Nevro Corp (NVRO) 2016 Q4 法說會逐字稿

Good afternoon. My name is DeShan 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 2016 earnings call.

(Operator instructions)

I would now like to turn the call over to Katherine Bock, Senior Director of Corporate Development and IR. The floor is yours.

Thank you DeShan, 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, 2016. A copy of the press release is available on the Company's website.

Before we begin I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities laws which are made pursuant to the Safe Harbor provision 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 examination of operating trends and our future financial expectations which includes full-year 2017 guidance and our expectations of achieving 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 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 current annual report on form 10K, 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, February 23, 2017. And with that, I'll turn the call over to Rami.

Thank you Katie, and thanks everyone for dialing in today. For today's call I will start with a review of our fourth-quarter and FY16 performance and operating highlights. I'll then provide our revenue guidance for 2017 and conclude with the details on our commercial progress.

Andrew will follow with a deeper review of the fourth-quarter and full-year financials for 2016, as well as financial expectations for 2017. Then we'll open up the call for your questions.

Worldwide revenue for the fourth quarter was $70.5 million, an increase of 113% as reported compared to the same period of the prior year. US revenue for the quarter was $56 million, an increase of 183%.

Fourth-quarter international revenue was $14.5 million, representing an increase of 12% on a constant currency basis. These results are driven by continued adoption and demand for HF10 therapy globally and consistent execution by our sales team.

Looking back on 2016, 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 2016 we scaled the organization from around 300 to over 500 team members globally while maintaining our sense of purpose, passion, and teamwork.

Commercially we delivered full-year revenue of $228.5 million, an increase of 228% as reported. In the US revenue of $173.3 million represented an increase of 612% from $24.3 million in 2015. International revenue of $55.2 million represented an increase of 26% on a constant currency basis.

Building on our commercial success we made meaningful progress towards our goal of leadership in the neuromodulation field. There were a number of key business drivers.

First, we demonstrated the market expansion potential of our technology through the mix of patients treated thus far in the US as well as the impact we have had on the industry growth rate. We received FDA approval for our Surpass surgical leads ahead of schedule, which will allow us to broaden access to HF10 therapy in 2017 and beyond.

We raised gross proceeds of $172.5 million in a public offering of convertible senior notes, which puts us in a position of strength to continue investing in our business. We were also pleased with the publication of the 24-month SENZA-RCT results in the journal Neurosurgery. We believe this publication underscores the most robust long-term clinical evidence in the SCS space.

Finally, we launched litigation against Boston Scientific in order to protect our core innovation, HF10 therapy. We believe intellectual property is a cornerstone for innovation in health sciences and we are confident in defending our intellectual property.

Looking ahead to 2017, we are providing full-year worldwide revenue guidance of $310 million to $320 million. We started 2017 with a successful North American Neuromodulation Society, or NANS meeting, highlighting our clinical and scientific progress.

Dr. [Custer Amir Delfont] presented the three-month data of 20 patients from our upper limb and neck feasibility study, revealing an 83% responder rate in upper limb pain and 75% responder rates in neck pain. These results support the robustness of HF10 therapy and its potential to help many more patients in need.

Professor Steve [McFann] presented mechanism of action research demonstrating what we believe is a frequency dose response that reinforces the uniqueness of HF10 therapy and high kilohertz stimulation.

More broadly, we demonstrated the platform potential for our therapy and Company through several presentations and abstracts on new indications, such as nonsurgical refectory back pain, peripheral and diabetic neuropathy, chronic regional pain syndrome and chronic focal pain. These indications are in various stages of development, and we look forward to providing updates on our progress as the evidence advances.

Commercially, we remain committed to our controlled execution strategy in 2017, which allows us to focus on delivering on the promise of HF10 therapy while building a sustainable business. As we mentioned at the JPMorgan conference in January, there are three primary opportunities for continued commercial growth.

First, we continue to drive further penetration into existing territories by adding the resources to support growth. Second, we also continue to hire in order to fill our remaining empty territories in the United States. Finally, the launch of the paddle leads, which I'll will talk about momentarily, will provide an opportunity for growth in a market segment that was previously largely inaccessible.

