Nevro Corp.

Second quarter 2023 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 that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question and remove yourself from the question queue, press star one a second time. Thank you. And I would now like to turn the call over to Greg Huduchick for inductory remarks. Please go ahead.

Thanks, Abby. Good afternoon and welcome to NEVRO's second quarter 2023 earnings conference call. With me today are Kevin Thornall, CEO and President, and Rod McLeod, Chief Financial Officer. On today's call, Kevin will discuss second quarter business results, and Rod will conclude with detailed financials and guidance before we open up the call for questions. Please note there are also slides available related to Nevro's second quarter performance on their investor relations website in the events and presentation section. Earlier today, Nevro released its financial results for the second quarter ended June 30th, 2023. A copy of the earnings release is available on the investor relations section of Nevro's website at nevro.com. This call is being broadcast live over the internet to all interested parties on August 1st, 2023. An archived copy of this webcast will be available on NEVRO's Investor Relations website. Before we begin, I would like to remind everyone that comments made on today's call may include forward-looking statements within the meaning of the federal securities laws. Results could differ materially from those expressed or implied as a result of certain risks and uncertainties. Please refer to NEVRO's SEC filings, including the annual report on Form 10-K filed on February 21, 2023, for a detailed presentation of risks. The forward-looking statements in this call speak only as of today, and the company undertakes no obligation to update or revise any of these statements. In addition, management will refer to adjusted EBITDA, a non-GAAP measure used to help investors understand Nevro's ongoing business performance. Non-GAAP adjusted EBITDA excludes interest, taxes, and non-cash items such as stock-based compensation and depreciation and amortization, as well as litigation-related expenses, certain litigation charges, and credits and other adjustments such as restructuring charges. Please refer to the GAAP to non-GAAP reconciliation tables within the earnings release. And now, it's my pleasure to turn the call over to Kevin.

Thanks, Greg, and good afternoon, everyone. We appreciate you joining us. It's hard to believe that three months have already passed for me as CEO. It's been very busy and productive as I've gotten to know our organization and assess the pathway forward to continue to win in the SES market and fully capitalize on the opportunities ahead of us. As I said on our last call, my top priorities will be to build on the significant progress the company has made professionalizing the organization, establishing a manufacturing plant in Costa Rica, bringing new indications to market, and launching innovative new product platforms like IQ. During the last three months, I've spent significant time in the field meeting with our sales teams, customers, and key opinion leaders in the U.S. and internationally. I've learned a lot already. Our customers believe in our superior technology and want to partner with a company that's easy to do business with and people in the field that partner with their care teams. Our products in 10 kilohertz therapy are highly differentiated and our HFX IQ launch has been well received. We also have a great pipeline of new products currently being developed by our R&D and clinical teams that we intend to launch in the coming years. Our team is talented, determined, resilient, and mission-driven. However, we have areas for improvement and need to be laser-focused in these key areas that will move our business forward. Our must-dos are focused on three key pillars for success, which are first, commercial execution. We have not performed commercially to the levels that we consider world-class in a market that demands excellence in Salesforce execution. Starting with the hiring of Greg Siller to the CCO role, we are moving quickly to ensure we have A-plus talent at every position to increase sales productivity, improve position engagement, and maximize the growth opportunity in this business. We are also focused on improving our sales rep performance to CROTA, right-sizing some of our sales territories, and filling open territories faster. These changes, coupled with aligning the goals of our internal and external teams, will improve our sales productivity and enhance our customer experience. Second, market penetration. We will continue to expand indications with strong clinical evidence such as our ongoing sensory study for PDN, pursue HFX line extensions, and support our robust R&D pipeline development. We will also consider augmenting our product portfolio through strategic opportunities. Lastly, profit progress. We will continue to scale our Costa Rica manufacturing facility, improve our operational efficiency, and streamline internal processes. On the commercial front, Greg Siller recently joined as our new Chief Commercial Officer. Greg's proven track