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

Michael Weinstein - JPMorgan David 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 Suraj Kalia - Northland Securities.

Good afternoon. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Nevro Fourth Quarter and Full Year 2017 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 from Nevro, you may begin your conference..

Thank you, Cheryl, 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 and full year ended December 31, 2017.

A copy of the press release is available on the company's Web site. I'd like to remind you on the call that management will make forward-looking statements within the meaning of the federal securities laws.

All forward-looking statements, including our discussion of operating trends and our expectations of future financial performance, including full year 2018 guidance and our expectations with regard to profitability 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. Accordingly, you should not place undue reliance on these statements.

Please see our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, which we expect to file today for a description of these risks and uncertainties.

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, February 22, 2018.

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

Thank you, Katie, and thanks everyone for dialing in. For today’s call, I’ll start with a review of our fourth quarter and fiscal year 2017 performance. Then I’ll provide our revenue guidance for 2018 and conclude with details on our commercial progress.

Andrew will follow with a deeper review of the fourth quarter and full year financials for 2017 as well as expectations for 2018. Then we’ll open up the call for your questions. Worldwide revenue for the fourth quarter was 98 million, an increase of 39% as reported compared to the same period of the prior year. U.S.

revenue for the quarter was 81.1 million, an increase of 45%. Fourth quarter international revenue was 16.9 million, representing an increase of 10% on a constant currency basis. These results are driven by continued adoption and demand for HF10 globally and consistent execution by our sales team.

We delivered full year revenue of 326.7 million, an increase of 43% as reported. In the U.S., revenue of 263.5 million represented an increase of 52%. International revenue of 63.2 million represented an increase of 13% on a constant currency basis.

Looking back on 2017, I can say across the organization we performed at the Nevro standard, achieving success and building a foundation for sustainable growth. Underpinning our success are our people and culture.

In 2017, we scaled the organization from around 500 to nearly 700 team members globally, while maintaining our sense of purpose, passion and teamwork. We leveraged our differentiated product coupled with our unique go-to-market strategy centered around delivering superior patient outcomes to continue our march towards market leadership.

To-date, our progress has allowed us to touch the lives of over 28,000 patients. Our R&D and regulatory team secured three key approvals; our Surpass surgical lead, Senza II CE Mark and Senza I Full Body MRI CE Mark.

Our clinical team continued to advance the platform applicability of HF10 with outstanding research demonstrating the long-term potential for our therapy in a number of new pain areas. We initiated two RCTs in 2017 which we expect to further differentiate HF10 as the therapy of choice in SCS.

HF10 has garnered many accolades, most notably in 2017 receiving recognition from Neurosurgery, the official journal of the Congress of Neurological Surgeons as the journal’s Top Pain Paper of the Year for the 24-month SENZA-RCT publication. That is an outstanding honor for Dr.

Kapural and the investigators for the SENZA-RCT which remains the most robust study in the history of our field. Commercially and just two and a half years post U.S. launch, we are delivering on the promise of HF10, establishing a $400 million business based on our 2018 guidance.

Coupling our best-in-class product with the best-in-class sales organization has brought us tremendous success. We categorize the SCS market and as a result of our impact have seen a growth from 1.5 billion in 2014 to approximately 2 billion in 2017 with Nevro contributing about two-thirds of that market growth over that time period.

We’ve made neuromodulation one of the most attractive and exciting markets in medical technology and remain confident based on the unique benefits HF10 delivers to patients and physicians in our ability to attain market leadership in this fast-growing market.

Our commercial success and the uniqueness of our opportunity have allowed us to attract and retain top talent, including our recent addition of Jim Alecxih as our VP of Global Sales. Jim joins us with unique experience and scale in commercial organizations selling a differentiated product and he is a welcome addition to our team.

The road ahead remains clear. We’re built to deliver superior outcomes to our patients and are investing in the future through meaningful research.

Our strategy is to attain market leadership in neuromodulation combining our differentiated product coupled with continued commercial execution while simultaneously laying the groundwork for long-term growth via our unique commitment to Level 1 clinical work.

