Thank you for joining Nevro’s Fourth Quarter and Full Year 2018 Earnings Conference Call. All participants are currently in listen-only mode. And now, I’ll turn the call over to Juliet Cunningham, Vice President of Investor Relations for Nevro..

Thank you, Judy, and thanks all for participating in today’s call. Joining me are Rami Elghandour, Nevro’s President and Chief Executive Officer; and Andrew Galligan, our Chief Financial Officer. Earlier today, Nevro released financial results for the fourth quarter and full year 2018 ended December 31, 2018.

A copy of that press release is available on the Investor Relations page of our website. This call is being broadcast live over the Internet to all interested parties and an archived copy of this webcast will be available on our IR page.

Before we begin, I’d like to remind you that management will make forward-looking statements on this call within the meaning of federal securities laws.

All forward-looking statements, including our discussion of operating trends and expectations of future financial performance, including full year 2019 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 differ materially.

Accordingly, you should not place undue reliance on these statements. Please review our filings with the SEC, including our quarterly report on Form 10-K, which we expect to file today for a full description of 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 because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of today, February 21, 2019.

Now I’d like to introduce Rami Elghandour..

Thanks, Juliet, and thanks, everyone for joining us today. I’m going to begin with a review of our fourth quarter and fiscal year 2018 performance, and highlight some of our accomplishments during the year. I’ll provide our revenue guidance for 2019 and conclude with details on our long-term pipeline and outlook.

Andrew will follow with a deeper review of the fourth quarter and full-year financials for 2018 as well as expectations for 2019. Then we’ll open up the call for your questions. Worldwide revenue for the fourth quarter was $107.9 million, an increase of 10% year-over-year [indiscernible] up 13%.

Fourth quarter international revenue was $16.3 million, which was a 1% increase on a constant currency basis. These results were driven by continued adoption and demand for our unique HF10 therapy and execution by our sales team. We delivered full-year revenue of $387.3 million, up 19% year-over-year.

In the U.S., full year revenue was $321.8 million, a 22% increase. International revenue was $65.5 million, a 2% increase on a constant currency basis. Underpinning our success in the last 3.5 years are our people and culture.

Our focus on innovation has led to the transformation of the SCS market and, in the process, we’ve built a substantial business and drove a majority of the market growth during this period.

We continue to advance our unique market strategy by strengthening the four pillars of our business, our differentiated technology; our track record of execution across the key disciplines of our business, commercial, R&D and operations; our best-in-class clinical evidence; and the platform applicability of our technology.

We continue to maintain exclusivity in delivering our differentiated technology by leveraging our deep and diversified IP portfolio. In 2018, we had a favorable ruling in our intellectual property lawsuit against Boston Scientific, resulting in Boston Scientific declaring that they have no plans to launch a high-frequency system.

Additionally in 2018, we had a significant litigation victory against Boston Scientific and that the U.S. Patent Office ruled that two key Boston Scientific patents are invalid via inter parties review. These patents were the cornerstone of Boston Scientific’s action against us in Delaware.

In a separate matter, last week, we initiated a lawsuit against Stimwave for patent infringement, reflecting our continued commitment to enforce our IP and maintain our exclusivity in the market. Our track record of execution has allowed us to touch the lives of over 40,000 patients.

To put that into context, 2,500 patients have benefited from HF10 at the time of our IPO, and that number has reached over 40,000 in only four short years. To broaden our reach, we also continued our investment in our commercial infrastructure, including substantial advancements in filling in our U.S.

sales leadership across the area leadership and regional director levels, as well as some key appointments in our European sales leadership. This week, we added Michael Carter as Global VP of Sales to our strong management team.

Michael has a long track record of success at Stryker and we’re confident that his leadership will strengthen our global commercial organization.

Beyond our commercial focus, our clinical evidence base continues to be a meaningful differentiator, positioning us to deliver unparalleled value across our stakeholders, including patients, providers and payors. Recently a global registry of long-term real-world outcomes in 1,660 patients receiving HF10 therapy was published.

The long-term responder rates were 78% and the overall explant rate in these patients was 3.7% for all-cause, with only 1.2% due to ineffective pain relief. These results are consistent with the results of our SENZA-RCT in terms of responder rates as well as explant rates.

