Nevro Corp.

Good afternoon. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to NevroCorp's third quarter 2024 earnings conference call-in webcast. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. And 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. I will now turn the call over to Angie McCabe, Nevros Vice President of Investor Relations and Corporate Communications. Ms. McCabe, please go ahead.

Thank you. Good afternoon and welcome to Nevro's third quarter 2024 earnings conference call. With me today are Kevin Thornel, our CEO and president, and Rod McLeod, our chief financial officer. Before we get started, please note that our earnings release and the supplemental presentation accompanying this call are available on the events and presentations page of the investor section of our corporate website at nevro.com. Also, this call is being broadcast live over the internet to all interested parties, and an archived copy of this webcast will be available in the investor section of our corporate website shortly after the conclusion of this call. 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 our annual report on Form 10-K, filed on February 23, 2024, 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 our 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, restructuring and supplier contract renegotiation charges, and other adjustments. Please refer to the financial tables in our press release issued today for reconciliations of GAAP to non-GAAP financial measures. I will now turn the call over to Kevin Thornell. Kevin?

Thank you, Angie, and thank you all for joining us. This afternoon, we issued our third quarter 2024 financial results. In my remarks today, I'll discuss the key factors that drove our financial results for the quarter and share why we remain optimistic about the future of our business and our ability to return to sustainable growth. Rod will then provide details on our third quarter financial results, as well as our full year 2024 guidance. Our results for the third quarter of 2024, as compared with the third quarter of 2023, were as follows. Worldwide revenue of 96.9 million decreased 6.7% on a reported basis, and U.S. revenue of 83.9 million decreased 6.5%. U.S. spinal cord stimulation, or SCS, trial procedures declined approximately 15.2%. Net loss from operations was $13.9 million compared with $25.6 million in the year-ago quarter, and adjusted EBITDA was negative $1.8 million compared with a loss of $5.8 million in the year-ago quarter, reflecting the actions we took through our restructurings earlier this year and our focus on expense management as we drive toward profitability. And cash, cash equivalent in short-term investments increased 3.3 million to 277 million as of September 30th, 2024 from June 30th, 2024. This increase reflects the benefits from our restructurings in the first half of this year in strong working capital management. And as Rod will discuss shortly, we expect our cash position to increase further in the fourth quarter. Importantly, Our balance sheet remains strong. On our second quarter earnings call, we discussed in detail the challenges we are facing in the de novo spinal cord stimulation market, as well as opportunities where we can improve our commercial execution. And in the third quarter, we continued implementing actions, including changes to our sales territories, as well as reallocating marketing resources. to improve our competitive positioning, drive market penetration, return to sustainable top-line growth, and continue on our path toward profitability. As we previously discussed, we promoted a number of our associate sales reps, or ASRs, to leave some newly created territories. In 2025, we plan on continuing to add new territories, many of which will be filled by promoting associate sales reps. There will be a ramp-up period throughout 2025 for these new sales reps as they get established in these territories, and we look forward to fostering their growth. We believe these changes will allow our sales team to reach more customers, go deeper with positions, provide the high level of service our customers expect, while also laying the foundation for new product introductions. It is imperative that we achieve sustainable profitability. And one of our largest expenses has always been our commercial efforts. Over the years, we have made adjustments to align our commercial cost structure with our revenue base with the goal of achieving profitable growth and delivering shareholder value. As a reminder, we took more than 30 million in annual run rate expenses out of our cost structure through our two restructurings earlier this year. We had some difficult decisions to make as we went through those processes. As we were evaluating our operating expenses at the beginning of this year to accelerate our path to profitability, we made the decision to reduce our overall direct-to-consumer, or DTC, advertising spend as it is often difficult to measure the direct return on these investments. Furthermore, at that time, we believed that our strong referral network combined with our best in class clinical data demonstrating the effectiveness of our 10 kilohertz therapy would be enough to continue driving customer and patient adoption of our unique SES treatment therapy. However, based on our subsequent analysis, we now know that our DTC advertising efforts had a greater impact on patient lead generation and our US SES trials than we previously thought. We also learned that patients had a higher likelihood of moving forward with SES therapy when we spent more time educating them up front before referring them to their chosen physician. Accordingly, we began reallocating resources on these initiatives in the middle of the