Nevro Corp.

Hello, my name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Nevro third 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'd like to ask a question during this time, simply press star, then one on your telephone keypad. Thank you. Ian Toll, you may begin.

Good afternoon and welcome to Nevro's third quarter 2023 earnings conference call. With me today are Kevin Thornhill, CEO and President, and Rod McLeod, Chief Financial Officer. On today's call, Kevin will discuss third 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 third quarter performance on their investor relations website and the events and presentation section. Earlier today, Nevro released its financial results for the third quarter ended September 30th, 2023. A copy of the earnings release is available on the investor relations section of the NEVRO website at nevro.com. This call is being broadcast live over the internet to all interested parties on November 1st, 2023, and an archived copy of this webcast will be available on NEVRO's 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. 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 its 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, non-cash items such as stock-based compensation, depreciation and amortization, litigation-related expenses, certain litigation charges and credits, and other adjustments such as restructuring charges. Please refer to the gap to non-gap reconciliation tables within the earnings release. And now it's my pleasure to turn the call over to Kevin.

Thanks, Ian, and good afternoon, everyone. We appreciate you joining us. On today's call, I'd like to discuss our progress on our three pillars of growth, our third quarter results, the overall SES market, and our updated 2023 revenue guidance. I will then turn the call over to Rod to discuss the details of our Q3 financials. As we discussed during our second quarter earnings call, we believe focusing on commercial execution, market penetration, and profit progress is essential to moving our business forward to the next level. Starting with our first pillar of growth, commercial execution. In mid-June, Greg Siller was appointed Senior Vice President and Chief Commercial Officer and was given the mandate of increasing sales productivity, improving physician education, and maximizing the growth opportunity of Nevro. While changes don't happen overnight, Greg has hit the ground running and has quickly made his mark, guided by the philosophy and approach of talent, strategy, and culture. During the third quarter, Greg implemented several key changes, including realigning our sales force to improve rep performance, filling and rightsizing our sales territories, and enhancing the compensation plan to align the sales force at the customer level. In the third quarter, Greg and his team turned their focus to our marketing department. While the ongoing commercial changes will be dynamic for both sales and marketing, we are driving focus and execution on areas of the business that will move the needle from both a growth and leverage perspective. For instance, new product introductions and expanded indications of the current portfolio. Another area of focus is to increase our physician education and training, specifically fellowship programs. All chronic pain patients deserve our best-in-class, high-frequency, paresthesia-free therapy, and we must continually educate implanting physician on why it's superior and differentiated. Best practice dictate that multiple physician touchpoints and training are essential despite having the best-in-class technology. Over the past 90 days, we trained over 100 fellows on the implementation, implantation, and use of the unique capabilities of our HFX IQ system. These three cadaver skill labs held in three different areas of the country allow physicians in their fellowship program to learn more about the benefits of our HFX IQ system and why it is technologically superior to other SES offerings. In addition to these training sessions, we held many targeted local events to provide additional knowledge and training to physicians nationwide. Moving to our second pillar of growth, market penetration. Nevro can expand the market in several ways. For example, through our PDN indication. In August, we announced the publication of 24-month data from the Senza Painful Diabetic Neuropathy, PDN, randomized control trial, RCT, and diabetes research and clinical practice. These data, which were also presented during the American Diabetes Association 83rd Scientific Sessions, demonstrated high frequency 10 kilohertz SCS long-term efficacy in treating refractory PDN. The data showed that patients who received a high frequency 10 kilohertz SCS implant and conventional medical management CMM compared to CMM alone experienced durable pain relief with a 90.1% responder rate and significant improvements in both human-related quality of life and sleep at 24 months post-implementation. These robust data are critical and set Nevro apart from its competition as our technology demonstrates durable pain relief and significant improvements without paresthesia. This is so important because a large portion of PDN patients suffer from numbness, which is how products from our competitors mask PDN pain. Using paresthesia as the mechanism of action may increase the overall numbness a patient already experiences. These robust data combined with health plan coverage of over 205 million lives for PDN gives us an excellent opportunity to expand the market for our best-in-class