In the SENZA-RCT, we demonstrated an explant rate that was less than half that of traditional SCS. This is a distinguishing feature for HF10 therapy that is relevant to all of our stakeholders. We also continue to advance our platform demonstrating positive results in a number of key feasibility studies.

We began enrollment in two RCTs and areas of unmet need, painful diabetic neuropathy and non-surgical refractory back pain. And we’re seeing momentum in diabetic neuropathy enrollment.

This year at NANS, HF10 was featured in 12 podium presentations and seven poster abstracts highlighting data from our emerging clinical pipeline, which reflects the investment and progress we made.

At NANS, we also introduced our freedom to do more marketing campaign, highlighting the ability to do more, more programming versatility, more pain types treated, and more patient support. This message was received enthusiastically from our customers and underscores the core differentiation of our Company to do more in support of our patients.

We made a lot of progress in just one year, and now let’s talk about where we’re going, both in the current year and longer-term. Beginning with 2019 revenue guidance, based on our current business outlook, we’re expecting full year 2019 revenue of $400 million to $410 million. I’d like to outline the current assumptions around these estimates.

In our international markets, we expect a flat year in constant currency due to the market dynamics in Australia. Specifically, while we continue to expect growth in Europe, offsetting that growth is the impact of the reimbursement changes in Australia that will begin in April of 2019.

It’s difficult to know at this point what that impact could be, so we’re taking a cautious approach at this stage. In the U.S., we expect to continue to convert competitive business and grow our position in the market. There are a couple of key factors included in our current U.S. expectations.

First, we’re assuming sales attrition will continue to be in line with med device industry benchmarks. We note that turnover has a higher impact on our business due to Nevro’s relatively new entry to the market, compared to our peers as well as the higher degree of rough dependence in our space.

Secondly, while our sales hiring and retention improved in the second half of 2018, with 41 net sales rep additions, we expect a cumulative impact of historical attrition, coupled with lower net hiring in the first half of 2018 to constrain our growth in 2019.

We’re confident that we have continued to bolster our commercial approach and have developed solutions to penetrate a broader segment of the market on our path to market leadership. In late 2019, we expect a new product launch that will allow us to bring to market the most versatile platform in SCS.

We’ve established Nevro as a significant player and HF10 as a superior pain therapy, and we’re excited to offer our customers the broadest set of solutions to make the biggest difference in the lives of their patients. As always, we will lead with HF10 first given its demonstrated superiority.

Beyond our new product, we expect our GPO contracts to improve access for our sales team and bring HF10 to more patients in need. We also anticipate DTC programs coupled with our new indications and products will also drive greater market growth and increase our share in the market.

We expect many of these initiatives to take shape in late 2019, positioning us for growth and market share gains in 2020 and beyond. We have historically shown we can drive market growth, and we expect to grow above market over the long-term. Further, our emerging clinical pipeline will allow us to truly expand the market.

We believe we can address a $4 billion plus market opportunity by starting with our existing U.S. market, which is approximately $2 billion today, and extending our platform to clinical indications that have been historically difficult to treat.

Beginning with upper limb and neck pain, painful diabetic neuropathy, as well as non-surgical refractory back pain, and building on additional indications such as post-surgical pain and pelvic pain. Ultimately, we believe other longer-term indications such as abdominal pain and deep brain stimulation could benefit from HF10 therapy as well.

These indications are currently in the early stages of development. In closing, while the past few years have brought us unprecedented success, I continue to believe the future is even brighter. We have a great product that truly gives people their lives back. We have an incredible group of people who are passionate and driven to make a difference.

One of the things that has quoted we are at Nevro, is everybody matters. Everyone in our organization has a voice and the ability to make a positive impact on our patients, customers and each other. We’ve successfully built a substantial business and have the product and indication pipeline that significantly expand the market.

We’ve demonstrated the ability to maintain exclusivity of our product against larger entrenched players. We’re finding new applications for HF10 every year and are excited about what our therapy can mean to many more patients in need.