We remain committed to sustainable growth by leveraging the Nevro brand in future category expansion initiatives. The success of our strategy is evident in the scale of business we’ve built in our competitive market. It was also evident during the last meeting where we presented positive forward-looking data across a range of indications.

These data were presented by a global group of clinicians demonstrating our broad commitment to advancing neuromodulation. We are reiterating full year worldwide guidance of $400 million to $410 million.

As of this quarter, our rep productivity remains consistent with the historical metric of an average of 1.3 million to 1.5 million after 12 to 15 months and we continue to expect new hires to ramp to these levels.

Going forward, as the business has matured and scaled, the revenue per rep metric is becoming a less accurate and less relevant way to reflect the progression of our commercial business to the investor and analyst communities. As such, we will shift the way from providing productivity and rep hire numbers starting with this call.

To be clear, our underlying process for hiring the type of reps we hire and our cadence of hiring is not changing. We’re simply no longer reporting on these metrics. Given the opportunity ahead of us, we intend on continuing to hire meaningfully in pursuit of our goal of market leadership.

At our size and scale, we believe our guidance coupled with our view on the overall market are appropriate and in line with the disclosures from others in the market. Andrew will provide more color on the market later in the call. We’re excited about our opportunity in 2018 and as we look ahead, there is a foundation for continued success.

We’re committed to scaling our outstanding sales organization as we continue to see exceptional talent attracted to Nevro. And as we work towards ensuring every patient has access to our clinically superior therapy, we are committed to raising awareness to patients in need through our HF10 Matters campaign.

Essential part of our campaign is sharing the impact HF10 has had on the lives of real patients. A recent example is the story of Jane, a 72-year-old retired Navy corpsman who spent her time in the Vietnam War taking care of amputees. She also spent over 48 years as both a nurse and a certified radiology oncology tech.

Jane has suffered from back pain since her early 20's and later in life was diagnosed with upper limb and neck pain. After receiving HF10 therapy, Jane's back pain is minimal, and she is entirely off all pain medications. She's also thrilled to report zero upper extremity pain.

Because of her relief from HF10, Jane can work up to 40 hours a week with a home health agency. And for fun, she spends time playing with her grandchildren, swimming, going to the beach and making afghans for the VA.

Of her life now, Jane says, “Before HF10, I was unable to lift my head up, and now I can enjoy all the things I want to.” This is a great example of the impact HF10 can have on a patient enabling them to have a positive impact on their families and communities.

Our focus on patient outcomes and our commitment to their care has led us to collect data on nearly 8,000 U.S. patients to-date. That data supports the real world applicability of HF10 with satisfaction rates in the 80% plus range consistent with the success rate in the SENZA RCT.

From a product perspective, we are looking forward to expanding our Full Body MRI comparability to the United States. Additionally, we are working on next-generation platforms with the goal of advancing SCS to better serve our patients and customers.

On the clinical front, we also have a read on enrollment rates for our two recently initiated RCPs in the back half of 2018. At that juncture, we may also be in a position to discuss new clinical work pending continued progress on those fronts.

One area of focus for us is to leverage our scale, brand and amazing people to make a positive difference in the world. Recently, we partnered with two organizations whose missions are to support women in their pursuit of leadership and scientific achievement to sponsor three events.

Diversity and inclusion are central to our success at Nevro and we’re proud to support organizations that endeavor to make that a reality in neuromodulation and across other businesses and fields. In closing, I’m incredibly proud of what we accomplished as a team in 2017 and I’m equally excited about our future.

At our core, Nevro is comprised of exceptional people, a truly once in a generation medical technology innovation and a culture that focuses on allowing everyone to do what they do best every day. We are capitalizing on our opportunities to lead and transform a large and growing market.

And through that work I know together we will continue to change lives and make a positive and lasting difference. 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 December 31, 2017 was 98.0 million, an increase of 39% year-over-year on a reported basis. U.S. revenue in the fourth quarter was 81.1 million, up 45% from 56.0 million during the same period of the prior year.

International revenue was up 17% to 16.9 million from 14.5 million during the same period of the prior year. This represents a constant currency growth rate of 10%.

As we’ve previously stated, we expected for some time the constraints such as capitation and our increasing share in international markets would result in a moderation of our international growth rate. We have seen this throughout 2017.

