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

Mike Weinstein - JPMorgan David Lewis - Morgan Stanley Bob Hopkins - Bank of America Danielle Antalffy - Leerink Partners Dave Troncalli - JMP Securities Joanne Wuensch - BMO Capital Markets Larry Biegelsen - Wells Fargo Margaret Kaczor - William Blair Brooks West - Piper Jaffray Suraj Kalia - Northland Securities.

Good afternoon. My name is Blair, and I’ll be your conference operator today. At this time I would like to welcome everyone to Nevro Third Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions] Thank you.

Katherine Bock, Senior Director of Corporate Development and Investor Relations, you may go ahead..

Thank you, Blair. And thank you all for participating on today's call. Joining me are Rami Elghandour, President and Chief Executive Officer and Andrew Galligan, Chief Financial Officer. Earlier today Nevro released financial results for the quarter ended September 30, 2016. A copy of the 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 operating trends and our future financial expectations, which includes full-year 2016 guidance, and our expectations of achieving profitability are based upon 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 law to update or revise 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, November 07, 2016.

And with that, I’ll turn the call over to Rami..

Thank you, Katie and thanks everyone for dialing in today. For today's call, I’ll start with reviewing our third quarter performance and operating highlights, as well as providing additional color on our U.S. launch.

Andrew will follow with a deeper review of the third quarter financials and expectations for worldwide revenue, gross margins and operating expenses for 2016. Then we'll open up the call for your questions. Nevro's worldwide revenue for the third quarter was $60.9 million, an increase of 296% as reported compared to the same period of the prior year.

U.S. revenue was $47.2 million and international revenue was $13.7 million, the latter representing an increase of 26% as reported and 27% in constant currency. These results are driven by continued adoption and excitement for HF10 therapy. We now estimate our U.S.

market share is approximately 15% as of the end of the third quarter of 2016, with opportunities for further growth driven by the ongoing expansion of our outstanding sales organization and access to the broader U.S. market to the launch of our Paddle lead in 2017. The rapid growth in our U.S.

share underscores that HF10 therapy is becoming the therapy of choice for leading physicians and at this community of clinically driven physicians will continue to shape the neuro modulation landscape for years to come. With over one full-year into our U.S.

launch, we have gained meaningful insight from our customers and commercial organization, which now allow us to better predict our U.S. business. As a result, we are increasing and narrowing the full-year 2016 total revenue guidance to $220 million to $225 million as compared to our August 8 guidance of $210 to $220 million for the full year.

We remain ever focused on ensuring chronic pain patients have access to our clinically superior therapy.

HF10 therapy remains the only paresthesia-free SCS therapy, has demonstrated nearly twice the efficacy and responder rates as traditional SCS and other new low frequency stimulation wave forms, and is the only therapy to demonstrate clinical superiority to traditional SCS.

Our strategy of delivering clinically superior outcomes continues to serve us well driving both adoption and increased awareness and demand for our therapy.

At the core of our growth in a physician community that has demonstrated they are innovators and embracing new technology, clinically driven in their search for improved outcomes and sophisticated in elevating the SCS space by embracing Level One clinical evidence.

We are still early in our controlled launch and over time expect HF10 therapy to be the market-leading SCS therapy. I have the opportunity to meet with clinicians in Europe and the U.S. throughout the third and continuing into the fourth quarter. Through these meetings, it’s clear how far we have come since our launch last year.

The number of physicians that are interested in adopting HF10 therapy continues to grow and reflects the excitement our early adopters have generated due to the outcomes they have been able to deliver to their patients. Recently, one of these pioneering U.S.

clinicians presented outcomes for nearly 300 patients treated with HF10 therapy within this practice since launch. It’s these types of positive results and every day clinical practice that have established HF10 therapy in the U.S. market and around the world.

Finally, with respect to our Paddle lead, we continue to be on-track for a full launch in the first half of 2017 as discussed on our last call. As we have worked through our operational ramp, we have identified a minor design improvement that will aid in the transition to full-scale manufacturing.

We have submitted this change to the FDA and are simultaneously ramping manufacturing operations in preparation for the launch. On the hiring front, in the U.S. we ended the third quarter with 165 hired and trained reps and that increase of 25 reps from the previous quarter count of 140.

We have now exceeded our minimum hiring goal for the year and are continuing to hire into the fourth quarter. Two factors have driven us towards accelerated hiring. First, we have seen more rapid up-tick in the U.S. market due to many leading early adopters utilizing the therapy.