We believe we can be a market share leader in a large and growing market over time based on the strength of our people, product and market opportunity. And we’re making the necessary investments and building the scale to realize our full potential. And with that, I’d like to turn the call over to Andrew..

Thank you, Rami. Revenue for the three months ended December 31, 2018 was $107.9 million, an increase of 10% year-over-year on a reported basis. U.S. revenue in the fourth quarter was $91.6 million, up 13% from $81 million during the same period of the prior year.

International revenue was $16.3 million compared to $16.9 million during the same period of the prior year. This represents a constant currency growth rate of 1%. European growth in the low-double digits was offset by weakness in Australia.

Gross profit for the fourth quarter of 2018 was $76.2 million or 70.5% gross margin, as compared to $69.5 million or 71% in the same period of the prior year. Operating expenses for the fourth quarter of 2018 were $84.8 million, an increase of 18% compared to the fourth quarter of 2017.

The increase in operating expense was driven primarily by increased headcount and related personnel costs. Legal expense associated with Boston Scientific litigation was $1 million for the quarter. Net loss from operations for the period was $8.6 million compared to $2.2 million for the fourth quarter of 2017. Now turning to the full-year 2018.

Revenue was $387.3 million, which represents growth of 19% as reported. U.S. revenue was $321.8 million, up 22% from $263.5 million in the prior year. International revenue was $65.5 million, up 4% from $63.2 million in the prior year.

This represents a constant currency growth rate of 2%, with European growth offset by weakness in the Australian market. Gross margins were 70.6% for 2018, compared to 69.7% for 2017.

Operating expenses for 2018 were $315.1 million or $296.1 million, excluding legal expenses in connection with the Boston Scientific litigation, which represents an increase of 24% from the comparable number in 2017. At the end of the fourth quarter of 2018, we had $264.5 million in cash, cash equivalents and short-term investments.

Cash flow from operations, excluding intellectual property litigation, was a positive $8.8 million for the quarter and positive $17.1 million for the year. Turning to our guidance for 2019. Nevro projects worldwide revenue for 2019 to be in the range of $400 million to $410 million.

We note that international revenue for 2018 in constant currency was $63 million and we expect to be approximately flat year-over-year on this constant currency basis. This was primarily due to European growth being offset by challenges in the Australian market. In the U.S.

market, we expect to see a slower first half of 2019 with higher growth in the second half of the year. As a reminder, our industry typically sees seasonality with higher fourth quarter and lower first quarter sales.

In addition, due to the impact of fewer sales rep hires in the first half of 2018, historic attrition and our stronger than expected fourth quarter 2018 revenue, we expect revenue to be flat year-over-year in the U.S. market in the first quarter of 2019, contributing to a slower start to the year.

For gross margins in 2019, we expect margins to be in the 70% to 71% range for the year. We expect operating expenses in 2019 of approximately $350 million to $360 million for the year, excluding litigation expense. We have hired and we’ll continue to hire experienced sales reps ahead of the revenue ramp and in support of our expansion of HF10.

We also plan to invest in commercial initiatives that we believe will accelerate our growth in the second half of 2019 and into 2020. We plan to continue investing in our clinical trials as well as product and waveform development activities. Accordingly, we expect the current R&D expense rate as a percentage of revenue to continue into 2019.

Finally in 2018, we managed our business to cash flow breakeven. We expect to use cash in our operations in 2019 as we invest in new initiatives to drive higher growth. I’ll now turn the call back to you Rami..

Thanks, Andrew. That concludes our prepared remarks today. Judy, please open up the call for questions..

Certainly. [Operator Instructions] Your first question comes from the line of Robbie Marcus of JPMorgan. Please go ahead. Your line is open..

Thanks, and congrats on a good quarter. Rami, I saw that you hired a new Head of – VP of Sales. Maybe you can tell us a little bit about him and what he’ll bring to Nevro, and then I’ll just give you my follow-up question here.

We did see in the fourth quarter, you talked about it in the third quarter call, but we saw it in the fourth quarter that the U.S. spinal cord stim market did slow down to around 8%.

Do you think that’s more reflective of the underlying volumes in the market and is that really the right way to think about this market on a go-forward basis still?.