Gross profit for the fourth quarter of 2017 was 69.5 million or 71.0% gross margin as compared to 48.8 million or 69.2% gross margin in the same period of the prior year. Operating expenses for the fourth quarter of 2017 were 71.7 million, an increase of 30% compared to the fourth quarter of 2016.

The increase in operating expenses was driven primarily by increased headcount and related personnel costs, as well as legal expenses associated with the Boston Scientific intellectual property litigation. Legal expense in connection with those litigations was 6.7 million for the quarter.

Net loss from operations for the period was 2.2 million compared to 6.3 million for the fourth quarter of 2016. On our third quarter call, we mentioned that we achieved positive EBITDA, excluding litigation expense. The same holds true for our Q4 2017. Now turning to the full year 2017.

Revenue was 326.7 million which represents growth of 43% as reported. U.S. revenue was 263.5 million, up 52% from 173.3 million in the prior year. International revenue was 63.2 million, up 15% from 55.2 million in the prior year. This represents a constant currency growth rate of 13%. Gross margins were 69.7% for 2017 compared to 67.0% for 2016.

Operating expenses for 2017 was 257.3 million or 239.5 million, excluding legal expense in connection with the Boston Scientific litigation, which represents an increase of 37% from the comparable number in 2016. At the end of the fourth quarter of 2017, we had 269.3 million in cash, cash equivalents and short-term investments.

We’re again cash flow positive for the quarter if you exclude the cost incurred as part of the Boston litigation. Turning to our guidance for 2018. We are reiterating worldwide revenue for 2018 to be in the range of 400 million to 410 million.

As a background, we believe the SCS market should grow in the low to mid teens in the United States and mid to high single digits internationally for 2018. With our current guide of 400 million to 410 million, we expect to continue to take share. In addition, similar to our peers, we expect to be impacted by seasonality.

In the fourth quarter, SCS revenues in the U.S. are seasonally higher driven in part by patients having used their deductibles earlier in the year. As a result, the SCS market in the first quarter is down sequentially from the preceding fourth quarter. The SCS market then typically experiences sequential growth into the second quarter.

For gross margins in 2018, we expect margins to be in the 70% to 71% range. With regard to our operating expenses for 2018, we expect to see a total of approximately 290 million to 300 million for the year, excluding litigation expense.

We have hired and will continue to hire experienced sales reps ahead of our revenue ramp and in support of our expansion of HF10. We additionally plan to continue investing in our clinical trials and development activities. Accordingly, we do not expect R&D to decline as a percent of revenue in 2018.

As a result of our continued investment in the long-term success of our business and as our revenues and related gross profit increase, we expect to be around breakeven EBITDA for the upcoming full year, excluding litigation expense. Now back to you, Rami..

Thanks, Andrew. So that will conclude our prepared remarks for today. Cheryl, if you would please open up the call for questions..

[Operator Instructions]. Our first question comes from the line of Mike Weinstein of JPMorgan. Please go ahead. Your line is open..

Good afternoon, guys, and thank you for taking the questions. Let me start with the market. By our math, the U.S. SCS market end up growing just over 20% in 2017. And every quarter except for the third quarter was north of 20. Fourth quarter was obviously very strong for you guys but also for the market.

Can you tell us kind of with that backdrop how you put your thoughts together for 2018? And then the second part of the question just, Andrew, not – I don’t think anybody’s surprised by you just highlighting the typical seasonality, but are you expecting the 2018 seasonality, the 4Q to 1Q to look any different than what you’ve seen over the last few years? And I’m talking about the market not specifically you guys..

Hi, Mike. Thanks for the questions. So in terms of kind of our outlook on the market, I think as we’ve said in the past, we’re certainly very confident in our ability to continue to grow and drive the market growth as we have historically.

And we certainly take a look at our view of the market and the broader players and what we believe they might be able to contribute in any given year and that formulates our view on the market.

And in terms of seasonality, I’ll let Andrew comment further but I think again you can kind of look at historical trends in the market and generally for the reasons Andrew described in the comments, there is a seasonal trend. And obviously as the business scales, we’re looking at $400 million plus business this year.

