Katherine Bock - Senior Director of Corporate Development and IR Michael DeMane - Chairman and Chief Executive Officer Rami Elghandour - President Andrew Galligan - Chief Financial Officer.

John Demchak - Morgan Stanley Andrew - JPMorgan Danielle Antalffy - Leerink Partners Dave Turkaly - JMP Securities Joanne Wuensch - BMO Capital Markets Greg Chodaczek - CRT Capital Suraj Kalia - Northland.

Good afternoon, ladies and gentlemen. My name is Erin, and I’ll be your operator on this call. After the presentation, there will be a -- we'll conduct a question-and-answer session. Instructions will be provided at that time.

[Operator Instructions] Please note that this call is being recorded today Monday, May 09, 2016 at 01:30 PM Pacific Time and will be available on the Investor Relations Section of Nevro at investors.nevro.com. I would now like to turn the meeting over to Katherine Bock, Senior Director of Corporate Development and Investor Relations from Nevro..

Thank you, Erin. And thank you all for participating in today’s call. Joining me are Michael DeMane, Chairman and Chief Executive Officer; Rami Elghandour, President; and Andrew Galligan, Chief Financial Officer. Earlier today Nevro released financial results for the quarter ended March 31, 2016.

A copy of that press release is available on the company’s website.

Before we begin I’d like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements.

All forward-looking statements, including, without limitation, or examination of historical operating trends and our future financial expectations, which includes full-year 2016 guidance, are based upon our current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements.

For a list and description of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission.

Nevro disclaims any intention or obligation except as required by laws to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 09, 2016.

I’ll now turn the call over to Michael.

Michael?.

Thank you, Katie and thanks everyone for dialing in today, good afternoon. As you may recall on our February call, we announced the carefully planned executive succession in which current President, Rami Elghandour, will assume the role of President and CEO effective June 01 of this year.

We also announced that I would simultaneously assume the role of Executive Chairman of the Board and remain actively engaged with the company with Rami and with the Board on a go-forward basis. It is my pleasure to report that activities leading up to the transition are progressing quite well as I anticipated.

Rami has skillfully extended his involvement and control of the organization as a whole all the while quarter backing our very successful U.S. launch activities for which he is to be commended. For today's call, I'll start off with the first quarter revenue and operating highlights.

Given that going forward, Rami will assume primary responsibility for delivering our revenue targets, it would seem only fitting that he cover the upward revision of our global revenue guidance for the full year in his remarks. Rami will also provide additional depth and color on our U.S.

launch and Andrew will follow with his usual deeper review of the financials. Andrew will also elaborate on our global revenue guidance and expectations for gross margins and operating expenses in 2016. Then we'll open up the call for your questions.

So let’s begin, Nevro's worldwide revenue for the first quarter was $41.7 million, an increase of 331% as reported. As you can see from these results, global adoption trends remain quite strong. The U.S.

launch performance in Q1 has continued to exceed our expectations and is consistent with the confidence we communicated to you on our previous earnings call back in late February. As a reminder these first quarter results represent only the third full quarter of U.S.

launch of Nevro’s HF10 therapy and reflect continued robust customer adoption and solid execution by our U.S. field organization. So if you allow, let me take this moment to make an observation regarding Nevro’s approach to the chronic pain market at this juncture. Our success in Europe and Australia now into its six year and now in the U.S.

launch to date, further reinforce s our belief that our organizational focus on clinical outcomes is the right strategy in a powerful unifying core principle for the company.

We have found that delivering better outcomes for chronic pain patients with a strong foundation upon which to build and we think that strategy will serve us well as we scale the business. I also wish to reiterate that we are ahead of plan and making excellent progress with a thoughtful transition of CEO responsibilities to Rami.

In my view the company could not be better positioned than it is right now and that belief is underscored by the excellent revenue performance to date and growth trajectory going forward.

Rami and the incredible Nevro Management Team have proven themselves that they're clearly up to the task of delivering on the ultimate promise of HF10 therapy and continuing to build this high performance organization.

I’m confident that Rami and the Executive Team will take Nevro to the next level and I look forward to continuing to work closely with them as I continue my involvement with the company as Executive Chairman. So with that, let me now pass the call over to Rami..

