Katherine Bock - IR Rami Elghandour - President and CEO Andrew Galligan - CFO.

Michael Weinstein - J.P. Morgan David R. Lewis - Morgan Stanley Bob Hopkins - Bank of America Merrill Lynch Danielle Antalffy - Leerink Partners David Turkaly - JMP Securities Joanne Wuensch - BMO Capital Markets Larry Biegelsen - Wells Fargo Margaret Kaczor - William Blair Jason Mills - Canaccord Genuity Suraj Kalia - Northland Securities.

Good afternoon. My name is Sarah and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Nevro's Third Quarter 2017 Earnings 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.

I will now turn the call over to Katherine Bock, Senior Director of Corporate Development and Investor Relations from Nevro. You may begin..

Thank you, Sarah, and thank you all for participating in 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, 2017. A copy of the press release is available on the Company's Web-site.

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, our operating trends, expectations with regard to future product enhancement and releases, as well as our future financial expectations which include full-year 2017 revenue and expense 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, including our annual report on Form 10-K filed on February 23, 2017, and our quarterly report on Form 10-Q, which we expect to file today.

Nevro disclaims any intention or obligation, except as required by law, 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, November 6, 2017.

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

Thanks, Katie, and thank you everyone for joining us today. Worldwide revenue for the third quarter was $82.3 million, an increase of 35% as reported compared to the same period of the prior year. U.S.

revenue for the quarter was $66.3 million, an increase of 40%, and international revenue was $16 million, which represents a 12% increase on a constant currency basis. These results reflect the impact of our outcome-centered approach and the commitment of our exceptional commercial team.

We remain confident in both the near and long term outlook for our business and are narrowing our worldwide revenue guidance to $315 million to $320 million for the full-year 2017, compared to the previous expectations in the range of $310 million to $320 million.

Before I provide more color on our business, I wanted to extend our sympathies to those impacted by the hurricanes and fires over the past few months. Fortunately, no one in Nevro family was hurt, but many suffered damage to their homes and significant disruptions to their family life.

We have an amazing team that pulled through for each other, and as often the case in our country, these challenging circumstances brought out the best in our people and our organization. With respect to the quarter, I'm pleased with our progress as we continue to take steps towards market share leadership in the U.S.

and continued with our track record of consistent growth in our international markets. We are delivering on the promise of HF10, led by our sales organization and supported by our therapy support team that uniquely tracks world war patient outcomes.

With most of a cases product on the market, we are uniquely positioned to provide feedback to our clinicians on the power of HF10 to transform the lives of their patients. In Q3, we also launched HF10 Matters campaign, highlighting the impact of our therapy. I'd like to share two patient stories from that campaign. Brett, a former U.S.

combat veteran sustained an injury after moving heavy equipment. Multiple back surgeries resulted in debilitating chronic pain that left him bound to his bed and couch. During his week-long HF10 trial, Brett experienced 70% pain relief and was able to cook dinner for his wife and enjoy long walks.

Seven months after receiving his permanent implant, Brett has 80% pain relief and is able to exercise, attend multiple festivals, and ride his Harley with his wife. In her early 20s, Dianna was active as an athlete, college student and personal trainer. Unfortunately, her life was interrupted by a degenerated disc, resulting in chronic back pain.

For the next two years, Dianna went through numerous procedures and five opioid medications but the pain was too debilitating. She was barely making it through class, work or her social life. At this point, Dianna began to feel hopeless and utterly out of options. Her turning point came the day her doctor recommended an HF10 trial.

The week of her trial was the most normal Dianna had felt since before her injury. She spent the day walking around and enjoying in New York City with no pain. A few weeks after her permanent implant, she began living with 85% to 95% relief from her pain.

After six months, Dianna is entirely off all pain medication, she got a 4.0 her first semester back to college, and is working again, and is back to weightlifting in the gym. These stories are truly inspiring and drive us to do what we do every day.

Ultimately our role is to ensure patients get the best available treatment for chronic intractable pain, and when we fulfill our mission, patients, their loved ones and their communities benefit. The HF10 Matters campaign is creating visibility for the differentiation of our therapy.

The program is aimed at creating awareness for HF10 among physicians, with the ultimate goal of addressing the low penetration of SCS for patients suffering from chronic pain.

At a time when opioid addiction is a national epidemic, we believe we are uniquely positioned to deliver an evidence-based, efficacious, non-pharmacologic and minimally invasive therapy that enables physicians to help these suffering patients.