As always, our success continues to be built on the unique advantages of HF10 therapy. It is the only therapy to demonstrate clinically meaningful superiority to traditional SCS.

It is the only therapy that has been validated against an active comparator in a pivotal randomized controlled study, and it is the only paresthesia-free SCS therapy on the market. Finally, it was demonstrated nearly twice the efficacy and responder rates as traditional SCS and other new low-frequency stimulation wave forms.

With respect to our paddle, we are now beginning the roll out of our controlled launch. As we have discussed on our prior calls, after securing FDA approval for the paddle in 2016 we identified a minor design improvement that will aid in the transition to full-scale manufacturing.

We submitted this change to the FDA and are pleased to announce that we have received approval for the related PMA supplement in January. We have been ramping manufacturing operations in preparation for our launch and look forward to expanding access to HF10 therapy to the surgeon community, which we believe performance approximately 30% of SCS procedures annually in the United States.

Internationally we continue to build upon our strong share position in our key markets and expect continued success based on the long-term results of HF10 therapy and performance of our outstanding sales team.

On the hiring front, in the US we ended the fourth quarter with 193 hired and trained reps, and that increase of 28 reps from the previous quarter count of 165. We are pleased that we have been able to overcome the seasonality of hiring during this particular quarter due to the positive feedback in the field combined with our own learnings on improving the hiring process.

Our minimum hiring goal for 2016 was previously 160, which we meaningfully exceeded. Our drive to exceed our hiring target has been a function of our success to date.

As we discussed previously, demand in the US market from early adopters coupled with greater territory density due to the treatment of back pain has limited our ability to continue to expand access to HF10 therapy. As a result, we needed to increase the pace of hiring to meet the demand in the market.

This concerted effort is reflected in our addition of net 93 sales reps during 2016, and we expect to continue hiring through 2017 as we work towards market share leadership. Going forward we do not intend to set a minimum target for the number of reps hired and trained in 2017, as we will continue to add headcount to support our future growth in the US market, given our scale and the opportunity ahead of us.

Internationally we ended the quarter with 69 sales reps trained and in the field, and we continue to add field support as needed. Additionally, we have continued investing in our commercial infrastructure internationally in order to drive further adoption of HF10 therapy worldwide.

In closing, a little over two years ago we became a public company. In that time we have grown in revenue from $32.6 million in 2014 to $228.5 million in 2016.

We did this by demonstrating across our organization that we are capable of taking in innovation and making it a market-defining and leading technology. We expect to build on our success by continuing our strong commercial execution and by leveraging our organizational ability to develop and launch meaningful products through our robust pipeline.

Ultimately our story is about people, the passionate people in our organization who are committed to delivering breakthrough evidence-based therapies that transform patient lives, and the physicians in our communities that are committed to bringing the very best therapies available to their patients. This collaboration with a core focus on patient outcomes is allowing us to have unprecedented success while bringing meaningful benefits to our people, physician partners and our communities.

We look forward to sharing our continued progress in this fulfilling journey. And with that, I would 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, 2016 was $70.5 million, an increase of 113% year over year on a reported basis. This increase was primarily due to the continued success of the US launch of HF10 therapy.

US revenue in the fourth quarter was $56 million, up 183% from $19.8 million during the same period of the prior year. International revenue was up 9% to $14.5 million from $13.3 million during the same period the prior year. This represents constant a currency growth rate of 12%.

As we've previously stated, we have expected for some time the constraints such as capitation and increasing market share in international markets would result in a moderation of international growth rate. We have seen this throughout 2016, including the fourth quarter.

Gross profit for the fourth quarter of 2016 was $48.8 million, or 69% gross margin, as compared to $20.4 million, or 61% gross margin in the same period of the prior year. Gross margins increased year over year primarily due to fundamental cost improvements, and were consistent with our guidance for the fourth quarter. As we continue to grow revenue we additionally expect to expand gross margins by improving efficiency and further leveraging our manufacturing overhead.