Thanks Michael. In our third full quarter of U.S. launch, the organization continued to demonstrate measurable progress in driving adoption of HF10 therapy, hiring stellar talent and securing approval for our surgical needs.

Underpinning everything we do as our focus on patient outcomes, which enabled biotechnology, strategy and people, further distinguishes us as a leader in SCS. Nevro’s first quarter was also driven by continued execution in the third full quarter of our U.S.

launch as well as sustained international revenue expansion in year six of our international commercialization. World-wide revenue for the first quarter was $41.7 million, U.S.

revenue was $29.5 million and international revenue was $12.2 million, a lot of representing an increase of 26% as reported and 31% in constant currency over the same period in the prior year. Based on the strength and momentum of our U.S. launch to date, we have sufficient visibility to raise our global revenue guidance.

We are increasing the full year 2016 total revenue guidance to $175 million to $185 million, which is an increase of $20 million above our February 29 guidance for the year. These figures also incorporate our forecast for the recently announced surgical lead launch, which I will discuss in more detail in a moment.

I couldn’t be more pleased with the execution by our organization in maintaining our outcomes focus globally. I continue to hear from physicians that HF10 therapy not only meets but exceeds their expectations, which is a reflection of our incredible therapy and the commitment of our commercial organization to our mission and values.

There is an excitement to engage with the therapy and the company that is building across the U.S. as we continue to add the necessary headcount to provide increased access to HF10 therapy in a responsible manner. With over 7,000 patients now implanted and benefiting from HF10 therapy, we're exceptionally pleased with our global momentum.

It's important to underscore, we expect this momentum to build for quite some time. As I noted earlier, we have continued to see growth internationally several years into our commercial efforts and we're just getting started here in the United States.

While we continue to build for the long term, we want to ensure that focus is not lost on our near and intermediate term opportunities. In addition to taking share in a growing $1.7 billion worldwide market, we have a significant opportunity to treat back pain and we’ll also increase access to HF10 therapy through our surgical lead launch.

The back pain opportunity is truly our first indication expansion and one to which we already have access. As I highlighted on our last call, our end market experience in the U.S. and internationally Demonstrates we are treating both back and life pain with back pain patients being the largest proportion.

This experience matches our view of the market and supports the significance of our near term opportunity. The surgical lead approval further grows our addressable market by allowing us to support the neurosurgical community, which plays a meaningful role in the management of chronic pain particularly in the United States.

Placement of surgical leads is an important clinical option for many surgeons and their patients. We plan to initiate a staged rollout globally with broader access to the surgical lead beginning in the fourth quarter of this year.

As always our priority with this launch will be to ensure that we deliver the clinical outcomes that are the foundation of our therapy and company. Now transitioning to hiring, as you'll recall we ended 2015 with 100 hired and trained reps in the field.

As we've said in the past, our hiring plan for 2016 is to fill the remaining empty territories in our launch plan and both are existing territories with additional clinical support to continue to drive broader adoption of HF10 therapy.

We expect the peak quarters for sales for hiring to be the second and third quarter of this year with lower levels of activity in the first and final quarters of the year. On the hiring front, we ended the first quarter of 2016 with 113 hired and trained reps and are on fact to meet our year-end target of a minimum of 160 reps in the field.

This target number allows us to fill the majority of our remaining empty territories and is consistent with our updated guidance. As previously stated, there is no upper limit on the number of reps we are prepared to hire in 2016.

As we continue building a foundation for peak adoption HF10 therapy, we will continue to hire the very best talent consistent with our launch plan and growth trajectory.

Internationally, we ended the quarter with 53 sales reps trained and in the field and similar to the U.S., we continue to add field support as needed to draw [audio gap] 331% year-over-year on a reported basis. This increase was primarily due to the launch of HF10 therapy in the United States. U.S.

revenue was $29.5 million in the first quarter, the third full quarter of our U.S. commercial launch. International revenue was up 26%, to $12.2 million from $9.7 million during the same period of the prior year. This represents constant currency growth of 31%.

Going forward on this call, all revenue growth rates will be stationed on a constant currency basis. Europe has 30% year-over-year growth for the quarter and Australia had growth of 33% compared to the prior year quarter.