In our 24 month European study, we found that 3x the number of patients came off opioids when compared to baseline and observed a nearly 70% reduction of morphine equivalent dose per patient.

We have seen from our studies a reduction in opioid use amongst our patient population and believe HF10 is an important therapy option for physicians looking to manage chronic pain in today's environment. On the hiring front, in the U.S., we ended the quarter with 266 hired and trained sales reps as compared to the previous quarter count to 259.

As we announced back in August, in the second quarter we focused on sales execution with our existing team, and are also concentrated on integrating the many sales reps we hired in the first half of 2017. Therefore, we hired and trained fewer reps in the third quarter.

We're planning to get our hiring process back on track in Q4 and are looking to ramp back up towards our historical hire rate, starting this quarter and heading into 2018. Internationally, we ended the quarter unchanged at 71 sales reps trained and in the field, and we will add field support as needed.

Moving on to R&D, we are making progress in the expansion of our product folio. With respect to our smaller next-generation IPG, we believe we remain on track for approval in the next six months, but as we are in the FDA review process, there is a measure of uncertainty around the ultimate approval timing.

As we previously announced, this next-generation IPG will be a premium product with a smaller form factor and will provide a number of benefits to our patients, physicians and business.

We also continue to make progress on conditional full body MRI compatibility for our current Senza SCS system and expect approval in the next nine months, depending on the FDA's review process.

Adding to our existing labeling for head and extremity MRI scans, we expect this potential approval to broaden the pool of patients who are eligible to receive the Senza system. Our goal for the conditional full body labeling change is to have it retroactively apply to previously implanted patients for the Senza system with percutaneous leads.

This goal is in line with our previous MRI approvals and we believe is an important patient benefit of our design approach. As we've said in the past, we view MRI compatibility as a feature of benefit for patients, but one that is secondary to the clinical efficacy profile of our system.

In addition to our product development initiatives, we have also made advances in progressing our clinical pipeline. We are leveraging a platform applicability of HF10 therapy to build the level and evidence needed to expand access to many more patients in need. We are running a number of studies with a wide range of indications.

This investment will continue to set us apart in the field as we are applying the best-in-class product to the challenging disease states that we believe only HF10 can potentially address. Our goal is to continue to deliver on the promise of neuromodulation and our early work suggests we're on the path to doing so.

Two particular studies that I'd like to highlight; first, the SENZA-PDN, which is the largest ever randomized controlled trial evaluating spinal cord stimulation for the treatment of painful diabetic neuropathy or PDN.

As announced on our prior earnings call, this trial will evaluate the safety, clinical efficacy and cost-effectiveness of HF10 therapy in PDN patients. We're still in the process of adding clinical sites to the study and provide updates as the study progresses.

Additionally, we are initiating the Senza NSRBP, the largest ever randomized controlled trial evaluating SCS for the treatment of non-surgical refractory back pain. In general, spinal cord stimulation is often offered after back surgery fails, a condition known as failed back surgery syndrome or FBSS.

While today in some cases SCS is used earlier in the treatment paradigm, the reimbursement is limited for this patient population. For some patients, surgery may not be the best option, for example for those patients without fair mechanical instability that can be addressed with a surgical procedure.

Based on our clinical experience to date, we believe HF10 could prove to be a meaningful treatment option for those patients who are not suitable surgery candidates and otherwise have limited options. In both our EU and U.S. studies, approximately 15% of the patients who received HF10 therapy did not have prior back surgery.

These patients saw pain relief outcomes consistent with FBSS patients in the study.

By providing an RCT dedicated to chronic pain patients that are not candidates for back surgery, we hope to work with payors to broaden reimbursement as well as gain the confidence of referring physicians in an effort to provide an effective treatment for these patients.

We are working closely with the surgical community on this exciting initiative and will discuss this study, including design and timelines, in more details in the future.

Finally, we look forward to presenting data highlighting the progress of our clinical pipeline at upcoming congresses, including the American Society of Regional Anesthesia and Pain Medicine or ASRA later this month, and the North American Neuromodulation Society meeting or NANS in January.

At ASRA, we plan to present the three-month outcomes, which are the primary endpoint for our upper limb and neck pain studies, and we will follow-up with a presentation of 12-month outcomes at NANS. We also plan to present clinical outcomes for the first time for the treatment of chronic abdominal pain.

Enrollment in this is still underway for the feasibility study, but we plan to present interim three-month outcomes at ASRA and interim 12-month outcomes at NANS. Finally, we have completed enrollment for the chronic postsurgical pain pilot study and plan to present three-month data at NANS.