record of success and his passion for building high-performing commercial organizations will be instrumental as we continue to focus on accelerating revenue growth, developing under-penetrated markets, such as painful diabetic neuropathy and non-surgical back pain, and launching new products, including our new HFX IQ system. Greg is off to a fast start and is already having a positive impact on our commercial organizations. He has realigned our sales reporting structure so the teams are working closer together with one common goal, providing the best service and clinically proven stimulating therapy to our clinicians and their patients. This change sets us up for success in future quarters. I'm confident that Greg's appointment will further bolster our ability to capitalize on the growth opportunities in front of us and accelerate our market performance. Okay, let's now turn to our second quarter results and business updates. Although we lowered our second quarter guidance, we continue to move the business forward and lay a stronger foundation for improved commercial execution in future quarters. Nevro's revenue of $108.8 million increased 4% on both a reported and constant currency basis compared to prior year results. Our U.S. PERM procedure growth was 8% year-over-year, and PDN continues to be a significant growth driver with a strong second quarter increase in revenue of 73% compared to last year. As of today, three of the four main market participants have disclosed their Q2 SES results. Nevro and one of our competitors reported clear SES growth. It's evident that the challenges to our market are improving, and although recovery isn't expected to be linear, We expect it to continue to improve in the quarters ahead. Remember, SCS is considered a late or last line therapy used to relieve patients of their chronic pain when surgeries and more conservative treatment options either don't provide optimal relief or just simply don't work and are not an option. We have seen positive indicators of growth and recovery, including patients entering the pain treatment funnel. As patients make appointments with their pain specialists and continue to move through the treatment pathway, we are confident we'll see more patients who are ready for SES and the market return to historical growth rates. The non-linear recovery, along with our recent Salesforce execution changes, which will take time to fully implement, however, have led us to regauge our guidance for the year. I will come back to this at the end of my prepared remarks. In Q2, HFX IQ accounted for approximately 30% of our permanent implant procedures, up from 11% in Q1, and we expect a meaningful shift to our HFX IQ throughout the rest of the year. We continue to receive positive feedback from physicians and patients regarding the ability to deliver personalized pain relief using our HFX algorithm. I'm convinced this technology has the opportunity to differentiate our competitive position further. All of this progress builds on our superior, high-frequency, paresthesia-free SDS technology. Turning now to our PDN business, PDN trials represented approximately 23% of our total U.S. trial volume. That's up from 14% of our total U.S. trial volume in Q2 of last year. Among our permanent implant procedures, PDN represented 18% of total worldwide procedures resulting in approximately 19 million in PDN indication sales, an increase of 73% compared to 11 million in the second quarter of last year. We attribute this in large measure to the continued PDN referral sales organization expansion, our direct outreach initiatives to physicians and patients, and the general enthusiasm regarding the compelling data and well-willed outcomes in these otherwise difficult-to-treat patients. We continue to see success with our direct-to-patient marketing for PDN as well. In Q2, approximately 23% of our US PDN trial procedures came from leads generated by our DTC programs. We continue to believe both patient and physician marketing efforts are imperative to drive awareness of the PDN indication. On the new indication coverage front, our PDN coverage continues to grow. Florida Blue, the largest commercial payer in Florida, represented 4.6 million covered lives, updated their medical policy to include coverage for PDN, which became effective on June 15th. And we are very pleased to see that Medicare administrative contractors Novitas and First Coast Service Options decided to retire their SES local coverage determination, or LCD, and cover both PDN and non-surgical back pain using Medicare National Coverage Determination, or NCD, that is already in place. This positive coverage policy development became effective on July 13th and provides immediate access to SES therapy for PDN and NSBP patients who meet the NCD coverage criteria and have Medicare or Medicare Advantage health plans. This is a huge win for Medicare patients suffering from PDN who have had limited to no access to HFX therapy since FDA approval in July of 2021. The combined increase of coverage represents nearly 24 million covered lives, bringing health plan coverage of PDN to over 205 million covered lives total. I want to congratulate our entire government affairs and market access team on this accomplishment and thank them for their significant effort and unrelenting focus on expanding coverage to patients who suffer from these debilitating conditions. 