As mentioned on previous earnings calls, due to constraints such as capitation and increasing market share in international markets, we expected our international growth to moderate. We've seen this in the first quarter of 2016 and continue to expect a moderation of International growth rates in the future.

Gross profit for the first quarter of 2016 was $26 million or 62% gross margin as compared to $5.8 million or 60% gross margin in the same period of the prior year. Gross margins increased year-over-year, party as a result of a decreasing impact of foreign currency exchange rates on our margins. While our product costs are primarily encouraging U.S.

dollar, international revenue overall has been negatively impacted by the appreciation of the U.S. dollar, which negatively impacted our overall gross margins for the period. With the expansion of U.S. revenue, the currency impact on total margins will be less significant to our results.

As we continue to grow revenue, we additionally expect to expand margins by improving efficiency and further leveraging our manufacturing overhead. Operating expenses for the first quarter of 2016 were $35 million an increase of 93% compared to the first quarter of 2015.

The increase in operating expenses was driven primarily by increased headcount and related personnel calls. Net loss from operations for the period was $9 million compared to $12.3 million for the first quarter of 2015. At the end of first quarter of 2016, we had $163.2 million in cash, cash equivalence and short term investments.

Turning to our outlook, we are increasing our revenue guidance for 2016. We are updating our worldwide revenue guidance for the fiscal year 2016 to be in the range of $175 million to $185 million, up from our previous worldwide revenue guidance which was in the range of $155 million to $165 million.

We’re still projecting productivity in the range of $1.3 million to $1.5 million per rep in 15 to 18 months. In the near term, productivity is positively impacted by the uptake of early adopter accounts. Over time we expect productivity to be in line with our current guidance.

For gross margins in 2016, we continue to expect to end the year at approximately 65% with progress towards this number during the year.

With regard to our operating expenses for 2016, we expect quarterly operating expenses to trend upward to a total of approximately $165 million to $170 million for the year, an increase of $5 million to $10 million over our previous guidance.

As Rami outlined, we also plan to continue hiring experienced sales representatives to support the rollout of HF10 therapy with a minimum of 160 reps in the field in the United States by the end of 2016. Now back to you Rami.

Thanks Andrew. First and foremost, on behalf of the Nevro team and the physicians and patients we serve, I want to thank Michael for his many contributions to Nevro. It’s incredible to think how far this company has come in the past five years, unlike many others I certainly wouldn’t be here without him.

We’re grateful to have had you as a leader and I’m grateful to have had you as a mentor. Michael brought many things to Nevro, credibility and experience come to mind.

The most important thing he brought was passion, his passion for serving our customers and making sure we stay humble and dedicated to the task, help Nevro transition to the company it is today. I want to thank him in recognizing for taking the risk he took to join Nevro and for his tireless effort through the years.

I know to the outside world Michael and I may seem different most notably in our stature; however, we’re incredibly close to the function of our values and mutual respect. I truly and sincerely look forward to working closely with him to continue to build this incredible company and know that we will remain close.

We’re well positioned to carry out our mission and look forward to the opportunities ahead of us.

And with that I will turn it over to Michael, Michael?.

Thank you Rami, and of course the feeling is mutual and I look forward to continuing to work with you. So that will conclude our prepared remarks today. But before we open up the call up for questions, I’d like to say how fortunate and privileged I feel to have had the opportunity to lead this remarkable organization over the past five years.

I can say with certainty that it has been one of the most fulfilling experiences in my 35 year career in the medical device space.

Chronic pain can be a truly devastating and life altering condition for those who suffer from it and I shall never tire of hearing from patients and treating physicians alike about the power of HF10 therapy to improve the lives of those patients. Okay Aaron, now let’s open the call up for question please..

Certainly. [Operator instructions] Your first question comes from the line of Mike Weinstein from JPMorgan. Your line is open..

Mike?.

Your next question comes from the line of David Lewis from Morgan Stanley. Your line is open..

Hello this is actually John Demchak in for David..

Hi John,.

Hi, so very good quarter and Michael not a bad quarter to go out on. The launch seems to be going very well. Guidance took a nice step up, but actually doesn’t seem to imply a ton of sequential growth beyond this point throughout the rest of the year to reach I guess guidance.