Second, due to the demonstrated ability to treat back pain, we are finding that our territories have greater potential than the historical SCS market data suggests.

As a function of this procedure density coupled with the up-tick to date, our reps have been quite busy in their accounts limiting their ability to broaden access to HF10 therapy to new physicians.

As a result, we have worked earnestly over the past several months to add to our outstanding sales organization in order to ensure expanded access to HF10 therapy. This concerted effort has reflected in our year-to-date hiring and we expect to continue hiring to keep up with the demand for the therapy.

Internationally, we ended the quarter with 60 sales reps trained and in the field and we continue to add field support as needed. Additionally, we have continued investing in our commercial infrastructure internationally in order to drive further adoption of HF10 therapy worldwide.

Transitioning to reimbursement, we’re pleased to announce that we are now broadly covered by top national insurance providers. In August we announced that Cigna and certain Blue Cross Blue Shield regional plans published updated policies designating high frequency as investigational and experimental.

We believe these decisions failed to align with the clinical superiority of HF10 therapy which is backed by two two-year published clinical studies, the latest of which was published in the preeminent journal neurosurgery. We have made positive progress in our dialog with commercial payers.

And in the third quarter, Cigna reversed its prior decision on the strength of our clinical evidence. HF10 therapy is now fully covered for Cigna beneficiaries. We continue to work with certain Blue Cross Blue Shield regional plans to address their decisions and our continued effort to ensure broader access to this clinically superior therapy.

Finally, last week, the 2017 CMS SCS reimbursement rates were published. The facility rates were increased or largely unchanged representing stability in the current reimbursement landscape. Medicare facility reimbursement for trials increased 9.5% in the hospital outpatient setting and 10.7% in the AFC setting.

In the AFC, Medicare facility reimbursement for permanent implants increased 9.4% for implants with percutaneous leads and 4.9% for implants with surgical leads. In the hospital setting, reimbursement was increased 1.1% for both percutaneous lead and surgical lead IPG implants.

Nevro is recognized as a leader and innovator in neuro modulation, due in large part to our investment in rigorous long-term studies in areas with unmet clinical needs.

In order to maintain our position and drive long-term growth of our business, we continue to invest in scientific research and clinical evidence to develop new applications of our proprietary therapy.

In recognition of these efforts, we recently learned that two HF10 therapy, related abstracts were selected for presentation during the groundbreaking study portion of the plenary program at the 20th Annual North American Neuro Modulation Society Meeting in January.

The first abstract featuring results from a prospective study on the application of HF10 therapy for the treatment of upper limb and neck pain will be presented during the groundbreaking clinical trial plenary session.

This will be the first time these study results will be presented publicly and I know the investigators of this study are honored by the recognition of NANMS [ph] for their important work.

The second abstract detailing results from basic science research on 10,000 hertz stimulation will be presented during the groundbreaking basic science plenary session. This study represents the latest work regarding the mechanism of action of HF10 therapy.

I’m excited by the progress of our pipeline and I look forward to discussing it in more details in 2017. In closing, I’m proud of our dedicated team and I’m excited about what we will continue to build together. As we grow, more and more people contribute to our mission and I know they embrace the opportunity ahead of us as much as I do.

I’m pleased with our progress in both our clinical and commercial operations as we continue to make decisions that we believe will drive long-term value. It’s especially rewarding to know that our strategy of focusing on patient outcomes has proven successful both in our controlled U.S. launch and continued international adoption.

Through this focus, we have built a foundation for the long-term adoption of HF10 therapy. With our outstanding people and company culture, we will find success by continuing to do the right thing and supporting the physicians and patients that depend on us.

It’s clear we have invigorated the SCS market and I’m confident there is more we can do to improve the lives of many more patients in need. And with that, I’d like to turn the call over to Andrew Galligan, our CFO, for a more detailed review of our financials and guidance.

Andrew?.

Thank you, Rami. Revenue for the three months ended September 30, 2016 was $60.9 million, an increase of 296% year-over-year on a reported basis. This increase was primarily due to the continued success of the U.S. launch of HF10 therapy. U.S. revenue was $47.2 million in the third quarter.