Thanks, Robbie, for the questions. So the first question with respect to having Michael Carter, we’re really excited to have him on board. Obviously, we ran an exhaustive search and we feel like we landed with the right person. Michael brings a ton to the organization.

Starting with this background at West Point, he is a great leader and I think he’s going to do a phenomenal job of leading our broader sales organization. He spent many years at Stryker, and obviously, developed incredible experiences there both on sales, marketing, as well as broader experiences.

So we feel he brings tremendous experience and he’s going to invest in developing and growing our team. And we’re really, really excited to have him on board. As far as your second question around the U.S. market. Look, I think I’ll start on a high level.

We continue to believe this is an attractive market over the long-term, in large part due to the innovation we brought and the growth that we believe we can drive as I outlined at the outset of the call. I think that we provided our perspective, obviously, on the third quarter call, and at least in the fourth quarter that proves to be accurate.

And I think time will tell how that plays out longer-term, but I think at this juncture, I think we’re going to stick to forecasting and talking about our business and focus on that..

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

Just two quick financial questions and one follow-up here.

I’ll start, Andrew, can you give us any sense Andrew, when you think about your European business? What is the embedded assumption for the Australian market decline here as we can sort of figure out Europe versus Australia or just get a better sense of what your – what the baseline is? That was for Andrew.

And then Rami, it sounds like maybe 6%-ish type U.S. growth in more back to that 5% to 8% historical trend, your commentary sort of suggest that this is really just mostly rolling forward rep disruption.

Any other things to think about for 2019 in terms of pricing, changes in market growth that you point to other than just that roll forward effect of rep disruption you’ve talked about before? And then I have one quick follow-up..

Okay. So we haven’t given the breakout between Australia and Europe trends are disinclined to do it now, except to say that the reductions in built-in for the Australian market are substantial. And there is a lot of uncertainty, because nobody actually knows the magnitude of what will happen.

But we’ve built-in, I think, a very substantial decrease in the Australian markets. As we’ve said, we try to be cautious here. And over to you, Rami..

Yes. Thanks, David, for the question. Look, I think you’ve got that right, David. We’re obviously factoring in a variety of factors go into our guidance, but most notably, obviously, our internal dynamics and our trends in hiring and expectations around growth and so on.

So I think that’s partly right that it is predominantly driven by our internal view. But certainly, we take input in terms of the overall market dynamic as well as one of the several inputs, but not the primary..

Okay. And then Rami, just for me thinking about NANS, where the big strategic change was moving to a multi-modality platform for Senza. Could you give us any sense of sort of the early commercial response? I know you don’t have the full program available, but the early commercial response to having a 1,000 hertz tonic in HF.

And what kind of assumptions were built into the guidance for that kind of commercial response? Thanks so much guys..

Sure. Thanks, David. But I alluded to it on the call, I would say, in addition to our customers, I think our sales organization has responded and it was kind of extremely well to the new messaging.

I think we have to separate the new messaging from the new product launch later in the year, and so obviously as we said earlier this year, we expect the new product launch in late 2019. So that has a little bit more of value out, wait to it heading into end of 2019 and into 2020 pending regulatory approval for those.

The overall, I think, feedback is that the messaging has been very well received from a customer and a sales organization perspective. And we’re excited to build on it both this year from an execution perspective and as well as when we get our new product launch certainly continue that to get that leverage..

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

Hey guys, thanks for taking the question. I think it would be helpful, Rami, to just hear a little bit more about the cadence of growth in the U.S. in 2019 and more specifically the flat year-over-year growth in the first quarter, but down about 23% if my math is correct, sequentially.

So a little bit more color on why flat and what lifts the growth as we go through the year. And then I had a follow-up..

I’ll take a high-level response here, Larry, and then I’ll ask Andrew to weigh in more.

I think obviously, again a lot goes into our perspective on the quarter, and the two components at a high level are seasonality at which we historically have experienced as well as some of the dynamics we talked about in terms of rep hiring and sales turnover, but high level that would be the response. I’ll ask Andrew to weigh in..

I think that’s appropriate. Yes..

Right. And then, Rami, I heard your comment on the enrollment in the PDN trial. Any update there, when you think you can complete enrollment? Thanks for taking the questions..