Sounds like momentum is going very well and there is a lot of tailwinds that we're looking at from international maintaining strength, back pain penetration. You’re really just going to be starting the surgical lead launch at the end of the year, CMS pass through.

Is there anything from the quarter that should leave us perhaps a bit more cautious on the ramp from here or is this more a reflection of it being early in the year in the launch and not really trying to get ahead of yourselves?.

Yeah so I will take that. Thanks John for the question. So I think we always have to go back to the basics here, which is we’ve always said this is a controlled and responsible launch and we’re really planning for the long term adoption of the therapy.

I think we’ve been consistent in communicating our launch plan and certainly one way to have gone about this is to flood the market with a much larger sales force and to do a land grab and that really hasn’t been our approach.

Our approach is for sustaining a long term adoption of the therapy and that is reflected in both how we operate, our operating results quarter to quarter and how to think about our long term guidance..

Understood. And on the I’m a paddle lead approval, so clearly you’re going after a market that you weren’t really able to attack before and how are you thinking about I guess attacking it.

Is it more going to be going after new docs that haven't really used I guess the sensor before because they were heavily focused on surgical leads? Or are you going to be converting some docs that I guess were more interested in surgical leads, but started over with the percutaneous just because it gave them access to the therapy?.

Certainly a combination of both. So you do have neurosurgeons and physicians who are typically used to how also do some percutaneous placements and we certainly are working for a number of those in the U.S. but there are also a number of physicians that only use or prefer to use surgical leads and so we will be going to them first time.

So I’d say it’s a mix of both on a go-forward basis..

And I guess just lastly on the sales force and mostly just rep utilization. Obviously the 13 hires seems very much in line with plan, perhaps slightly ahead of schedule, but the revenue per rep seems to be a ticking a bit higher than we would have thought this early.

You mentioned that you think longer term it's still in the $1.3 million to $1.5 million range.

But why doesn’t it go I guess a bit faster than that or a bit higher than that?.

Well I think what we are seeing at the moment is driven by the early adopters who have been rapidly moving over to a 100% and I think longer term when we get into the more conservative middle majority, we expect that to normalize back to our $1.3 million to $1.5 million number.

It’s still early in the launch, so I would be very -- we are very cautious before leaping to the conclusion that there has been a fee change in our productivity expectations..

And following up on I guess that point a little bit, I guess cascading the proportion of physicians that you started to go after, when you think about how many of them are 80% committed to Nevro versus how many of them are just trying Nevro along with handful of other options, like where do you kind of break out how many, what proportion of the current physicians that you guys are selling to our really like fully utilized on Nevro versus various stages in between?.

I think for obvious reasons we don’t go into that level of depth, but I think we have been consistent in saying that the number of physicians that have fully adopted the therapy is frankly been the biggest surprise of the launch and obviously certainly a positive surprise, but we haven’t really divulged that level of detail..

And John, I think we’re going to have to move on to some other people as well. So thank you..

Thank you..

Your next question comes from the line of Mike Weinstein with JPMorgan. Your line is open..

Sorry about that. This is Andrew in for Mike. Just wanted to congratulate you all on a great quarter..

Thank you..

Yeah, I wanted to touch upon just the paralegal approval for one second and just try to gain some more clarity on the contribution both in the near term as well as when you have a broader launch in the fourth quarter and what’s your guidance is including now if you can give some color on that?.

So, I think it’s the way that -- the best way to think about that the paralegal is that we've again had a very consoled launch.

So, whatever number of accounts are particular rep was going to if we have the – available since launch of one in a early materially impacted kind of a launch trajectory whatever mean perhaps that we would have substituted of some accounts for others right.

So I think that’s kind of the most important thing to realize is that this isn’t going to really change the way we approach the market or our strategy and again to reiterate we will be launching in the fourth quarter of this year at this juncture that launch is incorporated into the guidance we just announced. .

Okay, great just to kind of dig on that a little bit further but is there a number of docs that have been sitting on the sideline that you allow that you expected to sort of just come right in or just kind of slow ramp I mean how do you think about it..