This study is aimed at demonstrating that HF10 therapy can treat a broader set of indications than typically addressed by DRG stimulation with the advantages of HF10, particularly superior efficacy, elimination of paresthesia, ease of placement, and dramatically lower complication rates. At Nevro, we often say evidence is our product.

We are continuing to build a body of clinical evidence and are pleased to see the impact that HF10 can have across a number of neuropathic pain indications. With respect to reimbursement, as expected, our transitional pass-through designation is set to expire at the end of this year.

As we have previously stated, this recognition from CMS of the superiority of HF10 has provided further validation of the uniqueness of our therapy. In closing, this call marks the third anniversary of our initial public offering.

During the past three years, we have expanded the number of lives touched by HF10 from over 2,500 patients to over 24,000 patients. We have grown our team from approximately 125 team members to approximately 675 team members around the globe, while maintaining our culture and focus.

We are delivering on the promise of neuromodulation by uniquely investing in the clinical evidence needed to expand access to patients in need. Our continued success in our international markets demonstrates the long-term potential for HF10, as clinicians continue to use it due to the durability of the therapy and the superiority of the outcomes.

While we are pleased with the success of our U.S. launch, we are still early in the stages of achieving our full potential in the U.S. market. To do so, we are committed to continuing to hire the very best talent and to maintaining our focus on providing superior patient outcomes.

And with that foundation coupled with our clinical pipeline, we believe we are poised to touch the lives of many more patients for years to come by enabling clinicians to have a broader and deeper impact in their communities. It is an exciting time to be with Nevro and we are looking forward to a strong close to 2017 as we build momentum for 2018.

And with that, I'd like to turn the call over to Andrew Galligan, our CFO, for a more detailed review of our financials.

Andrew?.

Thank you, Rami. Revenue for the three months ended September 30, 2017 was $82.3 million, an increase of 35% year-over-year on a reported basis. This increase was primarily due to the continued global adoption of HF10 therapy. U.S. revenue in the third quarter was $66.3 million, up 40% from $47.2 million during the same period of the prior year.

The recent hurricanes only had a marginal impact on our sales for the quarter. Our estimate of the impact to sales in the regions affected was a little under $1 million. We do not have any manufacturing in Puerto Rico, so our manufacturing and inventory are unaffected.

International revenue was up 17% to $16 million, from $13.7 million during the same period in the prior year. This represents a constant currency growth rate of 12% for the quarter and 15% year-to-date.

As we previously stated, we have begun to observe moderation in our growth in international markets due to capitation constraints and our share in these markets. We continue to expect that our international growth rate for the full year will be in the low teens.

Gross profit for the third quarter of 2017 was $57.9 million, or 70% gross margin, as compared to $41.7 million or 68% gross margin in the same period of the prior year. Gross margins increased year-over-year primarily due to product cost improvements.

Operating expenses for the third quarter of 2017 were $62.4 million, an increase of 43% compared to the third quarter of 2016. The increase in operating expense was primarily driven by personnel related expenses as a result of scaling the organization to support the increasing size of our business.

Legal expenses in connection with the Boston Scientific litigations were $4.6 million for the quarter. Net loss from operations for the period was $4.4 million, compared to $1.9 million for the third quarter of 2016. At September 30, 2017, we had $271.4 million in cash, cash equivalents and short-term investments.

This represents an increase of $8.1 million from the previous quarter ended June 30, 2017.

The increase is primarily a result of our strong operating results for the quarter, when one accounts for non-cash charges such as depreciation, amortization and stock-based compensation, and represents our first quarter of net cash provided by operating activities.

Excluding the impact of our litigations, we are now at what we consider to be breakeven on an operating basis. As we previously stated, given the potential of our clinical pipeline, we intend to increase our investment in clinical trials and research and development. Turning to our outlook, we are narrowing our worldwide revenue guidance for 2017.

As Rami stated, we are refining our worldwide revenue guidance for 2017 to be in the range of $315 million to $320 million. As we previously announced, we continue to expect productivity in the range of an average of $1.3 million to $1.5 million per rep after 12 to 15 months.

For gross margins in 2017, we still expect to end the year at approximately 70%, excluding any material write-downs of inventory. We expect to end the year with approximately $235 million to $240 million in operating expenses, excluding litigation expense which year-to-date has been approximately $11 million. Back to you, Rami..

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

[Operator Instructions] Your first question comes from the line of Mike Weinstein from J.P. Morgan. Your line is open..