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 prior auth denials, including with payers who don't have a positive PDN coverage policy in place. For those PDN cases that have come through our own access group, our rolling 12-month approval rate at the end of Q2 continued to trend around 72%. up from approximately 62% at the end of 2021. By leveraging our strong published clinical data, FDA approved PDN indication, and inclusion in various society guidelines, we've been able to successfully overturn over 50% of these prior off denials. Equally impressive is that through Q2, across all indications, our HFX access team has an over 80% approval rate at the initial prior authorization for patients who meet medical necessity for SES. In June, we attended the American Diabetes Association 83rd Scientific Sessions, where Dr. David Konoff and Dr. Erica Peterson presented important secondary findings from the landmark Synza PDN RCT, comparing Nevro's proprietary high-frequency SCS plus conventional medical management for the treatment of PDN to conventional medical management alone. This presentation was the first look at the correlation between the use of a 10 kilohertz SES implant and reductions in A1C and body weight. For your reference, we've included this 88 abstract data in our 2Q investor slide presentation. Dr. Erica Peterson also participated in an ADA symposium on the treatment of painful diabetic neuropathy, where she reviewed the long-term, 24-month durability of pain relief, as well as clinically meaningful improvement in neurological function and quality of life achieved with 10 kilohertz therapy. Impressively, at two years, high-frequency spinal cord stimulation from Nevro HFX was associated with significant pain relief. with 90% of participants reporting greater than 50% pain reduction. We recently received confirmation that this 24-month PDN RCT data has been accepted for publication, and we expect to see this data published in the second half of this year. In addition to these promising results, we've enrolled almost 20 patients in our new PDN sensory study. which is the first prospective RCT specifically powered to assess restoration of neurological function as a primary endpoint in patients with intractable PDN. You'll recall that the neurological improvements we observed in the original SINSA PDN study are unique to 10 kilohertz SES therapy and have not been reported for any other competitive low frequency SES therapy. By restoring sensation in the feet, 10 kilohertz SCS may alleviate this tremendous disease burden, reduce 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. Now, before I leave PDN, I wanted to cover one more topic. On our last earning call, you'll recall that we mentioned that we were evaluating whether we should continue to break out PDN indication sales since there are now two other PDN on-label competitors who do not segment their SES business at all. Since that call, we received a lot of feedback from analysts and investors on this topic. All of these SES indications, whether for PDN, non-surgical back pain, or fell back in leg, use the same SES technology, utilizing products sold in service by the same organization, are reimbursed using the same codes used with patients that may have multiple pain areas and etiologies and are deployed by the same implanting physicians to treat chronic pain. Given this, We've decided to continue providing this PDN indication breakout for 2023 reporting purposes. However, beginning with our first quarter of 2024 results, we will not specifically break out PDN, but we will continue to provide qualitative commentary on this important growth indication. As stated last quarter, we are interested in driving overall market share gains and company growth, period. And we're doing just that. Finally, I wanted to say a few words about our updated guidance. First, do not interpret our guidance as a lack of confidence in the long-term outlook of the SES market. Our growth drivers are where the company is headed. We believe the market is on a path to recovery and will eventually return to sustained historic growth rates. Along with the organizational changes we discussed, the scaling of our Costa Rica manufacturing facility, and our future product line, we believe we can generate significant future returns, including improved revenue growth, enhanced margins, and increased operating leverage, setting us up for success in 2024 and beyond. We are also not providing formal PDN indication guidance for the year, but expect PDN indication sales to be in line with how we have previously discussed the 2023 PDN opportunity. We are enthusiastic about our plan and look forward to executing our current strategies, driving growth, and taking advantage of the meaningful leverage opportunities we have to drive towards profitability and deliver shareholder value. And with that, I'll pass the call over to Rod to provide further details on our second quarter results and guidance.