Thanks, Larry. Not much of an update since last month. Obviously, we continue to be excited about the trend in enrollment. I think the thing that I would say that is a little bit more broad.

When we look at indications like PDN, not only are we excited about the pain relief we’re able to offer these patients who historically have been untreated by our limited options. We’re also really excited to see the impact of the therapy.

So in addition to pain relief, we’re seeing things like sensory restoration in these patients, which really speaks to our differentiated mechanism of action and the differentiation of the therapy overall. So we continue to be excited, enrollment continues to go well.

And I think, certainly, we’ll plan on having an update later this year on that indication and others..

Thanks for taking the questions..

Thank you, Larry..

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

Hi, I just want to go back to the quarterly gate. I recognize you don’t give quarterly guidance, but this seems an important year to understand how you start in the U.S. flat in the first quarter, and then given what you’re talking about your sort of 3% to 6% for the full year.

And how do I think about you gaining share in a mid-teens market based on your verbiage given those kind of growth rates?.

So I think the first part is you kind of nailed it, Joanne. We don’t provide quarterly guidance. We obviously are sensitive for the same reason you outlined, we want to make sure that these folks have a near-term visibility into how the business is going to progress.

Obviously, following the first quarter, we expect to build from there throughout the year. As far as the share gains, I mean, – look, I think when you look at 2018 as an example, there was a lot of questions throughout the year, we’re going to be a share gainer or not. And when you look at it retrospectively in the year, obviously, that was the case.

And so I think we’ll see how the Europe plays out from the other players in the market and then we can assess whether we are in that share gainer or not. I think that’s going to be best to analyze depending on how things play out.

I think we’re seeing a pretty dynamic market at the moment, I think we’re seeing prognostications that haven’t necessarily end up from others in a short period of time. So it’s hard to call. At this juncture, we don’t want to be in a position where we’re forecasting other people’s businesses.

So we’ll see how things play out and we can more readily answer that question and assess it later this year..

May I ask a follow-up please? The new Head of Sales, Michael Carter, what is he going to do or bring to the table that you are looking for? Thank you..

Thank you, Joanne. Look, I think from a prioritization perspective, if you will, we expect Michael to help drive us to market leadership at the highest level. More specifically, obviously he’ll start by getting to know our sales team and our customers, he’s a lead from the front sort of person. So he’s going to be in the field of time.

We expect him to help ensure that we execute on all the initiatives that we highlighted here. We feel like we have an incredible pipeline, both from a product and a clinical pipeline perspective that we need to execute on. And then certainly, he’s going to scale our organization again in concert and with our expectations are on him and our ambition.

And again I – from a leadership perspective and on an experiential perspective, he just brings a ton that we’re really excited about. And I can’t stress enough that we have a really strong group of sales leader – leaders across this organization and expect Michael to continue to invest in them and develop and grow them as well..

Thanks very much..

Thank you, Joanne..

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

Thanks.

Can you hear me okay?.

Hey, Bob..

Yes..

Great. Good afternoon. Hey. So I really just have one question and I wanted to ask sort of a big picture question on the growth outlook for your Company and your messaging, and I’ll keep it to the full year.

So just to go back like that, the messaging on the Q3 call was that you had some data points that suggested the market was growing in that 5% to 8% range. But you clearly said you thought Nevro could take share.

And then sort of after that, you said that maybe a 5% to 8% wasn’t quite a representative data point, maybe a little too bearish, but now you’re guiding to 3% to 6% for the whole Company for this year.

So I’m just trying to understand what’s changed because your commentary on rep turnover, I hear you, but you’re basically saying it’s not different than it’s been, and not different than the industry.

So from a – I’m just trying to understand from a full year perspective, what’s changed in your thinking? Is it more market growth or market share?.

Thanks, Bob, for the question. Obviously, we – you take every data point you can when you’re forming your view of the year. As we talked about, there’s a lot that you take in, right.

You have to factor in kind of what your position from boots on the ground and where that is, and sort of the impact of that, you have to factor in your incoming pipeline if you will, and when that’s going to play out and you factor in kind of the macro environment.