Let me start with the implied guidance for the fourth quarter. You grew this quarter 35% year-over-year, 36% if you adjust for the hurricanes. You grew adjusted for the hurricanes 6.5%, let's say, sequentially into a third quarter. Much of your competition was flat to if anything slightly down. So you took market share sequentially.

So, talk about the fourth quarter guidance, which is on a year-over-year basis 22% to 29% growth relative to that 36% and implies a sequential growth from a third to a fourth quarter of 5% to 11%. So, why is that the right guidance and why are you anticipating some incremental slowing of the business in the fourth quarter? Thanks..

I think we have taken the bigger picture here. There is a lot going on at the moment, but we're still looking for, trying to fill the position of VP of Sales, and I think we've been pretty open about saying that we remain cautious during this period, and we think it's a good number..

Can you just update us on that process? I think people are probably a little bit surprised that you haven't announced a hire at this point.

Can you just kind of tell us where that stands?.

So, look, we are obviously, as you would expect Mike, seeing exceptional candidates for the position, and as I've stated before, we certainly feel confident in our execution. I think you saw that in the numbers. We certainly feel confident in the momentum we're building here.

So, we're certainly out to get the very best candidate and we're not going to sort of set an artificial constraint and timing to force us to make a decision earlier than we are ready. So, I think we'll keep marching forward and we'll make an update on that front when we're ready to do so..

Okay.

Could you talk to us a little bit about the sales force, in both the productivity ramp of the reps that you hired over the last 15 to 18 months, I would assume you've more than doubled the size of your sales force, and so you've talked about a number of those reps coming from outside the SCS industry, so they had to learn the business, they had to establish contacts, how is the sales force productivity tracking relative to your internal expectations for those hires; and then second, can you just talk about the turnover in the sales force, because obviously you are adding reps but it's not a static sales force, there has to be some turnover, as there always is, with a new and expanding sales force, so can you talk about the level of turnover you are seeing at this point? Thanks..

So, in terms of the turnover, I would say it's kind of ebbs and flows from quarter to quarter, so there is nothing particularly that we would comment on in this quarter versus others.

I think our guidance historically has been about mid-teens in the first year and that seems to hold, and I think you have to sort of factor your turnover in that first year. It generally happens towards the end of the year in the third and fourth quarter.

So, I don't think we saw within those kind of constraints anything that we would further comment on. As far as productivity, I'll ask Andrew to comment on that..

We've been pretty constant now for a long time, saying $1.3 million to $1.5 million, 12 to 15 months, and the new classes are actually falling into that pretty well.

And I think as people know, the $1.3 million to $1.5 million it actually lower than perhaps the initial classes did, but they were a pretty outstanding group of initial hires, and we've always told people long-term to expect $1.3 million to $1.5 million and we're tracking nicely on those numbers..

Okay. I'll let some others jump in. Thank you, guys..

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

Rami, just as the clinical pipeline was probably the biggest change relative to our expectations this quarter, so can you just talk about PDN enrollment progress and flesh out the non-surgical trial a little bit in terms of trial size and any timelines or structure that trial you are willing to share? Then I have a couple of follow-ups..

Sure. So in terms of PDN, I think I mentioned on the call that we are still in the process of kind of site initiation, bringing up sites. So, it's very, very early innings here. I think we'll be talking about that more in terms of enrollment updates, et cetera, following the first quarter of next year. So it's a bit early for us to be getting there.

We are not even at a juncture where we have all the sites up yet, to be getting into that sort of next stage where you talk about enrollment. In terms of the non-surgical study, I'm certainly very excited about that.

But again, we are probably going to reserve talking through some of those details until later because we're literally in the process of just registering and initiating that study. So, we're certainly excited about it, but more details to come in the future..

Okay. And then, Rami, just a couple of questions here on commercial, one, I just think can you give us an update on sort of paddle lead launch? You had suggested at our conference you were still pretty early there.

How is that progressing and how do you see that to the balance of the year? I think, following-on on Mike's question, I think what people are trying to get after is, first quarter as you are well aware there was concern about sort of commercial infrastructure and the management changeover, second quarter you sounded very comfortable with sort of the progression of the commercial infrastructure and the momentum in the business, and that was sort of reiterated at our conference, where do you stand now in terms of your confidence in the commercial organization and sort of where you're heading from a momentum perspective this quarter relative to the second quarter?.

Sure. So yes, with respect to paddle, we certainly feel very good about the way that launch has been executed. We are continuing to track towards ultimately getting our mix of product to be similar to the overall market mix.