As we said on our previous earnings call, industry results in the third quarter tend to be flat or down on a sequential basis due to seasonality. We expected our growth to attenuate in the quarter but given that we’re still in the high-growth stage of our launch, revenues did grow sequentially in Q3 in the U.S.

albeit at a slower rate than in previous quarters. International revenue was up 26% to $13.7 million from $10.9 million during the same period of the prior year. We achieved a constant currency growth rate of 27%. Going forward on this call, all revenue growth rates will be stated on a constant currency basis.

Europe had 35% year-over-year growth for the quarter and Australia had growth of 14% compared to the prior year quarter. After the impact of our recent price increases taken into account, actual unit shipments were down in Australia due to some short-term local factors.

We’re increasing our focus on local marketing, reimbursement and clinical activities specific to the international markets to continue to drive broader adoption of HF10 therapy. We continue to expect that due to constraints such as capitation and increasing market share in international markets, our international growth will moderate.

We’ve seen this in the first three quarters of 2016 and continue to expect a moderation of international growth rates in the future. As we said in our previous earnings call, due to seasonality and the summer months, we expected a sequential decline in international revenue in Q3.

Gross profit for the third quarter of 2016 was $41.7 million or 68% gross margin as compared to $9.4 million or 61% gross margin in the same period of the prior year. Gross margins increased year-over-year primarily due to fundamental cost improvements.

As we continue to grow revenue, we additionally expect to expand gross margin by improving efficiency and further leveraging our manufacturing overhead. Operating expenses for the third quarter of 2016 were $43.6 million, an increase of 60% compared to the third quarter of 2015.

The increase in operating expenses was primarily driven by increased headcount and related personnel costs. Net loss from operations for the period was $1.9 million compared to $17.7 million for the third quarter of 2015. And at the end of the third quarter of 2016, we had $288 million in cash, cash equivalents and short-term investments.

Now on to some considerations regarding profitability. This quarter, our net operating loss was $1.9 million as compared to a loss from operations of $5.9 million in the second quarter. Our revenue growth is far surpassed expectations and we’re still ramping our R&D spend as we get new clinical trials and development projects up and running.

We do not plan to slow down the spending and plan to robustly invest in future opportunities to drive innovation. As a result, when we do achieve profitability, it may or may not persist in subsequent quarters. In this transition, we want to be clear that we’re focused on growing our markets and expanding the reach of our groundbreaking technology.

There are new markets where we can bring the power of HF10 therapy to patients and we intend to do so. When faced with a choice between the bottom-line and investing in the future of the company, we intend to invest in the future. The time will come when we focus on profitability but that time some distance away.

Turning to our outlook, we are increasing our worldwide revenue guidance for 2016 and narrowing the guidance range. We’re updating our guidance for the fiscal year 2016 to be in the range of $220 million to $225 million, up from our previous worldwide revenue guidance of $210 million to $220 million.

We’re still projecting productivity in the range of an average of $1.3 million to $1.5 million per rep after 12 to 15 months. In the near term, productivity continues to be positively impacted by the uptake of early adopter accounts. Over time we expect productivity to be more in line with our current guidance.

For gross margins in 2016, we expect to end the year at approximately 69% absent any material write-downs of inventory as we continue our rapid production expansion. This is an increase over our prior guidance of 66% due to our achieving fundamental cost improvements.

With regard to our operating expenses for 2016, we now expect to end the year at approximately $170 million in operating expenses plus or minus a few million dollars. This is a decrease from our prior guidance of $180 million to $185 million as our spending on clinical trials and development projects has lagged our expectations.

As Rami outlined, we also plan to continue hiring experienced sales representatives to support the rollout of HF10 therapy. And back to you Rami.

Thanks Andrew. So that will conclude our prepared remarks for today. Blair, please open up the call for questions..

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

Good evening, guys. And first off, I apologize. I'm on my cell phone, so sorry if it's not a great connection. But I was hoping you could talk about the sales force growth over the last six months. Obviously, the business continues to grow very nicely, but you increased the size of your sales force by 46% in the last six months.

So, I’m interested in one, for you to comment just on the aggressiveness of the, adds. Obviously, it suggests a fair amount of enthusiasm for the outlook of the business. But two, talk a little bit about how you're managing that. If you add that many reps over a short period of time, it's not always easy to manage through. Thanks..

Thanks Mike, so happy to address both of those questions. I think in terms of the, as we call it the drive to add or the aggressiveness to add, I think we’re obviously very pleased with the progress of the business thus far.