technology. Regarding our new PDN sensory study, the enrollment now stands at almost 50 patients. We're very excited about this study as it is the first prospective RCT specifically designed to evaluate changes in pain and neurological function using high frequency 10 kilohertz SES therapy in patients with chronic, intractable lower limb pain associated with PDN. We will keep you updated on the enrollment progression of this important clinical trial. Last quarter, we mentioned the potential of augmenting our product portfolio through strategic opportunities. We've received many questions on this topic, so I'd like to briefly expand how we think about a potential acquisition. We have a large global field force that interacts with treating physicians, and we believe we can leverage those call points to, one, strengthen our physician relationships, two, increase our growth, and three, accelerate our path to profitability. There are many potential adds to our sales bag that we are currently evaluating to take advantage of the synergies with our best-in-class SES therapy that will be accretive to our margin and growth. But we will be thoughtful as we explore opportunities and will only expand our capital if a potential target meets all of our criteria. We will be a disciplined buyer. And finally, profit progress. We continue to invest in our Costa Rica manufacturing plant and have other initiatives ongoing as we drive towards profitability. The manufacturing ramp at our Costa Rica plant is proceeding as 46% of our IQ volumes were manufactured in our Costa Rica plant in Q3. And we continue to evaluate our internal processes, looking for additional ways to improve our operational efficiencies. Turning now to our third quarter results. For the three months ending September 30, 2023, Nevro reported revenue of 103.9 million, an increase of 3% on both the reported and constant currency basis compared to prior year results. Our permanent procedure growth was 7% year over year, and PDN had another strong quarter, increasing revenue by 56% compared to last year. In the third quarter, HFXIQ accounted for roughly 43% of our permanent implant procedures, up 1,300 basis points over the previous quarter, and we expect this trend to continue. The feedback for HFX IQ and its ability to deliver personalized pain relief continues to be very positive, and we are confident that the combination of our superior high-frequency, paresthesia-free SCS technology and our HFX algorithm will enable us to outpace our competitors. While we believe we held share in new implants this quarter, we are obviously not content as it is our moral obligation to win for patients to receive the superior pain relief from the only high-frequency SES provider in the world. Additionally, with three of the leading players having now reported growth for the quarter, we remain confident that the SES market continues on the road to recovery and showing consistent growth. Turning now to our PDM business. PDN trials represented approximately 24% of our total U.S. trial volume, an increase of 41% from Q3 of last year. Among our permanent implant procedures, PDN represented 20% of total worldwide procedures, resulting in approximately 21 million in PDN indication sales. In Q3, approximately 21% of our U.S. PDN trial procedures came from leads generated from our direct-to-consumer marketing program. We believe that patient and physician education is imperative to drive awareness of the proven clinical benefits for patients that suffer from debilitating painful diabetic neuropathy. I would now like to say a few words about our updated guidance. First, while we exceeded our Q3 expectations, we know we can accelerate our top line growth. We have made many changes to our marketing and commercial teams over the past several months, and it will take time for these changes to translate into meaningful financial results. The positive enhancements we have driven in our culture over the last seven months have been significant, and we believe these changes will lead to a stronger Nevro. We are confident in the direction of our company 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. Before turning the call over to Rod, I would like to briefly discuss our thoughts on GLP-1s and proactively explain why these therapies will not adversely impact our PDM business. There has been a lot of noise regarding how GLP-1s will affect the market for medical devices. We acknowledge that these therapies can help many people with obesity lose weight and patients with diabetes lower their A1c. This is not our target patient population, however, and GLP-1s were never intended to, nor do they address PDN. Many PDN patients have been using GLP-1s for years to control their glucose level. And importantly, these drugs have never been shown to reduce the incidence of PDN or the severity of its symptoms. In fact, a large number of patients that were included in our SINSA PDN study were already taking GLP-1s or similar types of drugs for years and unfortunately still suffered from painful diabetic neuropathy. These patients responded very well to our high-frequency SES therapy. PDN is not simply a result of a patient's A1C or their weight, and even patients with normal BMI and controlled A1C levels experience PDN. We continue to believe that there remains a large addressable refractory PDN market around 2 to 3 million patients, and penetration rates are very low in that market today. And with that, I'll pass the call over to Rod to provide further details on our third quarter results and guidance.