third quarter. At the same time, we are implementing improvements to our DTC advertising approach that are designed to effectively convert a higher number of patient leads into trials. We are beginning to see patient interest in response to our new DTC advertising campaigns and are confident we will see a meaningful improvement in trialing activity in the second half of 2025. While it's still early, we believe the actions we are taking, including reinvesting in our DTC advertising, are beginning to have a positive impact as the rate of decline in U.S. SCS trials in October decreased. We are laser-focused on returning to sustainable growth and are monitoring trends and sales activity on a daily basis. We continue to build and leverage our R&D pipeline, and we are excited that, in September, we received FDA approval and announced the limited market release of HFX IQ with HFX Adaptive AI. which we believe further establishes our position as the leading developer of innovative technology using data-driven solutions for pain management. This is the only SDS technology using artificial intelligence and is built on a strong foundation of landmark evidence, clinical research, and big data, leveraging 100 million data points in 10 years of data acquisition, innovation, and patient care. We know that chronic pain is a dynamic, multifaceted condition unique to each individual. Therefore, therapies must be personalized based on the patient's changing experience of pain. Competitor SDS systems require programming paresthesias to a preferred setting in the physician's office using trial and error methods. This often results in patients requiring frequent in-office reprogramming visits over many months. Only HFX Adaptive AI engages with the patient to personalize the delivered SES therapy using evidence-based algorithms derived from our proprietary dataset for specific indications. Through AI, the algorithm adjusts programming in real-time using multidimensional metrics of pain release. sleep quality, function, and satisfaction. It is also important to remember that HFX is a paresthesia-free therapy. Examples of the advanced technology incorporated in HFX adaptive AI include tailoring dosing over time while maintaining pain relief provides the opportunity to dramatically reduce charging requirements to as few as six times per year. This is compared to previous generations of our SCS devices that require some patients to charge once per week up to 52 times per year. Proprietary bi-pole interlacing technology that stores the patient's programming, usage, and pain relief history to create bespoke programming sequences that brings patients back to pain relief faster or even to improve patients that have already achieved pain relief of greater than 50%. HFx Adaptive AI is raising the bar on what is considered adequate pain relief. Continuous device-based monitoring of the patient's pain relief state, device performance, and usage that automatically alerts our field-based care team to contact the patient to resolve clinical or device performance issues that might arise. Proactive intervention is now a reality. ATFX adaptive AI is truly a game-changer for patients, physicians, and Nebro, and importantly, closes the loop that matters. Since the limited market release in late September, HFX Adaptive AI is off to a great start and already delivering improved clinical outcomes to patients. Our early data demonstrates that patients are achieving pain relief 41% faster when compared to our prior version, HFX IQ 1.0. Patients are achieving and maintaining meaningful pain relief, plus feeling the benefit of our smart power and bi-pole interlacing additions. Importantly for our shareholders, HFX Adaptive AI is also providing significant reductions in the administrative and clinical burdens to our organizational infrastructure that would otherwise be needed to provide long-term clinical care to these patients. In patients who are now utilizing HFX Adaptive AI, we are seeing an almost 40% reduction in the number of patient calls to our support teams, with an almost 50% reduction in call time duration, and a 20% reduction in in-office patient reprogramming visits when comparing DeNovo HFX Adaptive AI patients to Omnia, a previous generation of Nevro's non-AI-driven SES platform. While we are still in the early days of this product release, we are extremely pleased with both the benefit we are providing to patients and the significant expense reductions we should realize with this product over the long term. This limited market release marks a major milestone, not only for our product offering, but the SDS market as well, as it is the first therapy to put patients in control of their pain relief, while at the same time providing physicians the ability to monitor the patient's pain journey. We look forward to the full U.S. market launch later this month. We are also thrilled to announce that we recently received regulatory approval to offer HFX IQ in CE mark countries in the European Union. HFX IQ will be available in select regions of the EU through a limited market release beginning later this month. We anticipate a full market release in the first quarter of 2025. This marks a major milestone in advancing our efforts in the EU, and I want to congratulate our team who worked long and hard to get this approval over the finish line. As part of our longer-term plan to become a more comprehensive pain management company and drive market penetration in very large and underserved markets over the next few years, we are working to grow our business through expanded SES indications, next-generation SES therapy, and alternative therapies that are earlier in the care continuum. As we've communicated previously, the PDN market remains