates grew double digits, and adjusted EBITDA results were within our guidance range, excluding one-time charges. I'm really pleased with the building blocks that are now in place for attractive growth and leverage going forward, and believe the challenges to our market will gradually but steadily continue to improve throughout 23 and beyond. There were a number of encouraging elements of our progress in the fourth quarter. Global revenue growth was 12% over prior year on a constant currency basis, while U.S. revenue growth came in at 13%, and U.S. trial activity delivered 9% year-over-year growth. In fact, October, November, and December were all-time record months for daily trial rates in the U.S., with Q4 U.S. trials, in fact, about 6% ahead of 2019, which, of course, was our last pre-COVID comparable period. Based on reported competitive revenues thus far for Q4, we continue to gain market share in the quarter and full year 22 as well. ADN continues to be a significant driver of growth with impressive performance quarter over quarter throughout 2022. And finally, our new AI powered HFX IQ system is performing really well in our limited market release with positive feedback from physicians and patients regarding the ability to deliver personalized pain relief using our big data-backed HFX algorithm. And more on IQ later in my remarks, but I think this technology really has the opportunity to further differentiate our competitive position in this space. All of this progress builds, of course, on our superior high-frequency, paresthesia-free SCS technology, and we're confident that we're well-positioned for 23. We see continued signs of market recovery as the recent challenges in our market are beginning to recede and we continue to believe that the underlying fundamentals of the addressable market and the opportunity for growth remain largely intact. We continue to see encouraging growth in trials and permanent implants. And we're starting to see the recovery that we expected to see as the impacts of the pandemic begin to wane. We think, by the way, that that is going to continue throughout 23, though we know it's unlikely to be linear in nature. Of course, lingering staffing challenges and capacity congestion do continue to put pressure on the scheduling of procedures. But these also seem to improve a little during the fourth quarter, and we believe this trend will continue throughout 23 as well. Our guidance takes this into account and implies year-over-year revenue growth for the first quarter of 9% to 11% on a constant currency basis. Of course, this assumes the typical sequential seasonality we usually see from Q4 to Q1. Our previous research indicated that patient engagement with pain specialists has been improving. And as the market's capacity to handle pre-COVID volumes is more fully restored, we expect to see market growth return over time to historical CAGRs. Turning now to our PDN business. Our progress with referring clinicians, payers, and clinical societies exceeded our expectations in 2022. And we're looking forward to continuing to develop this exciting growth platform in 2023. During the quarter, PDN trials represented approximately 20% of our total U.S. trial volume. That's up from 18% of our total U.S. trial volume in Q3. And that actually improved throughout the course of the quarter. Among our permanent implant procedures, PDN represented around 16% of the total worldwide procedures, resulting in approximately 17.3 million in PDN indication sales. And that's an increase of 29% sequentially compared to 13.4 million in the third quarter, which we attribute in large measure to the PDN referral sales organization expansion that was completed in June, as well as our outreach initiatives with both physicians and patients. In the month of December, approximately 16% of our US PDN trial procedures came from leads generated by our own DTC programs. And we continue to test new direct-to-patient media channels and programs to drive awareness and interest with patients directly. In addition to the existing payer coverage policies in place for PDN, we continue to see a high level of case-by-case approvals through the prior authorization process and the appeal of payer denials. including with payers who don't have a position or rather a positive PDN coverage policy. For those PDN cases that have come through our own access group, our cumulative approval rate as of the end of December continued to trend around 80%, and that was up from about 62% at the end of 2021. Finally, the complete 24-month PDN RCT trial data and the 12-month quality of life RCT data were presented in January at the NAMS conference in two separate podium presentations by Dr. Erica Peterson. These strong results confirmed the long-term durability of pain relief as well as clinically meaningful improvement in neurological function and quality of life achieved with 10 kilohertz therapy. We expect to submit this data in the coming months for publication. In addition, we're also looking forward to enrolling our first patient next quarter in our new PDM sensory study. which will be the first prospective RCT specifically powered to assess restoration of neurological function as a primary endpoint in patients with intractable PDN. We plan to enroll up to 236 patients at multiple sites across the US. Patients will be randomized to conventional medical management or 10 kilohertz SCS plus conventional medical management with optional crossover to the other treatment arm at six months if those criteria are met. This sensory study is groundbreaking really for several reasons. Diabetes and peripheral neuropathy pose a staggering socioeconomic burden. There is no available disease-modifying treatment option available for patients with PDM. In fact, every 20 seconds in the U.S., there's a diabetes-related amputation, according to the American Limb Preservation Society. And many of these amputations are preventable. Insensate or numb feet contribute to unrecognized injuries and foot ulcers as patients lack protective sensation. Foot ulcer treatment and associated amputation surgeries are costly, both economically and, of course, psychosocially. By restoring sensation in the feet, 10K SES may alleviate this tremendous disease burden, prevent amputations, and enable patients to be more active, all of which would improve overall health and quality of life and, of course, reduce healthcare costs. This study also affords a path forward to building clinical evidence for slowing the progression of or improving sensory loss of lower limbs in patients with chronic intractable pain and builds on the significant outcomes we saw in our landmark 10 kilohertz SCS RCT with powered study endpoints targeting the disease-modifying benefits of improved neurological function and pain relief. You'll recall that the observed neurological improvements we saw in the original Senza PDN study are unique to 10-K SCS and have not been reported for any other competitive SCS modality. Not only do we anticipate that this study will provide additional confirmatory evidence of the benefits of NEVRO's proprietary 10-K therapy in these PDN patients, but we also believe that the additional level one data generated will be very helpful as we continue to work with payers to expand PDN coverage generally. I'm pleased to