And all of those factors that is the reason we wanted to guide at this point in time is to have all the information available to give us the best position we’ve got for the year.

So I don’t know if I would describe it in from a change perspective and as much as we put a lot of thought into it with that, looked at all the various inputs and factors that we feel like we’ll have an influence on our perspective and guidance for the year, and this is our best perspective at this time.

And I think as I answered the previous question, how that plays relative to the rest of the market, I think 2018 was a good example, will be best – I think assessed, so once we have full information as the year plays out..

I mean maybe it’s just that there are some conservatism built in here. But I realize that it’s a dynamic market and there’s a lot of moving pieces here as we’ve discussed. But I just, it maybe – and maybe it’s a little bit of both. But I don’t know, I’m just trying to get a better understanding of how you’re thinking has changed about market and share.

Because it definitely seems like something has changed, like 3% to 6% relative to the way you used to talk about the market is obviously quite different. I’m just trying to wrap my arms around the moving pieces here..

Yes. Bob, it’s Andrew. I think we’re – you’re putting two things together that are subject to very different influences. One is the international markets and the other is the U.S. market. And in the third quarter, the number of 5% to 8% that we gave was for the U.S. market and the number of U.S. market turned out to be in that range.

And our guidance for next year is 5% to 8%. So I think there’s some consistency there. International has its own dynamic going on where we’re – as compared to our competitors probably, over-indexed in Australia and the issues there are causing it to counterbalance growth in Europe.

But there is two very, very distinct trends of influence that’s going on in those markets..

Got it. Thank you very much..

Thanks, Bob..

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

Hey, good afternoon, guys. Thanks so much for taking the question. Rami and team, I just had a quick question on the next gen platform. Just want to get a sense of how the product is different.

So is it a completely – is it just a software update? Is the IPG completely different? And where you are in the development process like has it been submitted to FDA already? What are the next steps for getting this product to market? That’s my first question.

And my follow-up is I assume, and tell me if this assumption is correct, that your 2019 guidance reflects pretty much no contribution from the flexible platform product. Is that correct? Thanks so much..

Thanks, Danielle. So in terms of the product or what’s different, pretty much the main thing that’s the same as the physical if you will, outside or the shape or the look of it, most everything else changes in a product like that. So it may look similar, but the fundamentals are changing. So that answers your first question.

And the second question is we don’t generally comment on when things are submitted are not submitted. We’ll provide an update once we have regulatory approval as appropriate. And then in terms of contribution, obviously, we said late 2019. So there’s – you can sort of figure out from there that’s not a meaningful part of what we expect for the year..

Okay. So just – sorry, one more follow-up.

So is the – the IPG is different, but it looks – it’s the same type of footprint is what you’re saying?.

Not the same form factors, the better way to put it, Danielle. So….

Okay, got it..

Most everything else changes..

Got it. Thank you so much..

Thank you, Danielle..

Your next question comes from the line of Isaac Ro of Goldman Sachs. Please go ahead. Your line is open..

Good afternoon, guys. Thank you. So, Rami, just want to ask you about the next-gen multi-model device. Was that product designed to be gross margin accretive to the core business? Kind of curious, how we should think about ramping that product line from a profitability standpoint..

The new product probably is going to be neutral now. In general....

Okay, thanks. And then....

Done that..

Okay, thanks. And just a follow-up on the expense side, Andrew. Can you help us think through some of the investments that your new Head of Sales may need to make? Curious, I’m sure it’s not just one person doing the job there. If there might be an incremental spend there to think about.

And then concurrent with that on the R&D side, how do you – how should we think about the spend for the next-gen products? Is that a kind of already – is the spend there kind of already baked into the current run rate for R&D? Could it taper or pickup as the year progresses? Just looking for a little bit of sequential guidance on the R&D line.

Thank you..

R&D line. Yes. The programs that we’ve been talking about in the prepared remarks are in that number. Then going back to the things that Mike want to do, I think we’ve probably done a reasonable job of contemplating that in the commercial budget for 2019..

Right. I think obviously, we don’t know how to say and how to direct it, but from a budgeting perspective, we feel like we’re in a good position to allow him the flexibility to do it..