Operating expenses for the fourth quarter of 2016 were $55.1 million, an increase of 65% compared to the fourth-quarter of 2015. The increase in operating expenses was primarily driven by increased headcount and related personnel expenses, sales and marketing cost and investments in clinical trials and development activities.

Legal expense in connection with the Boston Scientific litigations was $1.3 million for the quarter. Net loss from operations for the period was $6.3 million compared to $13.1 million for the fourth-quarter of 2015.

Now turning to the full-year 2016. Revenue was $228.5 million, which represent growth of 228% as reported. US revenue was $173.3 million, up 612% from $24.3 million in the prior year.

International revenue was $55.2 million, up 22% from $45.3 million in the prior year. This represents a constant currency growth rate of 26%.

Gross margins were 67% in 2016 compared to 60% in 2015. Operating expenses for 2016 were $176.2 million, an increase of 70% compared to 2015.

On our third-quarter earnings call we anticipated that operating expenses for the full year would end at approximately $170 million, plus or minus several million dollars. We ended the year higher than this forecast due to litigation costs, the expansion of our sales force and marketing activities, as well as an acceleration in spending on our R&D investments which previously lagged our expectations. At the end of the fourth-quarter of 2016 we had $276.4 million in cash, cash equivalents, and short-term investments.

Turning to our outlook, we are providing guidance for 2017. We anticipate worldwide revenues for FY17 to be in the range of $310 million to $320 million. We would like to highlight some important factors to help ensure our US launch to date performance is taken in the appropriate context.

At our size and scale, we believe year-over-year growth is the appropriate way to evaluate our business relative to the field, and we are impacted by seasonality similar to our peers. In the fourth quarter SCS revenues in the US are seasonally higher, driven in part by patients using their deductibles at the end of the year.

The first quarter is typically down from the fourth quarter. While we expect strong year-on-year growth in the first quarter of 2017, on a sequential basis we expect it to be in line with the fourth-quarter of 2016. Additionally, similar to 2016, we expect that international revenue will be down in the first quarter of 2017 on a sequential basis due to seasonal trends.

As we have previously indicated, our US revenue was driven primarily by hiring. Our limitation of feet on the street due to our slow hiring in Q4 of 2015 and Q1 of 2016 has limited some of our upside potential in Q4 of 2016 and Q1 of 2017.

We believe we have addressed this situation by leaning more heavily into hiring in the back half of 2016, as is reflected in our higher hiring numbers. It is also worth noting that our mix of reps without prior SCS experience has increased.

We are still projecting productivity in the range of an average of $1.3 million to $1.5 million per rep after 12 to 15 months. To date productivity has been positively impacted by the uptake of early adopter accounts. In 2017 we expect productivity to be more in line with our guidance.

For gross margins in 2017 we expect to end the year at approximately 70%, with progress towards this number during the year. With regard to our operating expenses for 2017, we expect operating expenses to trend upward to a total of approximately $225 million to $235 million for the year. We plan to continue hiring experienced sales representatives to support the roll out of HF10 therapy, and plan to continue investing in our clinical trials and development activities.

Regarding profitability. Many of you have seen the data we presented at the JPMorgan and NANS conferences in January, and have realized the opportunity it represents for our future. We intend to increase our investment in clinical trials and research and development, and therefore we do not expect R&D to decline as a percentage of revenue in 2017.

Furthermore, we have hired and will continue to hire sales reps ahead of the revenue ramp. As a result, our metric for achieving profitability is no longer in the [time] $200 million to low $300 million revenue run rate, and is now expected to occur in the mid-$300 million revenue run rate. Now back to you, Rami.

Thanks, Andrew. So that will conclude our prepared remarks for today, and now we will open up the call for your questions.

(Operator instructions)

Mike Weinstein, JPMorgan.

Good afternoon guys, and congratulations on another strong quarter. I wanted to start with a couple of topics, and just make sure we are on the same page.

The hiring pace over the back half of the year was obviously greater that we all expected going into it, including this quarter you just reported. You are being cautious relative to your commentary on the first quarter just because of the seasonality of the business.