Based on our guidance, we’re going to experience that sort of seasonality. But I’ll ask Andrew to comment further..

Yes, I’m not sure that we expect anything terribly different from the market this Q1 compared to other Q1s, but we’re just trying to make sure that people in general understand that we are in fact and the market has a large seasonal element in it because we’re an electric procedure and that seasonality tends to be a little more enhanced than in the average med tech.

So we’re just making sure that it’s very clear to everybody not just – I know as analysts you’re probably fully aware of that but for other participants on the call, it’s good that I think we emphasize that that’s what our industry sees..

Understood.

And Andrew, would you concur that current street estimates for the first quarter fairly accurately reflect that seasonality?.

We’re not going to – that gets really way to close to actually giving quarterly guidance which we don’t want to do..

I had to try. You know I had to..

I was going to say, a nice try, Mike..

And then I completely understand and the commentary about we kind of got too much into the weeds the last two years on all the rep productivity discussion and it ended up being a bit misleading to people.

But could you just talk more bigger picture about how you think about growing your sales force? And you’ve talked about the reps and reps coming up the curve being – if anything, probably the biggest factor and kind of dictating your ability to grow at this point.

So how are you thinking philosophically about growing the sales force from here? And not just in '18 but over the next couple of years. Thanks..

Sure. Thanks, Mike. Look, as I said on the call we have a massive opportunity ahead of us to lead and transform this market. We certainly have every confidence of achieving market leadership and simultaneously also growing this market.

So we see no reason to deviate from what we’ve done over the last couple of years which is continue investing and attracting exceptional sales team members to the Nevro organization and taking meaningful share and achieving that leadership position.

So we see – as I said in my prepared remarks, we see no deviation from what we’ve done historically which is identify exceptional talent, bring them onboard and have them ramp up to the levels that we expect.

And I think as you said in your comment that it just wasn’t helpful to continue to talk about this particularly at the scale of business that we’re at, but that doesn’t reflect any underlying change in our approach or execution going forward..

Understood. I’ll let some others jump in. Thank you, guys..

Thanks, Mike..

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

Good afternoon. Rami, just want to start off on the commercial side and I have a couple quick follow ups. I appreciate your view on the market and obviously you continue to manage share gain.

Can you just talk generally about how you see the competitive environment for Nevro in '18 relative to '17? And maybe kind of related to that, with new sales leadership, any early observations you can share, are you expecting higher attrition, any material changes to the organizational structure other than Jim?.

Sure. So thanks for the questions, David. In terms of competition, I think the first thing I would say is, look, we haven’t been a monopoly for the last seven or eight years here. We’ve always had competition. I think my sort of interest and take on competition is that we have large competitors.

They do a reasonable job every year tweaking their marketing message. And what we’ve seen in '17 and what we’re seeing in '18 for us isn’t different than what we have been seeing over the last several years.

I think kind of similar to the comment Mike made, maybe perhaps when people look closer they saw something that to us was pretty normal and that’s just kind of refreshed marketing messaging. But to maybe people who weren’t looking as closely before, it may seem new or different.

I think a lot of the initiatives that we saw in '17 and heading into '18 have been around for three plus years and many instances they’ve been a lot of product launches from our competitors over the last several years.

And I think it’s been clear from our performance that that hasn’t had a material impact on our ability to execute and certainly on our growth. And again reflected in our guidance, we certainly don’t see anything that would change that in '18. As far as Jim, as I said, he’s absolutely a welcome addition to the team.

And as I said in the last couple of opportunities we’ve had to talk to investors and analysts, I think our fourth quarter performance reflects where we are as a business. We have a healthy business. It’s continuing to grow.

I think Jim is going to help us continue to go to the next level and really reach the full potential not just our existing product for our platform and we’re certainly very excited to have him on board..

Okay, very clear. And Andrew just a quick update on – maybe some of this is Andrew and Rami, but operating expense guidance, excluding legal expenses. Legal expenses were something around 18 million for '17.

Is that a reasonable estimate for '18 or probably high, because some of the discovery has already happened? Can you just update us on sort of the timelines for the legal process this year with Boston? Thanks so much..