So, again, the uptake has been fantastic, the feedback from the neurosurgical community has been very positive, and I think that launch has gone as well as we would have hoped and expected.

As far as the commercial organization, I think I said it in my opening remarks, I mean I'm very confident in our execution, I'm very confident in the team, I think the results are showing, I think we've got an excellent momentum here in Q3 and heading into Q4.

So, I feel great about it and I think that frankly the biggest indicator that I feel great about it is we are taking our time and making sure that we get the right person from a VP of Sales perspective. We have great sales leadership in place we feel, both in the U.S.

and internationally, and we feel like we can continue to execute at a high level and looking for someone who is going to come in and be additive to our team..

Okay. And just Andrew, last one for me, just on spending levels, gross margin improved sequentially, SG&A leverage happened sequentially, but the SG&A number seemed a little higher than we were expecting.

Is there anything other than Boston litigation going on, sequential SG&A spend, that we should be aware of and how should that trend into the fourth quarter? Thanks so much..

No, I can't think off-hand about anything special in the SG&A in the third quarter, and I think we just gave guidance for the year, so you can calculate out where we think the fourth quarter is going to land. Nothing unusual..

Great. Thank you..

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

So, first question is just on guidance, and I want to look at fourth quarter and then going forward a little bit to a degree that you're willing to comment, because I just noticed that the Street is modeling 29% revenue growth for 2018, which is actually a faster growth than what you are guiding to for the fourth quarter.

So, I guess my question is, are there things in your mind that could allow revenue growth to accelerate a little bit in 2018 as we look forward relative to how you are finishing the year?.

I think we're obviously not at a juncture where we're talking about 2018 yet, Bob.

Again, we feel confident in our business, I think our results reflect that, especially relative to the lengthy overall environment, as Mike commented on earlier, in the third quarter and certainly we feel good about Q4 and we'll get to a point when we're talking about 2018 in our next call..

No, I understand that. I'm just curious though, as you look forward, maybe you could just talk about what in 2018 either in terms of data releases or new product launches are possible? And then maybe as the answer to that, you talked about the data coming up at ASRA. Just put that in context for us.

How important the data set is that from an upper limb perspective? But mostly I'm interested in what you think will be new in 2018 in terms of new products or data releases?.

I think we have honestly, putting aside all of those factors that you mentioned, whether it's new products or additional data, we have a lot of opportunity ahead of us just in terms of continuing to execute. We still have a lot of runway here in terms of covering the rest of the U.S.

We're certainly executing at an exceptional level internationally, continuing to grow there. So, I frankly don't feel like we necessarily need any of those things to continue to grow in 2018. Having said that, I think those are all wonderful things. I think both can provide some near term but certainly more importantly a lot of long-term growth for us.

So, I think the short answer is, I think that we'll continue to execute, continue to hire exceptional people, and do what we need to do here to broaden access to HF10 in the United States. We should have all the opportunity we need to grow in 2018..

Okay. And then just lastly, a quick one, this is just more of a fourth-quarter question, Medtronic has had some well-documented issues with Puerto Rico.

Did that come into play in terms of the way you're thinking about Q4 or not really, you're not really seeing that?.

No, not at all..

Okay. Thank you very much for the time..

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

Congrats on another good quarter. Just to follow up on Bob's question there regarding Medtronic and their inventory issues, I mean they are talking about half of their $250 million sales cut coming from restorative therapies group, contributing a lot of that to not having Intellis inventory on hand.

So, understand that you didn't see an impact in Q3, but it sounds like Medtronic is expecting an impact at least in this next quarter or the current quarter that we are in.

I mean, how should we be thinking about that? One would think that you would be one of the few beneficiaries of any lost procedures from a Medtronic perspective, but are we thinking about that incorrectly?.

Look, I mean obviously we don't have any more visibility than you do. In fact, you likely have more visibility than we do.

I think what you just said, if I'm reacting to that as though this is specific to a new product launch for Medtronic, so the question is, if they actually have any impact to their existing products and how that might impact procedures and so on? I think in this almost going back to kind of early IPO days, but kind of going through again the whole opening accounts and contracting and pricing, I mean to the extent there are some impact in accounts that we are already in, maybe you see some positive impact there for us, but if it's accounts that we, for the reason I just mentioned, that we are still growing and hiring and covering, they are in areas where we haven't gone to yet, and it becomes sort of irrelevant.

So, I think it's probably a couple of steps too far here to assume something for us without having, A, a lot more visibility into what is actually happening with Medtronic outside of kind of the broad guidance they gave, and B, how that really lines up with the footprint that we have in the United States at this juncture..