But you have been hiring very aggressively and that has tended so far to be our best indicator of your outlook for the business and your optimism. So do you want to just expand on that a little bit on the commentary about 1Q been sequentially flat revenues and the seasonality of the business where 1Q revenues are down versus the aggressiveness of the hiring the last three to six months?

Thanks, Mike. Yes, I really would keep emphasizing that it takes a long time for a rep to actually move up the productivity scale. It is not really linear.

The first couple of quarters actually have very low revenue; the first quarter in the field is not really essentially. It really does take until they have been in the field a good year before they are really productive.

So the people we hired in Q2 of 2016 really should start hitting their stride in Q2 of 2017. I think as we said in our prepared remarks, we expect some lead into the first quarter of 2017 of having some loss of a shortage of feet on street at the present time, and that is why we have a pretty cautious outlook for Q1.

I think just to build on Andrew's point, Mike, the hiring in the fourth-quarter of 2016 is really to set us up for success at the back end and beginning of 2018. We obviously, as we mentioned, felt limited this past -- in the fourth quarter and somewhat in this first quarter by the slowdown in hiring at the end of 2015 and early 2016, and we certainly don't want to have to go through that again.

Okay. And just to be clear on this, is my question. You are effectively guiding to ahead of where the Street is at, but obviously this was another strong quarter, so just trying to gauge the commentary around the business.

Let me, if I can, just ask about competition. There was effectively a lot of noise around the competitive issues this past quarter, almost feels like there is every quarter, but there was certainly this past quarter.

Can you just talk about a little bit about what you're seeing competitively, and if you could divide it OUS, where obviously we saw some slowdown this quarter, versus US? And anything new you want to add on the litigation front would be great, as well. Thanks.

Thanks, Mike. Yes, nothing on the litigation front. Obviously our position is no comment, as always.

In terms of competition, look, it's an intensely competitive space. I think there is there a lot of noise, and frankly misinformation out there, which is something that we increasingly continue to battle. To a large degree, our success obviously has merited from our competitors increasingly stronger responses, right, in terms of their campaigning and, again, misinformation.

I would not say that there is anything particularly new that we are up against internationally or in the US. I would say that it is just more of the same and it is just happens to be intensifying, I think as a direct result of our success.

David Lewis, Morgan Stanley.

Good afternoon. Just a few quick ones for me. Andrew, there is one thing in your prepared remarks that some of your competitors have talked about here the last few weeks, but you did not mention in terms of this fourth quarter/first quarter dynamic, so I wanted to get your thoughts. NANS did come a month later, fourth to first quarter this year.

Some have talked about that creating greater surgical days in the fourth quarter versus the first quarter, and could have been several surgical days. Your peers have said that was some factor. Is that kind of weighing on this fourth quarter/first quarter dynamic, or is that just more noise in your view?

I think at our growth rate that is just noise, a few hours additionally here or there are not going to make much difference at our growth rates. If you are at their low growth rate, things like that matter. We have not gotten to that point yet.

Okay. Then maybe just one for you, Andrew, on international and then I'll come back to Rami to finish up. International, Andrew, you've been saying this for several years, and this is a much tougher comp internationally here in the fourth quarter. Should we now think about the international business as sort of a more of a kind of a low double-digit grower?

Is that the new way, kind of a 10% to 15% type of growth business? Is that the better way to think about this business going forward?

Yes, we're saying high single, low double. Yes, that's where it is now.

Okay. Then Rami, the big focus of NANS for you guys this year, which is different than prior years, was really your new market penetration. So I wonder if I talked to most doctors, even doctors that typically have been competitively dominated doctors, there was a lot of interest in cervical post, the ULN data.

Couple of things. What have you seen on cervical trialing, because we got this lot of feedback that we are going to go back to the office and try some cervical implanting. What have you seen post NANS on cervical implanting post ULN? And then when are the clinical next steps from an ID perspective or to build up that ULN data? Thanks, and I'll get back in queue.

Thanks, David. Look, I think it is a little bit too early to call it. I would agree with you, I think there is a lot of interest in cervical. The interesting thing for us is we find that there is a lot of interest and it does not always translate into volume.

I think there is enthusiasm because these physicians are, particularly pain physicians, are very patient-centric. That is why they, a lot of them have chosen to get out, for example, from anesthesiology into pain fellowships.