But we continue to hear and I know many on the investment community side who have done their own research and surveys have heard that there continues to be strong demand for HF10 therapy that we haven’t quite been able to meet just simply by not having enough boots on the ground to get there.

Even in territories where we had boots on the ground I think it’s clear due to the rate of adoption of the therapy as well as just the efficacy in back pain and the ability for those physicians that are engaged with our therapy to treat many more of the patients, it’s been hard for our existing sales force to really branch out and broaden access to the therapy.

So, it’s really, primarily driven by our desire to meet more and more of the demand in the United States. We’ve obviously been in the market here for over a year and we certainly appreciate the patience of the physician community as we scale our sales force and try to do things the right way.

But we know that we have to continue to add in order to get this therapy in the hands of many more physicians. To your next point dovetails are very nicely in, which is, how do we manage that? Well, we still have a lot of control I mean we still interview every single person that comes through.

We have scaled the organization internally from a, marketing, training and otherwise to make sure that we have the appropriate support for the sales force to be successful. So, we are managing that very closely. We certainly feel very comfortable about the rates that we’re growing.

And we, as I said intend to continue to add in order to keep up with the demand in the market..

Rami, did the decisions by Cigna, which first off, congratulations on getting that reversed, but did Cigna and the regional Blues, is that impacting you at all? Did it show up at all in the quarter, or is that a non-issue?.

It’s generally a non-issue. Look, I would say on the margins there is some impact in certain territories more than others where you’re going to get some kind of residual impact. But by and large it hasn’t been an issue and we’re certainly pleased that Cigna ultimately recognized the strength of the evidence.

And we hope that the Blues will follow soon enough..

Okay. And then maybe if I could sneak in two more, Europe was very strong this quarter, but Australia was lighter than it had been and you commented on some local factors. Maybe you could shed a little bit more light there. And then the gross margins are ramping very quickly every quarter here.

And obviously operating spend, we heard the commentary there and couldn't agree more in terms of investing in the business.

But you just want to update us on your thoughts on how gross margins scale from here now that you're approaching 70%, or do you think gross margins ultimately reach, for this company, and how you think about long-term profitability and not the short term? Thanks..

Thanks Mike..

Yes, so with respect to Australia, look, I think we’ve talked about it and we have significant share in that area. With a couple of physicians having either, travel or changing hospitals and kind of idiosyncratic issues like that.

And with the concentration of generally the way the markets are internationally and specifically Australia, there was some impact. We think it’s obviously something we’re very confident in the Australia business.

And our team and the ability to continue to grow there but there is definitely kind of a near-term impact that we’re enhanced to work through. I’ll ask Andrew to address the margin question..

Yes, Mike. So, obviously I think we’ve got to a volume player we’ve got some good cost improvements that now has worked its way through the system. So, we were seeing them in the fields. I don’t think we’re prepared to change our long-term view of low to mid-17s for gross margin.

And the bottom line we’ve always guided towards mid-20s we can guess operating income. We’re pleased of where we are but not ready to change anything. Thanks Mike..

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

Good morning, I’m sorry, good afternoon. A few quick questions. So, just coming back to Mike's question here on revenue per rep, Rami, so interesting dynamics for investors, I think, this afternoon. You have revenue per rep was down a little bit sequentially, but yet you're adding very aggressively into reps. I guess a couple questions.

Is this more about market expansion now, Rami, versus actually supporting the existing physicians you’ve already adopted? And I guess for Andrew, just thinking sequentially here, SG&A has been roughly flattish sequentially, even though you're hiring very aggressively.

Is that just timing dynamic?.

Sure, yes. To answer your first question, yes, you’re absolutely right David this is more about expanding access to the therapy as I’ve said. And we certainly have plenty of room for growth there our footprint remains quite small in the United States market. And we know that’s something we have to continue to address..

Yes, and as for the revenue per rep coming down a little sequentially, I think we’re pretty clear of it, long-term we expect $1.3 million to $1.5 million. So, that also is fairly a surprise to us. The other question on….

Just spending, Andrew, obviously, a lot of aggressive hiring, but the SG&A was relatively flat sequentially.

Was it timing?.

Yes, it’s deferred timing, people actually come on board..

Okay. And just a couple more, Rami, heading into next year, it was nice to see the paddle lead timing is on track for ‘17. How are you thinking about paddle lead? Obviously, you have one competitor who has a dramatic outsize exposure to paddle leads. They have a new therapy which recently got a superior label.