Got it, understood, that's fair. And then on the smaller IPG, you mentioned that would be a premium product.

What's the go-to-market strategy with a premium product? Is it sort of the Senza, HF10 is like the workhorse product in accounts and the smaller IPG is premium, or are you just talking about from a pricing perspective? Can you talk about how that fits into the sales pitch at your accounts? Thanks much..

Sure. I think at a high level, Danielle, the way to think about that is we have certainly customers who have different mixes of patients and payors and they need often more than one product to sort of serve the broad base in their community, and we right now, up until this juncture have been a little bit limited in that.

We've only had one product on the market. So we hope that having this additional product will be of benefit to a lot of the physicians and customers that we serve in allowing them to kind of broadly address kind of the business circumstances that they are dealing with on a geographic basis..

Got it. Thanks so much, guys..

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

Thanks, and obviously good progress on the gross margin front as well, and I know you said about product cost improvements, but maybe for Andy, are we talking about overhead absorption here or just scale, and what do you think happens when you get this new smaller and that also have a positive impact?.

So, fundamentally as volumes grow, we have been able to get cheaper product pricing, is the fundamental move, response that we had this quarter. The new product has both positives and negatives. It's a new product, so initially it's a little bit more expensive and over time it will go down in cost. But as against that, it will be premium priced.

So, one hopes that over time it will have a positive impact on margins..

Great. And then I know you don't want to talk at all about the studies, but obviously some exciting news there. On the virgin back side, I mean can you just even comment on sort of what the – I think you said RCT, so what would the control there be? Thank you..

I think we'll get into that at a future point in time there, but I appreciate the question..

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

I want to dig a little bit into what's happening in the international market.

Your international sales continued to grow double-digits, a very nice pace, and if there is something behind that that we can better understand? And also, could you please comment on the NICE commentary or recommendation that was published today?.

I'll take the first. I'll let Rami do the second. So, yes, we continue to be pleased with our international growth. That's been our seventh year in international markets that we continue to grow and it's a tribute to the sales execution of our international team. We are very pleased with how well they've been doing.

And it's the constant repetition to customers that we are the people that have evidence of superiority and just a constant winning over of new customers and then broadening the patients that can be successfully treated with our therapy. And over to you on NICE..

So, with respect to NICE, Joanne, we initiated this process with them.

We certainly feel that it's our role as a leader in this space to ensure that key constituents, and particularly payors, are aware of the evidence supporting the continued utilization and uptake of spinal cord stimulation, particularly at this time when physicians are more than ever are in need of tools to help treat these patients given all the challenges with opioids and the pressure against them.

So, we obviously are at a draft stage here with respect to this guidance and we will provide more color on it once it's finalized..

Thank you. And then as my second question, your sales force hires, really big push of hires for the first – second half of last year, first half of this year, somewhat lower in the third quarter. How do we think about your pace of new hires as we look forward over the next 12 months? Thank you..

Sure, yes. So I think you should expect us to kind of get the machine ramping back up and hopefully towards our historical goal here.

Obviously when you are kind of starting from a little bit of not quite a standstill but a slower start, we're not going to likely hit our highs in the fourth quarter, but we do want to start that momentum going with a good hiring quarter in Q4 and really carry that momentum into 2018.

As I mentioned, we still have a lot of opportunity ahead of us just in hiring and execution in the U.S. So, we are certainly excited to get that going and add a lot of really talented people to the Nevro team..

Wonderful. Thank you so much..

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

Two for me. First, on the clinical front, it's encouraging to see the progress you're making. Two studies that you talked about presenting data on in the next few months, you didn't talk about the next steps and the opportunities. So I'm just curious, I know in upper limb and neck, we have talked about that but we are going to see more data.

Chronic abdominal pain, I think that's relatively new. You talked about that being a pilot study.

So, just big picture, what's the opportunity for those two and the next steps there, and I have one follow-up?.

Sure, Larry. So we'll talk about kind of the broader opportunity sets for those indications as we get into the future.

I think you can assume obviously, given we have prioritized particularly the two RCTs overall there is, that we see those as more meaningful in terms of opportunity or access and that's why we have decided to pursue RCTs in those two indications above others at this point in time..

Got it. And then at our healthcare conference, Andrew talked about introducing physicians to an array of options that exist with HF10 to try to address the criticism that HF10 doesn't provide optionality like other systems. Can you guys elaborate on that, please? Thanks for taking the question..