Even if they have a handful of patients, they might feel really excited that they can finally help those patients. But whether that translates into broader volume, I think is a little too early for us to tell.

In terms of next steps, I think we talked about this previously, that we are assessing the best regulatory and long-term reimbursement path. We will certainly update the Street as we make more progress on those ends.

Bob Hopkins, Bank of America.

Thanks, and good afternoon. Can you hear me okay?

Yes, Bob.

Great. Good afternoon. Just to be clear on the Q1 guide, sorry if I missed this, but your consensus right now is down about $3 million to a little over $67 million. Is that kind of what you're referring to, is that a good number, or are you talking about even greater seasonality than the Street's modeling currently?

I don't think -- I mean, just to reiterate what we said in the prepared remarks is we expect international to be a little bit down on the prior Q4. And when it comes to the US that we expect to be roughly where we were in Q4.

Okay, all right. It sounds like the Street is where it needs to be, or perhaps even a little conservative on Q1 relative to your thoughts there. Then I was wondering if we could talk a little bit more about some of the things we're hearing out of NANS.

We've been talking to some physicians, and David was referring to this a minute ago. But one of the things we've heard that I found interesting was that on the, especially on the upper limb part of ULN, that docs are seeing a lot of demand and actually getting reimbursement. I'm curious if you could comment on that as an opportunity in 2017? Are the docs we're talking to one-offs and maybe not representative of the broader community, or is upper limb a great opportunity for you in 2017?

Thanks, Bob. Yes, I think upper limb is interesting in that you will find centers that tend to do a relatively high volume of it, but it does not necessarily broadly translate. I think in that regard there might be a little bit of sampling error. I think it depends on who you sample, you can wind up coming up with really small numbers or really big numbers.

We do certainly see centers that have high interest that are able to get reimbursement based on where they are and have the corresponding volume. But it does not necessarily translate as broadly as, say, obviously the back pain opportunity.

You are going to NANS, which is the leading tradeshow. So it is a biased sample. You have the more leading edge of the profession there. I think you should be very careful about extrapolating anything you hear at NANS.

Danielle Antalffy, Leerink Partners.

Good afternoon, guys. Thanks so much for taking the question, and congrats on another great quarter. Just a quick follow-up on the international performance.

Just wondering if you're seen any change in competitive detailing? There's been some more noise about Boston Scientific actually having availability of high-frequency internationally.

Are they doing anything different there as far as you can tell? And maybe talk about some of the other competitors. Is this really just a market-driven broader slowdown, and is it more specific to Europe or Australia or is it everywhere?

I think the fundamental issue there is really one of capitation and I can, just from personal experience, know that you are running into where hospitals in Germany or hospitals in other countries are just at the end of their budget. It is just they have a certain amount of money to spend and that is the way their systems work.

We have kind of reached that point. I think there is a lot more competitive activity in the primary sell part of the market where Boston has introduced a new product. I think a lot of their progress internationally is in that primary sell area, but that is not really very applicable to us.

Okay, that makes sense. Thanks for that. Then in the United States, if we think about your sales force productivity ramp, can you guys give any color on where you are relative to higher volume users and how penetrated you are to -- maybe not how penetrated into those accounts, but how many accounts do you cover at this point and how that translates into volumes? Can you give any color there, or no?

No, we have not really gotten into that, as you know, Danielle. I will say that even if we were to get into that, there is so much still Greenfield opportunity ahead of us in terms of territories where we haven't even planted a flag yet. I'm not -- one, we have not gone into it, and two, I'm not sure that would be the best way of viewing our business anyhow.

I think over and over, I think we are stressing that it really just comes down to the feet on the street and [network] activity. That's been a tried-and-true way of seeing our business, and I think for simplicity and accuracy we will stick with that.

Dave Turkaly, JMP Securities.

Hi, Dave.

How are you guys? Just on the hiring process, I believe you have a pretty hands-on process. I was wondering if you could just kind of remind us of that. I know you didn't want to give maybe a specific number, but does 100, given the process you are using now, on an annual basis seem like sort of a limiting factor, something to that magnitude or is there a way you can accelerate your process?