underpenetrated at less than 1%. We continue to focus on growing this business by educating referring physicians and raising patient awareness on the benefits of SES as treatment therapy for these patients. Building on our strong foundation of robust clinical data, new data was recently published in the Journal of Pain Research, demonstrating long-term improvements in pain intensity with our high-frequency SES therapy. Notably, the analysis is the first study of SES to demonstrate long-term significant and clinically meaningful reductions in hemoglobin A1c and weight in study participants with PDN and type 2 diabetes who received high-frequency SES therapy. It was this data that led us to initiate a feasibility study to specifically evaluate the use of 10 kilohertz therapy to affect HbA1c. At the 12-month point of this study, we are seeing very encouraging and similar results as with the PDM study, with patients demonstrating significant and clinically meaningful reductions in HbA1c. Our clinical work in this area is very exciting, and there is a signal of the possible metabolic benefits of 10 kHz SES for diabetic patients. This clinical work continues to build evidence on the importance of new treatment options, such as 10 kilohertz SDS therapy for patients that suffer from PDN and other diabetic-related comorbidities. Regarding the Synza sensory RCT, the interim analysis is ongoing, and we continue to expect a readout in early 2025. Recall that this trial is designed to more objectively prove the sensory improvements we observed in our initial randomized control trial and to obtain an SES indication beyond just pain. Depending on the outcome, this may allow for early publication followed by potential review and specific inclusion of Nevro's proprietary 10 kilohertz SES therapy into evidence-based guidelines, particularly those published by the American Diabetes Association. We're excited that our PDN sensory protocol design abstract has been accepted as an oral presentation at the 2025 NAMS annual meeting and will be presented by Dr. Erica Peterson, Director of the Section of Functional and Restorative Neurosurgery at UAMS Medical Center. As we've shared previously, our SES devices have rechargeable batteries with a very long functional life, yet they will need to be replaced. We began treating a significant number of patients commercially beginning in late 2015, which means that the IPGs implanted at that time are now nearing end of life. We believe many of our patients, in consultation with their physicians, will want to continue using our best-in-class clinically proven treatment therapy, and they will now have access to the significant benefits of HFX adaptive AI technology in treating their chronic pain. We believe that, over time, a growing number of our implants will be in patients who have already enjoyed effective high-frequency SES therapy with Nebro technology for many years and whose devices are nearing their natural life of their IPG battery. Remember that we began treating a significant number of patients commercially in late 2015, and now more than 115,000 patients globally are using our 10 kilohertz SES therapy. Our longer-term goal is to become the leading provider of treatment options with the most diversified, differentiated, and innovative product portfolio in the pain management space. We continue to ramp and scale our SI joint fusion business and anticipate that it will contribute more meaningfully to our growth beginning next year. SI joint pain is seriously underdiagnosed, and our fusion technology provides a new and simpler approach to this procedure. One of the ways we are educating surgeons and standing out from legacy devices is through the publication of positive clinical data. We are pleased that comparative biomechanical data on NEVRO-1, our novel posterior integrated single cage system, has been accepted in a peer reviewed publication assessing the biomechanical fixation, invasiveness, and fusion characteristics of the NEVRO-1 SI joint transfixing fusion system as compared to other commercial SI joint transfecting devices. NEVRO-1 was found to be equivalent or superior to these devices, including the lateral triangular rod system. The authors conclude that NEVRO-1 provides a significantly better opportunity for robust SI joint arthrodesis. We continue to receive positive feedback from physicians who are trained and now performing SI joint fusion procedures with NEVRA 1. We believe that the success of our expanding portfolio of SES and SI joint products will help create the type of scale, growth, operating leverage, and sustainability to unlock the kind of shareholder value that our board and management team are intent on creating. With respect to our previously announced exploration of strategic options to accelerate growth, diversify our product portfolio, and deliver shareholder values, the activity is ongoing, and we are evaluating several options. Beyond this, we will not provide any further comment or update on the process. In the meantime, We remain laser focused on executing our strategy and the actions we implemented to return to sustainable growth and drive towards profitability and are excited by the direction of the company as we begin to close out 2024 and head into 2025. We have the most advanced technology in the space supported by robust clinical evidence. With our launches of HFX adaptive AI in the US and HFX IQ in the EU, the growth opportunity in an under-penetrated SDS market, and our diversification into the SI joint fusion space, we have an exciting and compelling path ahead of us. I'll now turn the call over to Rod for a discussion of our third quarter financial results and guidance for the fourth quarter and full year 2024. Rod?