The trial I think is October in the fall and so that’s – and that hasn’t changed I don’t think in quite some time..

Yes, and we’re not – I think as we have done, we’re not planning to forecast expenses. Obviously this is an important litigation for us and we’re going to spend what it takes to win. Having said that, we will continue to report out on actual spend so that folks can understand that relative to the actual OpEx..

Okay. Thanks so much..

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

Thanks very much for taking the question. I apologize for the background noise. I’m in an airport. So I’ll just be brief. Andrew, I’ll try on the first quarter just again. I know you don’t guidance but let me phrase it a little bit differently. Consensus has you down 9% roughly sequentially. That’s more than historical seasonality.

So my question would be, is there any reason why there would be abnormally high seasonality in Q1 that would be sort of exacerbated this year? Is there anything unique going on in the marketplace?.

As I said earlier, there’s nothing unique that we’ve said. I think if you look at the market seasonality over the last number of years, there’s actually quite a large permutation between various declines. So it’s hard to actually put your finger on a precise number there. But it’s just something everybody does need to be aware of..

Okay. And then other question I wanted to ask is just to push a little bit more on the competition. I think a lot of people are big believers in the long term and obviously trying to get our arms around competition.

And one of the reasons I’m asking the question is that Medtronic reported a pretty big turnaround in their business this particular quarter with good double-digit growth in the United States. And so maybe Rami can you just give a little more common on what you’re seeing specifically from the launch of Intellis? Obviously there were some trialing.

The market was strong.

So maybe just a little more color on that front since there was such a big sequential turnaround from them?.

Yes, look, I think you guys know historically we generally don’t talk about competition. I think these are great questions for them. The only thing I’ll say, Bob, is that incidentally that was a record quarter for us in U.S. and also a record quarter for us internationally. So I think my point still stands.

Frankly from our view we’re in a class of our own. Certainly we occupy the same market as these players but our product is categorically better in every way. And to the extent we have and will continue to execute, we feel like we’re going to continue to be a share gainer and achieve market leadership.

The in-sample things that happen on a quarterly basis for marketing message or launches of another frequency this or that product are largely not that relevant to us..

Perfect. Just wanted to get your take. Thanks..

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

Hi. Good afternoon, guys. Thank you so much for taking the question. Andrew or Rami, whoever wants to take this, just on the annual guidance for the year. So Andrew, you were clear that you expect to continue to gain market share.

This is a market that’s been growing, as Mike pointed out, over 20% for the majority of the last I’d say eight quarters or so. Even modeling some slowdown in the market, if we assume Nevro continues to gain share on pace with what you guys have done in the last few years and I imagine you’re trying to actually accelerate those share gains.

It’s just very easy to get to a much higher number than 400 to 410. So I don’t know if you could provide any more color on what you’re factoring into that guidance, how much of a moderation are you assuming in that guidance in U.S.

market growth and what would drive that, or am I being too bullish on accelerating share gains? Can you give a little bit more color there?.

I think the first thing I’ll say, Danielle, is our guidance is our guidance. So I think there’s obviously assumptions baked in there. But we don’t want to again get into this sort of providing parallel guidance to our guidance. Our numbers are our number. I think you can obviously calculate what the growth rate is implied in that.

And there’s not really a lot else I think we want to kind of get into that parallel style..

Is there any reason to believe that the market would moderate meaningfully from where it is today to I don’t know --?.

Yes, our guidance on the market certainly I think as highlighted is more moderate than you saw in '17. I think part of that is certainly a question around can the other three large companies maintain the sort of growth rate that they saw in '17? So we kind of have to factor that in. We don’t know.

It’s our best sort of assumption at this point in time based on a lot of factors and our read of the market both being in the market as well as some of the commentary.

But I think that’s certainly a part of it and a part of it is that the growth rate that we assume we can achieve at the scale that we’re at, which again I think we’ve consistently delivered growth rates that exceed our peer group from the med tech perspective, particularly at the scale we’re on. We hope to continue to be able to do that..

Okay, that’s fair. Thank you. I appreciate that. Don’t mean to push you too hard on that. Just want to make sure I’m thinking about it correctly.