I think we have accelerated our process, Dave. I think we feel pretty good about it. You have to understand that -- so going back, prelaunch literally our full-time job to some degree was just hiring.

As we actually start to run our business, hiring becomes one function amongst many in terms of delivering the results that you are seeing here, not the commercial results but the results that we are delivering from an R&D, clinical, et cetera perspective. So I believe with that context we have seriously accelerated our hiring in that we are able to match launch level hiring while delivering on a multi-faceted business at an exceptional level.

We feel very good about that. I'm not sure that we can -- we're certainly competitive, so we will do our best but not sure there is a lot more we can squeeze out of it here.

You got to keep yourself busy. Just one more. Clearly it's not having an impact on your revenue ramp, but to the extent you are willing to share, any updates on the insurance front?

No update at this time. We do continue to work on the -- with those certain Blue Cross/Blue Shield plans that are holding out. Look, I will stress again that we believe we have the best available therapy for patients, for chronic pain patients, and we believe that would be a benefit to their covered population to have this therapy available. Will continue to certainly push and make progress along those lines.

Joanne Wuensch, BMO Capital Markets.

Good afternoon. It is actually Matt Henriksson in for Joanne. Our first question is with regards to the paddle leads, and as you guys are doing your controlled rollout how should we look at the [2007] guidance, especially the second half of the year?

You should look at it as the guidance for the year. That incorporates everything that we know when we set the guidance. Remember for us, we are not deviating from our core strategy, which Andrew and I both mentioned, and that involves making sure that we are set up to provide the best support for our physician, customers, and our patients.

And the paddle will be incorporated in the same way that we've continued to roll out the product over the last two years. So we feel like that is inclusive, certainly, of the guidance provided.

My follow-up question is, as we're getting to $300 million for 2017, in that guidance range, are you guys going to need to sit down and start reevaluating your third-party manufacturing relationship as the revenue ramp continues to grow?

No, I think one of the advantages of the way we are set up is that we are using high-volume manufacturers to where we represent a very small part of their capacity. The beauty of I think our strategy to date has been the flexibility of our manufacturing, or outsourcing strategy. It's worked very well to date, and we continue to have confidence in it.

Larry Biegelsen, Wells Fargo.

Thanks for taking my question. Let me ask one on the paddle lead and one the competition. Just on the paddle lead, can you confirm that you are not supply constrained? Are there accounts that have explicitly told you they're interested in using HF10 but would consider Senza until you offer a paddle lead? Just asked another way, is there a backlog of docs you think that are waiting to trial HF10 with the new lead? Then I have one follow-up.

Sure. From a supply perspective we are continuing to build inventory, so at this juncture we certainly don't -- we would not have the capacity to cover the breadth of the market, but that will build as we scale throughout the year. Then in terms of the backlog question, I would think of it less as a backlog and more as there are physicians who -- it will give us more opportunities to implant particularly in some territories.

I think we've talked about it, in certain territories the paddle volume is sufficiently happy that our reps would be constrained in those territories in terms of the accounts that they may be able to go to. We believe in certain territories it will be certainly advantageous in terms of account selection to have the paddle available.

We are looking forward to it from that perspective. But I would not say that, that is a nationwide sort of dynamic, but it certainly on a territory-by-territory dynamic will be a valuable addition.

Thanks, Rami. It seems like Abbott and Boston are marketing their respective devices' abilities to provide different types of stimulation and toggle back and forth between wave patterns. You have a one size kind of fits all approach with HF10.

How do you address that with physicians who want more options, and why not give clinicians the option to use tonic in the event that a patient does not respond to HF10? Thanks for taking the questions.

That's a great question. So the way I -- the analogy I like to make is, that if I give you a remote control and I put you in front of a television and you have a bunch of mediocre things to watch, you're probably going to pick up that remote and cycle through the channels because there's anything you particularly want to settle on. But if I ask you to put something on that you actually thoroughly enjoy, for me that would be Seinfeld, I'm probably going to put down the remote and just watch it for a while.