announce that the FDA has granted breakthrough device designation for the PDM sensory study and this potential device indication. This designation by the FDA provides for an expedited review for a marketing application to expand Nevro's FDA labeling. And as I said earlier, we look forward to enrolling our first patient next quarter, and we're really excited about the opportunity for this target patient group. Following our strong progress in 22, PDN is expected to be a significant growth driver for us once again this year. As another example of the growing interest in PDN, as of the end of December, over 70% of Nevro and planting physicians had consulted with one or more PDN patients in their practice. Our 23 revenue guidance includes a $75 million to $85 million contribution from PDN. That's an increase of 56 to 77% over 22. As we said, over time, we think PDN is going to be one of the more significant parts of spinal cord stimulation, perhaps growing to as much as a third of the US SCS market. Our guidance for 23 implies this patient segment will already be about 15 to 20% of our own business in just its second full year. Moving on to non-surgical back pain, after receiving FDA approval of this indication last January, we began commercial activities to expand access to HFX therapy for this patient population by focusing on the identification and education of patients already at existing pain practices who have not had prior surgery and who are not a candidate for surgery. Unlike PDN, we've always viewed the NSBP patient population as sort of a rising tide for the entire SCS industry and pain specialty. We continue to lead the charge in generating NSBP clinical data, but it was encouraging to see our competitors also begin to report their own data at NAMS this year, which helps to build the foundation of clinical evidence supporting this indication. As our competitors continue to join us in the generation of NSBP data, we believe more payers will continue to cover SCS therapy for these patients who have exhausted all other options for which they're candidates. We believe this will help to grow the market for SCS therapy for back and leg pain patients in the coming years. Speaking of that, our clinical investigators presented positive two-year follow-up data for our CEMSA NSBP trial at NAMS, which included clinically important and stable pain relief in patients treated with 10K SCS, as well as strong, durable improvement in reported function and a significant quality-of-life improvement. These results were seen in patients with refractory chronic low back pain who were evaluated by a spine surgeon for surgical candidacy and who had exhausted all appropriate non-operative medical management. On the reimbursement front, to date, we've not experienced any noticeable impact on our revenue from UnitedHealthcare's decision to exclude coverage for NSBP patients, which became effective on December 1. We also don't expect this coverage decision to have a material impact on our go-forward revenue opportunity, as we said previously. And we believe our continued generation of high-quality clinical evidence will ultimately carry the day just as it has thus far with the PDN indication. Now I'd like to turn to our new Senza HFX IQ system. Following FDA approval last quarter, we initiated a limited U.S. market release, which has been very well received. IQ is the first big data-backed, AI-powered spinal cord stimulation system that gets smarter over time by learning from each patient's pain experience and that patient's interaction with the device and the therapy. IQ is powered by something no other SCS system has, big data. In fact, over a decade of longitudinal patient data from our HFX cloud patient database. Our HFX algorithm, which is based on over 20 million clinical data points from over 80,000 patients in this database, drives the IQ product. This algorithm starts patients on the stimulation program most likely to provide relief based on their specific profile. IQ is Bluetooth-enabled and connected to a patient app and learns each patient's individual inputs to personalized therapy recommendations designed to progress the patient along their pain relief journey. This combination of big data, AI, and direct patient engagement and input is intended to optimize and maintain pain relief on an individualized basis, giving patients more control over their pain relief based on their personal experience and at a time that suits them. IQ is a powerful supplement to our field team, our HFX coaches, and our cloud database that provides physicians with both detailed and summary outcomes data. We believe the IQ will lessen the burden on our patients and our customers and expect this launch to support our growth prospects in 23 and well beyond. By the way, the IQ product line is the next logical step in allowing us to drive more profitable growth. as it enables our existing team to scale more effectively over a larger base of patients and revenue going forward. I believe this, combined with the ramp-up of our Costa Rica manufacturing facility, is really going to help us with the earnings productivity of our revenue growth in the coming years. At the NAMS meeting, we have an opportunity to feature the HFXIQ system at our exhibit booth and several other events, including a well-attended physician education lunch. We're preparing for a full U.S. launch very soon. and expect a meaningful shift in mix to the HFXIQ product throughout the rest of the year. In addition to the U.S. approval for IQ, we've already submitted for approval in Europe and Australia. In summary, the HFXIQ reflects our continued commitment to deliver comprehensive life-changing solutions for patients with chronic pain, and it comes at an exciting time as we've now impacted the lives of more than 100,000 implanted patients globally with our technology. We think what we're doing with the IQ represents the future of SES therapy, and it keeps Nevro firmly at the forefront of innovation as we continue to bring new technology, new data, and new indications to our customers and our patients. We're also very proud to announce that we recently received our certification to the new European regulatory standard for medical device companies known as EUMDR. This certification is a strong validation of the strength of our internal quality management system. and it follows several years of work and preparation by our team. I should mention that only about 25% of the applications received by European notified bodies have undergone regulatory assessment and received a certificate according to this new and more robust regulatory framework. And I'm really pleased that NEVR is among the first wave of medical device companies to achieve certification to this new standard. So, in closing, we made encouraging progress in the fourth quarter with what we believe will be continued recovery in our markets, important new products like the HFXIQ platform, entirely new patient populations like PDN and NSVP, and the opportunity for attractive operating leverage on future growth as a result of our intense focus on the scalability of our expense structure, I think the outlook for Nevro is increasingly bright. And with that, I'll pass the call over to Rod to provide further details on our fourth quarter results and on our guidance.