Sure. So I think obviously there is no shortage of competition in this space and I think one of the tactics you alluded to, Larry, from our competitors is to try to insinuate that HF10 is limited in some fashion and it's a singular therapy versus the multitude of options that they supposedly provide.

And I think as I talked about on a prior call, having a lot of options that don't work isn't really all that effective.

So, I think one of the things that we wanted to elucidate is that HF10 is actually a little bit more sophisticated than perhaps people had appreciated, and there are a number of different programs and algorithms that we apply to really maximize patient outcomes and get the superior sort of outcomes that physicians and patients have come to expect from us.

So, that is something that's certainly we understand maybe valuable for the investment community to understand as well and we'll be talking about it more at upcoming conferences on the Investor Relations site..

Thanks for taking the questions..

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

The first one for me is going back to sort of some of the front-end commentary and then the commentary you made to Joanne on sales rep hiring trends. And I think at the front-end of your remarks, you had talked about going into that historical hiring rate trend.

Is that roughly 25 to 30 reps a quarter, if I look back over the last year and a half or so, and if I do that math, does that bring us to over 350 reps towards the end of 2018?.

Yes, so you are right. What we consider kind of our historical norm, I mean you're obviously going to have ebbs and flows there as well, is kind of mid-20s.

And we certainly – I think we can all agree that one of the – we've, A, directly have driven the growth rate in this market from one of basically low single-digits to now a healthy double-digit growth rate. And so, I think the market opportunity ahead of us is fairly significant and we know that there is still a lot of room for us to grow and hire.

So, I'm not going to give you a backdoor to a hiring guidance here, Margaret, but I will say that we certainly expect to, try our best to approach that number in Q4 and carry that momentum into 2018..

Okay.

And then just as a follow-up to kind of the rep hiring theme, have we seen any benefit in this third quarter from the reps hired earlier this year, given that kind of 12 to 15 month cadence, or is that really going to be either a Q4 2018 event? And then if you look at utilization per rep this quarter, is there anything that you could point to outside of just timing of rep hires that may have impacted one way or the other?.

No, productivity actually is pretty stable, but the people who were hired at the beginning of the year, the third quarter was really the second full quarter. So, the answer is, they contributed at the margin, but they are beginning to get going is what I would say, they are beginning to show strength.

So, when I look at their performance, I'm left with reasonable confidence that they are well on their way to – or they exhibit the behavior that should get them to $1.3 million to $1.5 million. So, no, there are no warning signals as far as I'm concerned..

Your next question comes from the line of Jason Mills from Canaccord. Your line is open..

So I wanted to follow-up on the theme of the sales rep productivity, and going back to Bob's question on 2018, while I appreciate you are not ready to give guidance, as we look at it, I think these numbers are the biggest culprit when it comes to I think having the highest number on the Street next year.

But in our defense, it's really predicated on our sales rep waterfall, which has been fairly accurate at predicting a bigger number. That having been said, the question boils down to the $1.3 million to $1.5 million per rep over that time period.

And sort of generally, over time as the sales force expands, should we be thinking more on the lower end of that range, just the law of larger numbers, or maybe you could give us a bit more granularity for the drivers that get sort of reps over that period of time to a lower end versus the higher end and whether your forced attrition occurs at that lower end or below? You kind of see where the question is going? Our number, high on the Street number is predicated on $1.5 million, which I mean just admittedly is aggressive, but perhaps you could give us some guidance on what makes the difference between the $1.3 million and $1.5 million?.

Yes. So, we've been as a vendor, I think we've been pretty clear so far that what really happens is you open a territory, you put sales person in.

As that territory then goes over its $1.3 million to $1.5 million, you add in a clinical specialist, but they are not the sales person, they are person that takes over a lot of the burden of patient programming, of being in the OR.

But I think what became really clear in the first quarter was that the health care professional still expects to see the sales person in those established accounts, which makes the salesperson less efficient.

So, what you have there is, as you add clinical support people, in the law of large numbers, to a lot of accounts, the productivity actually averages down, and again, clinical support people are much more passive than the salesperson.

So you are really relying upon the salesperson's kind of follow-up with doctors to maintain business in both the new accounts the salesperson is opening and the older accounts where the clinical support person is doing most of the interface with that account. So that's what drives the average productivity down over time.

It's kind of the dilution of the more aggressive salespeople by clinical support people.

Does that answer the question?.

It does and it's very helpful and I'm sure instructive to you guys who, I guess as Rami and Andy, you're not satisfied with that trend continuing.