They're also talking a lot about their primary cell versus your rechargeable device.

How are you feeling about the ability to take share with the paddle lead and expand your market opportunity in light of some of these competitive changes with one of your competitors?.

Yes, our view on that, despite those developments that you mentioned our view on the paddle launch is unchanged. We feel very good about our ability to take share in that segment of the market. We know that there is demand there. And we look forward to meeting it..

Okay. Rami, just lastly, clinically, I guess you weren't expecting any upper extremity data this early, certainly not at NANMS. How are you thinking about timing for a U.S. ID, perhaps a little too early, but we weren't thinking U.S. ID for upper extremity for at least two more years.

Should we take this early data syndication that we could see upper extremities trials moving forward earlier than expected? And I'll jump back in queue. Thanks, guys..

Thanks David. At this point we’re not going to comment on the regulatory strategy. We’re certainly very excited about the data and very excited those investigators will get to present it in that groundbreaking session. But we’ll talk about the regulatory strategy and timelines in the future..

Your next question comes from the line of Bob Hopkins from Bank of America. Your line is open..

Thank you.

Can you hear me okay?.

Yes..

Hi Bob..

Great, great, good afternoon. So, just a couple of follow-up questions here. I was wondering if you wouldn't mind quantifying the issue in Australia and how much it impacted you this quarter or was that a couple million dollars or was it less? And does that get fixed in Q4, just curious if you could clarify Australia..

It’s a very small part of our overall market. So yes, we’re talking about a few million, a couple of million dollars here. And so, one of those things are, Australia is a very concentrated market like most international markets.

And so, it only takes one or two doctors to actually be doing something different like taking a very long vacation or changing their practice to actually impact you. And it usually takes a couple of quarters to work its way through.

And the main factor there is, despite all of those perpetuations and the underlying units we actually grew revenue in that market..

And just want to clarify something that Andrew said it was important. The reason it takes a couple of quarters to work through is because of the way our business works. So, when they go back to practice, they have to rebuild their pipeline and they have to build through their implants.

So, in fact when you have a quarter kind of perturbation, it doesn’t necessarily resolve immediately. It starts to resolve but it’s not wholly made up of second quarter, just because of the way the pipeline kind of works on our business..

Okay, and then, just two other quantitative follow-ups to that. Andrew, you mentioned a few times OUS. growth was slow. That's obvious that larger numbers and faster growth rates.

But I was wondering, given your emphasis, from where you sit today, is there a decent way you would advise us to think about the OUS growth prospects for the company as we look forward? And then a little bit more shorter term, I just wanted to ask about the implied Q4 guidance for the fourth quarter, because it suggested the midpoint maybe somewhere in the neighborhood of 5% sequential growth.

Was there anything going on in the fourth quarter that's worth noting about? It seems like that's maybe a conservative estimate for Q4, so just wanted to chat a little bit more about longer term OUS growth and the fourth quarter guide..

Sure. I think we’ve been saying for quite some time. But international is slowing down as a function of just the underlying dynamic for those markets. And the fact that we have such large shares, we think it’s harder and harder to actually grow them. So we are seeing the slowdown, there is no question about it.

And then, part of it I think really is, and we’ve said that in today’s script which is to actually build our international markets, now we’re actually going to have to move beyond having a sales focused organization to having a much broader organization on the ground there that’s working on local reimbursement issues, local clinical trials and local marketing that’s really specific to the individual markets.

I think to guess the next stage of growth, when you do an increased sophistication of resources on the ground in our international markets. And with regard to Q4 guide, we really do tend to guide towards what we believe is achievable. And that’s really how we set guidance.

And I think we have lot better than we have now and there are fewer uncertainties than there were earlier this year. And we believe we’re really homing in our guidance, much better nowadays..

Okay. Thank you very much..

Thanks Bob..

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

Thanks so much. Good afternoon, guys, and thanks for taking the questions. You have a competitor that's going to be releasing their own high-frequency clinical trial data. I guess actually not at NANMS, what we're hearing is, they'll be discussing it on their Q4 call.

I'm not asking you to speculate on what that means the data is, but if you could walk us through, now that that event is getting closer, how you guys are preparing one way or the other, if it's negative or if it's positive, from a competitive perspective?.