Thanks guys. Thank you..

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

Hey, good afternoon guys. Thanks for taking the question. First one for me, maybe is just more operational and to just get a better sense of the accounts – the new accounts that you’re targeting, the new accounts that you’re adding, I think in NANS you had provided at least some color of the accounts yet in 2018, excuse me.

But as you guys continue to push into – getting into areas, maybe that you’re not in right now in the U.S.

Can you give us a little bit of a sense of the profile of those folks? Is it more difficult to get them try your product? And do they have longer sales cycles? Do they do it many cases maybe as the top guys since you initially targeted? And then kind of a similar question along the lines of the new GPO contracts that you referenced at JPMorgan, I think at the beginning of this call.

What are you guys assuming in terms of the impact of that whether on price for utilization?.

Thanks, Margaret. There is a lot in there. So we’ll do our best to capture it. So, I think you’re thinking about it the right way. As we kind of and we alluded to this as you can kind of get into a broader segment of the market, given the size of the business that we’ve built. There are variety of different factors that you have to work through.

So examples, there’s been a fair amount of consolidation and practices around the U.S., those larger practices can sometimes require more effort, longer sales cycle et cetera to kind of more fully penetrate.

But the same can be said for some of these accounts that are under these GPO umbrella that’s why we felt it was a good move to enter into those contracts, because there are a number of accounts and that are fairly substantial around the U.S., where we just haven’t had the same opportunity for access or hedging access challenges as we referred to in the past.

So I think there’s a combination of those things, depending on the customer, sometimes longer sales cycles, sometimes just pure access challenges and we feel like we’re doing a lot of different things, whether it’s from a contracting perspective, new products, different angles, growing the sales force to address those obstacles and challenges.

As far as the GPO contracts themselves, maybe Andrew, you can comment on that from a broader perspective, what we expect the impact might be..

I think – but that’s a lesson people can take from GPO contracts is what happens in other industries when they roll out there. But I think they’re designed to put long-term pressure on pricing in the industry as against that for an industry with very robust reimbursement.

And I think that’ll just roll out over the next few years as we – this industry becomes fully incorporated into GPO type contracting..

Okay. So maybe just a follow-up and kind of tag it back into the guidance that you guys have.

With that said, it sounds like maybe you are assuming a little bit of pricing headwinds, unclear to me whether or not you’re assuming utilization improvement from getting better access maybe, but it sounds like maybe at least a little bit within that, and correct me if I’m wrong.

And then as we kind of think about the sales cycle within these contracts, can you give us a sense of how big of a percentage of the market that is in the U.S. today, i.e., how much access you didn’t have.

And then as they roll out throughout the rest of the year, does that mean that we should see accelerating growth since utilization rise?.

Yes. Well, I mean from our viewpoint GPO contracts also provide us the opportunity to differentiate ourselves, because we have a superior technology. So that’s something that we will obviously try and bring to play from our entry into these contracts moment..

Yes, I mean, I think just to recourse what Andrew said, we – there might be some impact, but over longer periods of time. I think there might be some short-term impact, but it is meaningful to maybe slight. And yes, I think the way you’re thinking about it is right, Margaret.

I mean, there is a lot and I would say it’s not insignificant, the areas where we haven’t necessarily have access. And we’re excited about the opportunity at least to get over that hurdle and have the opportunity showcase our shift in our therapy and our differentiation.

So we haven’t quantified it, but it’s meaningful and what we feel like this is hopefully will be a good step in terms of allowing us to achieve our goal of market leadership..

Thanks guys..

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

Thanks. Just one for me at this point. You mentioned that global registry, 1,700 patients, and the explant rates that you saw. And from time-to-time over the last four years, we’ve had some noise about explant rates for HF10 versus other competitive technologies.

I just like to get your thought on how low those rates are and then how that – how you think that compares with the competition and what do you think explains that?.

Sure, Dave. Appreciate the question. But our therapy as we’ve said in the past and as our studies have demonstrated is nearly twice as efficacious as the alternative. So I think naturally it’s not a logical surprise that our explant rates are also less than half of alternatives as well.