So, I think we talked at the last call that the market is 25% to 30% neurosurgeons or it may predominate when kind of leads. Now the question is what percentages and the gestures where they use both Paddle Leads and percutaneous leads that I don’t think we know, but I would say it’s a relatively small number just anecdotally.

And so look, we’re just going to have to get out there as Rami said and the as we always are deliberate careful and move forward in a way that we properly support the accounts and know we can get this therapy and we will of course report more as we get there..

Great and then one last one, at this point the launch, understanding doctor's preference is to implant a handful of patients and then wait and see for the results.

Just wanted to get a feel for the breadth and depth of your penetration over the past six months, so breadth meaning how much of the sales rep time has been spent, training new docs and being President first couple of cases.

And on the depth side what’s been the penetration getting deeper into this account and what percentage with your customers did this group represent and thank you..

Thank you for the question so, I would say that largely our success has been built on going deeper into existing accounts. From an analytics perspective I am not going to get into the numbers. We do track it, but I would say we’re very much on strategy.

Our reps are in a very small number of accounts and the success that you’ve seen so far is really driven by us continuing to drive deeper and deeper into those accounts..

Your next question comes from the line of Danielle Antalffy from Leerink Partners. Your line is open..

Thanks so much and congrats. Hi congrats on a you -- had another great quarter. Just following on Andrews question actually as it relates to the accounts, I know you guys don't want to get into detail, but I guess I’m just wondering -- so it sounds like you are in very few accounts and you're just going deep into those accounts today.

How long before you guys feel you'll ultimately be fully you penetrated in all accounts and is there any reasons to think there any type of accounts out there that you would not be able to penetrate and if there what is that type of account look like?.

First of all we haven’t projected that we’re going to get to a 100% market share but certainly not going to in that free account but we are….

Well that's pretty good right..

Hello it's a good aspiration/.

That is our modeling..

We'll have to revisit that with sales management and see how they feel. We feel as we continue to drive adoption into those existing accounts certainly we will be able to expand both from two perspectives.

as you kind of gain adoption, you add clinical resources to support those accounts, you can certainly from that particular perspective expand and provide access to member and not particular geographies and don’t forget that we are also obviously find a field or remaining territories that are empty for us and that will expand access to the therapy as well.

And then one other thing to touch on is from the surgical lead perspective like there are accounts that we because of their preference for product really don’t work with. So that's certainly going to expand broader access as well.

And those are number of things as we get into the later part of this year to say that I think are going to start to play in to those expanding the geographic footprint, but again we're very much centered on ensuring that we go to lot of accounts, we drive deep penetration in those accounts..

Yes the only thing I think Rami is spot on, the only thing I would add to that is you have any accounts that as we won’t go to, I think we've been very clear that we want accounts and physicians and surgeons that make it a key part of their practice to treat chronic pain patients and use spinal cord stimulation therapy.

And those practices that gabble and do one two year, we're not sure that, that really fits in the sweet spot of where we are going. So I would say that that would probably be type of account we would unlikely be visit..

Got it. That makes a lot of sense and I was wondering if you can give us a brief update on what you are seeing from your competitors from account detailing perspective, I mean obviously there are no randomized control trials like the RTT trial but they're getting out there with registry data and retrospective analysis.

And I’m just wondering if you are seeing that resonated all with physicians and how you guys are selling against that clearly well, but I wonder if you could provide any qualitative commentary around that what you're seeing?.

Sure. So I think that the overarching comment is we haven’t really seen anything materially different of late. There is what I guess you could say more noise in the market about different studies and the strength and weaknesses of those studies relative to ours. But we feel pretty comfortable with our position.

We've run the first randomized controlled pivotal study in the administrative space. That evidence base has been recognized from a publication perspective, from an FDA perspective, with superiority labeling and then from CMS perspective with the pass through payment uplift.

So I think we frankly feel very well positioned and balance along those lines in terms of clinical data and the strength of our data relative to the field and we will continue to emphasize that..

Your next question comes from the line of Dave Turkaly of JMP Securities. Your line is open..

Thank you. Just a follow up on that last question obviously you guys have focused on clinical outcomes and you're helping these guys even track their implants. Any thoughts there from a competition, I know that this is something new that no one has really tried.