Sure. So, I think first of all, there is not a lot of clarity on when or if any data will be release. So I think just like everybody else we’ll kind of see what happens there.

Look, we’re very confident obviously in our products, in our portion of our market, we demonstrated the superiority of HF10 therapy not just in terms of data but I think it’s reflected in our adoption to date.

So to the extent that there is other data that’s presented by another company that may or may not have had the experience with high frequency stimulation, we’re not really sure that will weigh very much on the market.

And the other thing that I’ve said and I’ll repeat again is that we have invested a lot of time and money and infrastructure and people into building this company to what it is. And we very much plan on defending our intellectual property really vigorously if the path lines up for us..

Okay, great. Thanks so much. And then again from a competitive perspective, you do now have a competitor that got their first product approved with a superiority label.

Just wondering what you're seeing from them specifically from a counter detailing or competitive perspective, if you're seeing them yet at all, and then any changes in competitive counter detailing this quarter versus the last few since you first launched? Thanks so much..

Thanks Danielle. So, I think as everybody knows we don’t really like to talk about our competition. However, I think I’ll go into more detail on this because I think some clarification is required. I’ll certainly address this question just based on the evidence presented in the Sunburst study and as detailed in their FDA disclosures.

The whole premise of this Burst question claiming superiority is to effectively draft on the branding of HF10 therapy. First our superiority claim is based on superiority and responder rates, vast cores and functional outcomes at multiple time points and across all primary and secondary end-points.

Conversely, Burst ran only two superiority tests and failed one of the two. The one failed test was done in a similar manner to how HF10 superior test was performed. So, the superiority effectively which has been referenced a couple of times on this call today is effectively due to [technical difficulty].

They were not superior in response rates and functionality or across group comparisons. Looking at the underlying data, I think it gives a little bit more clarity. For example if you look at responder rates, HF10 has responder rates in the 80s, Burst and St.

Jude are in the 30s and traditional SCS historically based on published evidence is in the 40s and 50s. So, I think that kind of gives you an idea of that comparison between therapies because this comparison kind of comes up a lot.

However, they do have strong marketing programs and I’m sure they’re going to push Burst as a clinically meaningful option. But I think anyone who digs deeper I think the evidence kind of speaks for itself. And further we ultimately believe the difference between the therapists will be evident to the physicians..

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

Thanks. I was just wondering if you could maybe provide a little additional color on the clinical spending. I think you said it lagged your expectations.

So what other areas were you looking to start on, and is it just a timing issue, I imagine?.

Yes, thanks. Clinical trials, is all about how fast you can get on set-up. And also then the pace at which, patients go through the trial. So, it really is a lot of it didn’t say timing issue on the number of patients through the trials but also there were clearly some clinical trials that we expected to have up and running by now that aren’t.

It takes longer to get through efficacy approval, doctor’s site signed up, financial agreements, etcetera, etcetera it just takes longer than we are hoping..

I guess the flip side, the good news is the markets that you're going after are large enough to that shouldn't be an issue, at least from our point of view. But the other quick one I would have is the upper limb and neck market.

Do you have an estimate of the size of that today?.

Well, we’re going to talk more about our pipeline in 2017. So we’re not ready to talk about it yet..

Okay. Thanks..

Thanks Dave..

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

Can I bug you for a little bit more specificity on the pipeline?.

Yes, do that..

You've got some data coming out in January. We all love what you're doing here in back and leg. But I mean, clearly there's, other things that you're coming up upon.

How should we think about it or when will you start sharing it?.

I think we’ve consistently said that there is, maybe I can provide some more detail Joanne just in terms of the process. So there were, couple of different data points that we’re looking at here.

I think certainly there is the evidence that we get from these studies, the enrollment, there is the aspect of regulatory strategy which a number of these indications were continuing to work through. And then there is the kind of the market research aspects which informs what the best approach to the market and market size is.

While obviously we’ve announced and we’re very excited about this data being presented in January, a number of these other process points are in the middle of and working through. Once we have kind of a broader view, we’re certainly going to be happy and excited to share..

Okay. And as a second question, could you remind us of the size of the paddle lead market and how you approach taking share in that segment of the market opportunity? Thank you..

Sure, thanks Joanne. We believe that the paddle is comprised about 30% plus or minus 5% of the U.S. market. The way we go after that is really, on a high level really no different than the way we’ve approached the rest of the market. There are physicians who primarily prefer to use paddle leads.