And then as we think about the upcoming updates on the potential incremental indications, appreciate that you’re not going to give a lot of color today on how big those markets could be, but just at a very high level, are these the type of markets – it felt like predominant back pain which was really the area that’s been growing the market for the last – really since you guys entered the market.

Are these potential indications that could drive a similar type of inflection or are these more incremental in your view? Is that how we should be thinking about it as we look at our models today?.

Look, I think we’ve talked about this in the past. There’s a range. I think some of these indications we’ve talked about as being incremental, others we view as larger market opportunities. The ones that we view as potentially having a larger opportunity size also requires some level of market development for potentially reimbursement work.

As an example, we’ve talked about non-surgical refractory back pain as an indication that is not generally covered by commercial payers in a large degree and we feel like we need to generate the evidence to make that change.

So that’s an example of an opportunity that depending on the market development efforts could turn out to be larger while others could be more limited in scope or moderate. So I think we’re kind of sorting through a lot of that. We have sorted through a lot of that and we’ll talk more and more about them as the year progresses..

All right. Thanks so much, guys..

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

Hi, guys.

Can you hear me?.

Yes. Hi, David..

How are you? I appreciate the commentary you made on the competition and sort of the things you faced in the past and then obviously seen you guys out at NAMs. You sure seem confident and I just – Rami, I just wanted to get sort of your take on sort of the doc commentary or the physician feedback.

Did you sense there was any incremental noise at the conference from the actual doctor side? Any color that you’ll be willing to share with us in terms of your conversations with the actual implanters?.

Yes, look, we had a fantastic NAMs meeting. I think most of you who were there would have I think seen that. I think certainly the highlight was our Lunch Symposium which I talked about in the script where we presented data from around the world across just highlighting the strength of our platform.

And frankly the uniqueness of our company that we are looking forward and investing in the future versus a lot of the small scale marketing studies that you tend to see. Honestly, we didn’t – to me this NAM felt in a lot of respects kind of like the most relaxed of the last couple that we’ve had.

A lot of the things – I think this is a little bit paradoxical, like a lot of the things that we’re getting questions about have been largely to me in terms of marketing messages around for years. I don’t want to go into specific details of our competitive studies or products, et cetera.

But a lot of this stuff has been presented over and over again for the last 30 years and I think it’s – if anything I kind of felt like it’s been saturated at this point and didn’t really get much of a rise or a reaction. So that’s I think as far as I’m willing to comment on competition..

I appreciate that. I think I’ve tried this before but I guess I’ll try again. Any early sort of commentary on your direct to consumer program, what you’re focusing on or what you’re going to spend as we move forward on that initiative? Thanks..

No. No further comment. Again, we’re committed to as a good steward and a leader in this space to doing what we can to raise awareness and particularly for our product which can really have a material impact for a lot of people. And we’re very early in exploring those avenues..

Thank you..

Thanks, David..

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

Good evening and thank you for taking the question. I have a little annoying one and a big picture one.

The annoying one is 71% gross margins for 2018, given the trajectory that the company has been on in developing that, am I missing something? Is there something that’s weighing that down next year or this year?.

Yes, we have a little bit more complex product structure in 2018 with the introduction of the Senza II. And as you probably are aware, the initial period of product launch is they tend to have a little bit higher basic cost structure, but then comes down as you get more experience in making them.

And that’s allied with – as people hopefully are aware that we’re fully outsourced. And what we’re doing here is we’re actually splitting our volume because that actually puts a pause in some of the volume efficiencies that we would normally take up. So 2018 we’ll make some progress I think on margins but it will be more taken a breath as well..

Helpful. Then the big picture question is, you have a new head of sales.

What do you think he’s going to be doing different or differently than the previous person? And what kind of marching orders does he have that you can share?.

Thanks, Joanne. Look, I think I’ve talked about this in the past. Jim just brings a wealth of experience particularly as it relates to having a unique product offering and I think also in terms of launching a platform therapy and getting to 1 billion plus in sales, close to 2 billion in sales.

So I – refocus the question from what he will be doing differently to what does he bring that syncs up with the opportunity ahead of us? And I think he bring a ton and it really syncs up with maximizing the value of the opportunity ahead of us as an organization..