I think we have – obviously, we’ve had this data and we want to make sure that the combination of both the real world outcomes and the RCT data together provide a compelling picture, which obviously you picked up on.

I think the best reference, if you’re asking specifically about how it compares, the only real reference you can compare to is in an RCT like ours or again we have less than half of the explant rate of traditional SCS, I think comparing outside of controlled stuff like that is more difficult.

In other words, I can’t comment on what the competitive real world explant rates are. All I can do is reference various highly controlled [indiscernible] RCT in the history of this space and I think that’s fairly..

Thank you..

Thanks, Dave..

Your next question comes from the line of Matt Taylor of UBS. Please go ahead, your line is open..

Hi, thanks for taking the question. So first, I just wanted to ask about the international guidance. I know that you had said basically it’s composed of European growth really. You haven’t given those splits in a while.

Can you give us a rough sense of how big those respective markets are and just how strong the growth could be in Europe, how it could be in Australia?.

So I think we’ve said in the past that the big markets are in Germany, the United Kingdom and Australia. We’re in other countries, but they – those are the big international markets that we participate in. We don’t actually participate across the board internationally. We have more limited rollout there.

And also that we are – the international market is primarily a primary cell market especially in Europe. So – and we continue to expect a modest growth in our European markets, and for that to be offset by a cautious – very cautious outlook on that what could happen in Australia with their pretty dramatic reimbursement changes..

And then a number of people have asked about this, but I wanted to ask more explicitly on the U.S.

So, when you talked about the flat start and then the growth implied by your guidance, is the primary variable there just the fact that you’ve had the net attrition and then now you’ve had a couple of quarters of net hires, you need to wait for those hiring trends to hopefully continue for those net hires to kind of catch up to your prior attrition.

Is that the right way to think about it? Or are there other big pieces that are going in to that ramp?.

Obviously, that’s the primary driver of the engine. As we said, there are a number of other things that we consider, but that’s the thing, hence the primary driver. So you are thinking about it in the right way, Matt..

Okay. All right. Thank you guys..

Thank you..

And your next question comes from the line of Suraj Kalia of Northland Securities. Please go ahead. Your line is open. Suraj, your line is open. And we will move on. Your next question comes from the line of Jason Mills of Canaccord. Please go ahead. Your line is open..

Hey it’s David on for Jason.

Can you guys hear me, all right?.

Yes..

Yes. First on the next-gen product launch kind of coming out toward the end of the year. Could you guys provide some color on kind of how you expect the marketing message around that to change going into the market. And whether or not you see kind of the introduction of the device leading more toward reacceleration of growth.

Or is it more kind of guided toward filling in specific patient populations or physicians who previously been kind of unwelcoming to that, single modality and or HF10 therapy?.

It’s a great question. I think it’s helpful to clarify that we’re establishing effectively the marketing message now and expect freedom to do more marketing campaigns and there’s some degree of that that we can do with the existing product, but obviously the new product will be able to do a lot more in that regard.

So the marketing message itself will not shift with the new product, that’s kind of shifting now and then the new product will, if you will, kind of build off of that launches.

And we do expect that we will have an impact on our growth profile and that as we – as again you’ve kind of get into a broader segment of the market, you face different mentality to conservatism, different sort of deals and we believe that this product will go well and be a driver of our growth when it launches..

All right, thanks. And then kind of regarding the P&L, you mentioned in the call that increase in spend this year is – you’re going to get spending here for the Company.

So would you kind of – how does that I guess effect over the long term or the mid term, how you think about the profitability of the Company? And whether, you see that the PDN launch coming into boost any type of leverage in the model there, and kind of how you think about at least profitability this year, next year and the PDN launch?.

Yes, I think, given that we’re going after a market that today we see approaching $4 billion. It drives us to increase investment so that we can actually take on that size market and develop it.

And what we’ve essentially done is we’ve taken the positive cash – really generated cash from operations in 2018 and that’s roughly the amount that we’re going to invest in 2019, so the two will balance each other out. But at this point, we don’t see any need to change any long-term goals that we have on the P&L. Thank you..

All right. Thanks everyone once again for joining the call today. We appreciate your continued interest in Nevro and look forward to our next progress update..

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