And perhaps you could share with us whether now you think what are some of the things you can do within the business in hiring practices that would help you offset some of those dynamics, Andy, that you talk about, the clinical rep being a little bit more passive, perhaps more susceptible to deceptive marketing about which you've talked about in the past, and whether or not over time there are things you will instil into sales and marketing practices that could combat that?.

So, I think there's a number of angles longer-term, and one of them is actually to maybe have a different ratio between salespeople and clinical support people. So those are things that we are constantly looking at, which is, what is the correct mix of resources to put into various accounts..

Yes. I think, look, there's a lot of things here that we can still optimize. But having said that, I would say, especially since as I talked about, this is the third anniversary of our IPO, this is our initial guidance from three years ago and it's holding fairly well, at least within that range.

And like you said, Jason, we'll certainly look to try to optimize that. I think part of it is hiring, part of it is hopefully over time when you work, we do better on attrition, part of it is – there is a lot, maybe additional products, its leverage with the clinical pipeline, there's a lot of things but they are all future looking.

For now, this is where we are and we certainly I think hope folks understand that from a modeling perspective and from an ongoing business perspective..

Very helpful.

Last question, I'll get back in queue, with all of the clinical work that has been asked and talked about on this call, what in your mind does that do for you with respect to your current selling practices? In other words, does it help the productivity of your adjusting growing sales force to have so many things going on from your critical trial perspective or does it hinder? Just would love your perspective on that, because you clearly have more going on in the clinic than your competitors.

Thanks and congrats on a good quarter..

Sure. I mean I cannot imagine how it can hinder. And honestly, a lot of it isn't really helping either. We have no shortage of opportunity just based on our existing product labeling and indications.

I think some of these other indications, like we've talked about maybe through particularly to the extent that they are reimbursement on label, things like painful diabetic neuropathy, or others, will still require some significant effort either from a regulatory or a reimbursement perspective to gain broader access like neck pain for example.

So, I think there is a mix, but overall – I mean, if anything, I think it's a very positive message for our sales organization to know that they work for a company that is finally delivering on the promise of neuromodulation.

You look at, I started my career earlier with ANS before it's been I guess acquired subsequently twice, and we used to have this neuro man with IPGs pointing everywhere about all the ways we were going to help humanity with neuro stimulation.

And frankly, until we came along there hasn't been a whole heck of a lot of progress in this area and I think we are really, we are actually following through on our mission and we are certainly enabled by our product and its advantages.

But it also takes the commitment to making the pipe of investment and the pipe of risk required to really advance science and clinical evidence, and we are committed to doing that. And I think overall that is I think a great, great message for our sales organization to be carrying..

Thank you very much..

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

Rami, one of the key things – you know that all of us are trying to get our hands around is basically productivity. Let me see if I can simplify this and maybe approach the question a little differently.

If I use the $1.3 million to $1.5 million per year as a bogie per rep, the math indicates that you are talking about a mean of 50 to 60 cases per year per rep.

I guess, can you all give us some color of how many of these cases are done independently, how many centers does your average rep service? I guess what I'm trying to understand, if any color you can provide where we can get a sense of how many reps do maxing out, how the mean looks like versus median, so on and so forth..

I'll give you a high-level on that, Suraj. So the first thing you have to do is basically double the number of cases, right, because you have to do a trial for each one of those permanent implants to occur. I mean it's a little bit more than double, but just for easy math.

You have to understand that our reps are engaged on the front-end to help with patient education. They are there during the trial. They are communicating with the patient to track their progress. They are helping coordinate.

In some instances, they are making sure that the reimbursement work is done to get them the preauthorization for both the trial and the permanent implant. They are there at the permanent implant. They are following up with the patient post implant. So there is a lot of work just on the execution at, say, those 100-plus procedures every year.

Now on top of that, obviously you actually have the selling activities, right. It's the going and opening new accounts. It's the engaging on servicing of those accounts.

So, it is actually, I think if you look at it relative to the industry, I think our productivity is something that is I think generally viewed very positively, and it really is, it's a lot of work and our sales organization works very hard to deliver on those numbers for all the reasons that I just mentioned..

Got it. That should be it from my side. Thank you, gentlemen, for taking my questions..

This concludes the Q&A session of the call. I will now turn the call back to Rami..

Great. Thanks, Sarah, and thank you again for joining our call today. We certainly appreciate your continued interest in Nevro and look forward to our next progress update. Have a great day..

This concludes today's conference call. Thank you for your participation and you may now disconnect..