Terrific. Thank you. Have a great evening..

Thanks, Joanne..

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

Hi, guys. Thanks for taking the question. Just a couple of quick ones for me. Andrew, international growth in 2018 kind of what’s embedded in the guidance? And the street has you right now at a GAAP profitable in 2019. Is that your expectation? I just had one follow up..

We’re not actually giving guidance out that far, but we have said all along is that as long as we have the ability to continue investing in the business and investing in the enormous opportunity we have ahead of us, we’re going to continue to do so..

Okay. And then the o-U.S. growth embedded in the 2018 guidance, I’ll just ask my follow up right now. Rami, I don’t know if you’ve talked about next generation platforms before, but in your prepared remarks it was the first time I had heard you mentioned those next generation platforms.

So I know you’re not going to disclose a lot right now, but is there any color you can provide or tell us when we might get more visibility on those? Thanks for taking the questions, guys..

Quickly on the international, I think we said in our prepared remarks that we’re expecting low single digits, low to mid single digits..

Got it..

Thanks, Larry. Look, it’s more just to highlight for folks that that is definitely something we’re working against on our radar. There’s really not a lot of color I’m going to provide at this point. But as we kind of get closer to realization, we’ll certainly provide more there..

Got it. Thanks for taking the questions, guys..

Thanks, Larry..

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

Hi. Good afternoon, guys. Thanks for taking the questions. First one for me is more kind of big picture market perspective because we did see really strong growth in the market in 2017.

So I’m just curious if you guys have any context for where that’s coming from, whether it’s new implanting physicians that maybe haven’t done so in the past, whether the orthopedic surgeons are now starting to play around in this or not, or do you think that the market growth is really coming from the existing implanters of SCS?.

Sure, Margaret. Obviously we know on our end where it’s coming from and obviously it’s share capture and some elements of market growth. For the rest of the market, we can only sort of infer based on our – what we learn in the marketplace.

I think those are great questions for plenty other players and see if they’re willing to answer them and kind of give you more specificity of how they’re driving their growth.

But I think it’s suffice it to say we had some questions on the sustainability of some of those tactics without getting into detail and that’s certainly guided our view of the overall market growth for the year..

Okay. And then in terms of kind of your implied operating expense growth, if we back out a similar percentage for R&D as you guys have had in the past, that kind of gets us to the mid teens, let’s say sales and marketing growth.

Can you guys talk about where that growth is coming from? Is that majority sales reps, is that more DTC? What are you guys going to be spending on as we go on throughout this year? Thanks..

Sure. I think let’s clarify a couple of things there and make sure I answer your questions. So DTC, we’re in an exploratory sort of phase I think and I would categorize it more as generating awareness than necessary I think what a lot of you guys would get to a full blown DTC at this stage.

I think we’ve talked about this in the past about our sales hiring because of our sort of time to ramp, et cetera, which we’ve been talking about since IPO takes time. So hiring that we do this year is really generally in support of the future, not necessarily for this year.

So I think we’re – as I said, we’re committed to continuing to hire meaningfully and as much as we certainly believe in our ability to continue to grow not just this year but over the next several years. And so we’re certainly going to be committed to doing that..

Okay. Thanks..

Thanks, Margaret..

Your next question comes from the line of Suraj Kalia of Northland Securities. Please go ahead. Your line is open..

Good afternoon, everyone. Thank you for taking my questions. Andrew, one for you and one for Rami. Andrew, just a price differential on the Senza II in Europe.

And Rami, how do you see the impact of the upcoming NICE guidelines or statement that they’re going to be putting out I believe in a week or so just in terms of impact in the UK and Europe in general. I’d love to get your perspective on it..

Sure. So, Suraj, we’re not going to comment any further on pricing strategies or Senza II just principally for obvious reasons. There’s just too much interest from our competitors on these calls that we don’t want to get into any further detail. And I’ll say the same goes for the NICE application.

I think until we have further clarity and decision, we’re not going to comment further..

Got it. Thank you..

Thanks, Suraj..

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

Great. Thanks, Cheryl, and thank you all again for joining the 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..