And they’re part of a lot of the territories we’re in today. Some of them we’re willing and have use percutaneously, its fact just the therapy up until this point. But many others just prefer to stay with the paddle. So, it will be an opportunity for us to more broadly engage that physician community.

And just to be clear, it doesn’t require different or a new sales force, it’s just a function of continuing to expand our existing sales organization or provide access to therapy once this particular product is available..

Thank you..

Thanks Joanne..

The next question comes from the line of Larry Biegelsen from Wells Fargo. Your line is open..

Hi, guys. Good afternoon. Thanks for taking the questions, a couple clarification questions. On the again, upper limb and neck trial, that's off label today, correct? It's the other indication that you're studying, the extremity trial, that's on label. So, upper limb and neck is technically off label.

Is that correct, Rami?.

Neck pain is off-label, limb as our indication is pain of the trunk and limbs is generally considered on-label..

So with this data that's positive, you'd be able to promote that data?.

If the data is positive you can certainly, based on our existing labeling we believe treat limb pain. However the other notable thing in this particular market is reimbursement, the upper limb and that does not broadly cover. So, that’s another kind of hurdle that has to be worked in..

And then on the paddle lead, have you re-filed it yet, and is that more of like Q1 or Q2 launch? And I did have one more question..

We have submitted to FDA, given obviously we’re working through something with FDA. We haven’t specified specifically if it’s Q1 or Q2 for exactly that reason. So I think we’ll work through that..

Okay. Fair enough. And then on the guidance, just kind of a two-part, back to Bob's question about your sequential, the guidance implies about 2% to 10% sequentially. If I look back, the market's been up about 9% to 12% on a worldwide basis in Q4.

So, any commentary on if you're expecting the market to slow or anything like that because obviously, we can see your guidance and we can see what the market's done sequentially. And just lastly, Andrew, any opportunity here to comment on 2017, just puts and takes, or color commentary to make sure that people are kind of on the right track.

Thanks for taking the questions, guys..

Larry, so, we’re not ready to talk about 2017. I think that’s too early to really get involved in my conversation. Going back to 2014, we’ve always given what we believe is conservative guidance, its solid guidance and they’re numbers that we believe that we can achieve..

As far as, I think it is worth clarifying, I think if you look at, as far as the third quarter, I think if you look at our competitors, they’re generally flat to down this quarter. And we obviously grew sequentially.

So I think there is a little bit of a clarification there where there is a look at year-over-year growth for our competitors but sequential growth for us. I think if you look at every one from a sequential growth view, you’ll see that their numbers were up $1 million or $2 million over much larger denominators.

But with the additions of new products, whether those are acquisitions or etcetera, that inherently are growing which implies that there is actually a sequential decline likely in their core SCS businesses. But I think that’s kind of the commentary I’ll make on Q3. On Q4, I think we have a reputation for giving, for being conservative.

And we certainly are confident in the business. We also are trying to as we learn more, to try to be more active. So we’re certainly trying to balance that. And but we certainly want to make sure that it’s clear that we’re very comfortable with our business going into the fourth quarter..

The next question comes from the line of Margaret Kaczor from William Blair. Your line is open..

Hi, good afternoon, guys. So the first question for me is on U.S. territories. I think you guys referenced towards the beginning of the commentary that you've seen greater potential I guess on the historical SCS market suggested. And I think you referenced that that was due to back pain.

So is, there any details that you can give us in terms of how many more patients per account you're seeing? Are you seeing more new accounts? And is it certain geographies or across the board nationally?.

That’s a good question, Margaret. I think our comments apply pretty much broadly. I mean there is going to be variability as to the extent of the growth driven in any given geography. But I think it’s fair to say that physicians that already have back pain patients that they’ve now been able to treat.

And those who embrace the therapy certainly see utility in that patient population..

And to follow up on that I guess, is that twice as many patients that these guys are seeing or treating, and then as you look at your reps and sales rep productivity, you've hired a few reps maybe from your competitors.

How does their productivity at Nevro compare to what they've seen maybe at their respective shops before you guys?.

Sure. Yes, I mean, I think I’ve said before on the first part of the question that we believe that both the back pain patients are multiple existing SCS patient population. So I think I don’t want to put a specific number on it. But there is certainly ample room for growth. From a productivity perspective, I’ll start and maybe Andrew can comment to it.