I’m just curious if given your success if any of them are trying to may be come up with a scenario a similar plan as they're competing against you, have you seen anything like that?.

Well if I understand your question correctly, Dave I think one thing we have seen is if you look at the press release that has gone out from St. Jude on their DRG axium product, I think that's pretty much a careful very closely controlled launch to make sure that it's used properly and that the physicians are training properly.

So I guess to some extent you could say that that is taking a similar page and frankly you would commend them for that.

Beyond that in terms of tracking outcomes, I am not sure we're widespread utilization of that other than standard registries that have been done for many years and as you know typically fought with a lot of holes of data missing data is just hard to draw robust conclusions from registry data typically..

Thank you for that and obviously the Paddle Leads lead surprised us a bit in terms of how quickly they came on, are there any other product developments that you're kind of expecting in the next year or two even if it's just the old school features.

Is there a next gen device coming or smaller battery anything like that, that we should be expecting? Thank you..

Thanks Dave. Look I think we've said this before, we certainly aren’t ignoring the features and benefits game as well and we're working on a number of R&D projects that we haven't really talked about publically. So we won’t be to address at this point.

But we certainly are investing heavily in R&D both from a clinical pipeline perspective as well as from a technology perspective and we look forward to future updates on that as they materialize..

Your next question comes from the line of Joanne Wuensch of BMO Capital Markets. Your line is open..

Thank you, and thanks for taking the questions.

When you look at your model couple years out, what do you think of as peak growth margins?.

I think we've been pretty consistently saying the low-to-mid 70s that’s where we see our gross margin as peak..

Okay. Thank you.

And how much it usually takes for one of your sales reps to get up to speed?.

Well that's where we said the 15 to 18 months and from when they are in the field..

Fully trained in the field. Clearly Joanne there's a period, the higher period and then you've got to get the main, get them trained and in the field, but once they're in the field as Andrew said it’s 15 to 18. .

And the other new nuance there is because of the unique characteristics of our marketplace whether it's a trial before an implant and the trial implant can take up to eight weeks typically in the first quarter in the field, they're not very productive if at all..

[Operator Instructions] Your next question comes from the line of Greg Chodaczek with CRT Capital. Your line is open. .

Thanks. Just a couple quick ones. In terms of the Paddle Lead or Surgical Lead, do you know what procedure time is the difference between the Paddle and Subcue..

The short answer to that is no, and of course as you might imagine whether it's a percutaneous insertion or a paddle insertion it's going to be highly physician or surgeon dependent, so I've never seen many publications of averages across the market on either.

What I would say though is with a Surgical Lead you typically do have to do what you have to do a laminectomy and there is a bone removable and so that's depending on the skill level of the surgeon and probably the complexity of the patient, that's going to drive that. So there is an extra step, but I think it’s going to be highly variable..

Okay.

And in terms of location, exactly the same with the Surgical Lead as compared to what Subcue Lead?.

Yeah..

Your next question comes from the line of Suraj Kalia from Northland. Your line is open..

Good afternoon gentlemen, congrats on an excellent quarter..

Thank you, Suraj..

Can you hear me okay, forgive the background noise on the road. So either Michael or Rami, you guys have done a phenomenal job in your U.S. launch, the U.S. numbers right now quarterly a roughly two and a half times that of the OUS numbers. Can you give us a perspective on what is happening in the U.S.

market that is different from OUS markets? The clinical data send to our cities is the same, is that a different interpretation, patient's reimbursement, your efforts in the market any color would be great?.

Thank Suraj. So I think this is going back to basics question as well. So if you recall, 80% of the world-wide neuromodulation or specifically SCS modules in the United States.

So that alone can explain the difference, but I think if you see that the fact that a large portion of the international market has captivated particularly in Europe and we have a rechargeable device only that only further kind of magnifies the difference between the size of our addressable market in the United States.

So that largely drives the difference that you're seeing here. It's not really a function of execution or acceptance of data or any other factor than purely the constraints of the markets that we operate in..

There are no further questions at this time. I'll turn the call back over to the presenters..

Okay. So thank you once again for joining the call today. We appreciate your continued interest in Nevro and look forward to our next progress update. Have a good day..

This concludes today's conference call. You may now disconnect..