I think the biggest difference that we see there are two differences that we see in terms of our productivity.

One is that the magnitude of productivity is higher certainly but even more importantly the acceleration or the pace at which they get to that part of giving number is probably the biggest difference between us and traditional standalone, off-standard to maybe standalone..

Yes, so when you look at competitive reps, for those reps that really have to go out and build a new territory, there aren’t really that many of them.

Those competitor reps in territories which are already sizeable, and it actually takes them many, many years to get up to a $1 million to $1.2 million type run rate, which is a really good territory I think for many of our competitors. So, it takes them much longer time to get up that lateral. And by and large, that’s kind of our average productivity.

So I think we get to our, we have higher productivity and we get there a lot faster 12 to 15 months..

Great, and then if I could sneak one more in. In terms of 2017, without obviously going into details on your expectations, what do you think is a bigger impact on your growth? Is it going to be hiring more and more new reps or maybe going after the paddle lead, or I guess do the two go hand-in-hand? Thank you..

We follow by reps. I mean, we don’t, I think we need to emphasize more. There are no products dropped at a hospital, I mean, we actually have to be OR, we have to program patients so that revenue is really driven by number of people in the field. Without those people in the field you can’t have the revenue, you cannot drop product off at the hospital.

So, the main driver of our business is hiring reps..

Having said that, there are certainly territories that are overwhelmingly paddled, I think is much sense to have reps in theory than it will once we have all available. So that will certainly be a growth driver as well. But underlying as Andrew said is the people, without the people, the product itself isn’t going to solve a lot..

The next question comes from the line of Brooks West from Piper Jaffray. Your line is open..

Hi, thanks.

Can you hear me?.

Yes. Hi Brooks..

Yes..

Great, just a couple of clarifications, at this point, guys. Andrew, on the gross margin guidance, you said you expect to end the year at approximately 69%.

Is that 69% for Q4, or is that a full year number, or is that a Q4 number?.

That’s a Q4 number..

Okay. That's what I thought. And then, you gave your share assumption for the U.S. market at about 15%.

Can you update us on where you think your share is in Europe and Australia?.

It’s really, as you know there is rather some data in Australia, there is no great data in Europe at all. We think roughly we have about a third of the market..

About a third, in each of those territories?.

Up and down around that but overall probably if you take them all together probably about a third..

Okay. That's helpful.

And then just last for me, is there any other major reimbursement hurdles from a coverage standpoint or an experimental decision standpoint? I know you're working through some of the Blues, but anything else out there that you're working on that's meaningful that we should be aware of?.

No, we’re just working through the Blues at this point..

Perfect. Thanks, guys..

Thanks Brooks..

And your last question is from the line of Suraj Kalia from Northland Securities. Your line is open..

Good afternoon, everyone. Thank you for taking my questions. So, Rami, I know on the upper limb, a lot of questions have been asked. Let me ask some more high-level question.

Does the funnel for upper limb and neck work the same way as the lower/back and leg pain? By that I mean, just the algorithm of how things are done on these patients and how they land up with SCS.

Is the algorithm the same?.

It’s somewhat similar Suraj. I think there is probably a lower failed surgical component but overall they are generally viewed as the second kind of largest population seen by this specialty. But they tend to have lower rates of failed surgery relative to the existing market..

Fair enough. And understandably, I guess, you don't want to give specifics. I would get that. But Rami, based on what you'll have seen so far in the U.S.

launch, can you directionally characterize for us what your percent of initial implants are “de novo” patients or other failed SCS patients?.

They are overwhelming de novo patients..

De novo, okay. And Andrew, one final thing, the comps for reps, do they change after year one, or do they stay the same, or do the metrics change? Just working the rep productivity numbers and curious if there any net drop offs, and is that due to comp, or any color there would be great? Thank you for taking my questions..

Okay. And the $1.3 million to $1.5 million is kind of the peak. At that point they pretty much run out of time because again they actually have to be in the OR, so they have to do the patient educations, the programming for the files, the implants help on insurance etcetera. So they really can get to $1.3 million to $1.5 million a year.

And then they’re kind of there. I think that’s it..

There are no further questions at this time. I’ll turn the call back over to the presenters for closing remarks..

Thanks Blair. And thanks again everyone for joining our call today. We certainly appreciate your continued interest in Nevro. And very much look forward to our next progress update. Have a great day..

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