So we have something that we believe is obviously, and has been demonstrated to be clinically superior for a broad set of patients. And given that therapy option, patients do not have to cycle through. I think our competitors, given that they generally have some suboptimal therapies available, it makes sense that the way to supplement that is to give the patient a number of different options then let them cycle through in hopes of providing an overall satisfactory solution.

So that is one answer to the question. The other one is certainly HF10 is not a panacea, it doesn't work for every single patient despite having a very, very high success rate.

So we do look at other opportunities, and we don't talk about them enough, but we certainly have other programming algorithms and other ways that we can address patients who don't initially respond. And I do think that is something we increasingly, from a sales and marketing perspective, need to communicate and talk about in order to inform physicians that it's not just as simple as we have one therapy and there isn't the opportunity and complexity in order to be dealing with a complex patient population.

Thanks for taking the questions, guys.

Thank you.

Margaret Kaczor, William Blair.

Good afternoon, guys. First question for me is in terms of the number of sales reps, and I believe you guys have historically guided to a long-term number maybe in the mid-200s. You're close to 200 right now, so how has that range changed and why or why not? Just as we look at 2017, should it flow to the share comps of what you guys have done in 2016?

Yes, in terms of the hiring, correct? Yes, I think we talked about this before. During the IPO we had not really proven the market expansion component of our story.

We certainly were confident in it, but it wasn't something that we can back up with data and so we had set a conservative target in the way we communicated, was we felt our sales force would be at the bottom end of the range of our competitors. I think now that we fully demonstrated the back pain component of our story it is clear that our sales force will be just the function of how much overall revenue we think, and how much share, and market expansion we can combine generate in this market. And so we currently don't have a particular ceiling on that. It's just whatever revenue target or share number you think we can get to divided by the $1.3 million to $1.5 million.

Then should it flow in 2017 to the comps in 2016, or again that's not really how you guys are looking at it, it is quality of reps?

We are looking at a pretty significant opportunity ahead of us so we want to continue to hire as it makes sense. I think for us we, as you know, are a very analytical and data-driven Company. So we will continue to kind of monitor the progress through the year and hire accordingly.

Okay. Then just one more for me. You guys didn't talk too much about that new NICE guidelines, and I understand it won't be a big impact for you guys, just given the size of the UK market. But are there any other examples of conversations that you maybe had with other payers on evidence-based medicine and how SCS maybe can be part of the solution for patients with neuropathic pain? Thanks.

Yes, I think we, in our prepared remarks, talked about how we have been increasing some of the marketing and other resources in Europe. That is something that we are actively working on. We talked to the national payers and take advantage of their emphasis on evidence-based medicine to try and advanced SCS as a therapy in this market, but it takes a long time.

Thanks.

Suraj Kalia, Northland Securities.

Good afternoon, everyone. Thank you for taking my questions. Rami, Andrew, congrats on a great quarter. I know this question has been asked, so I don't want to belabor the point. But let me ask from a different flavor, Rami, if I could.

The numbers I heard is 183 reps end of Q4 in the US, 69 OUS. We can do the math on the productivity part of the equation.

I guess Rami, if you could answer from a slightly different perspective, how many of these reps that you are hiring are hard-core spinal cord stem reps? In other words, they are taken from a Medtronic or BSX or whomever versus neuromodulation therapies for other segments, urinary incontinence.

I guess what I am trying to understand is, is there a threshold where the incremental rep coming in, you would have to kind of go into other segments, hence your productivity curves can start flattening out. I hope my question made sense.

Thanks, Suraj. First, just a correction. It was 193 in the US, not 183. Look, we've spent a lot of time on the hiring process. And what I will tell you is that what we are finding is that the prior experience is less predictive of success in our environment then basically just the drive to build something that competitiveness, the ability to sell the data, and those sorts of factors.

As we talked about the mix that we've -- of late has shifted to more than non-previous SCS folks. And I think that is a reflection of our learnings and our focus on more the attributes that we feel lead to success versus the particular background in SCS. I cannot really get into the breakdown for obvious competitive reasons, but hopefully that answer gives you a little bit of insight into our thought process on the matter.

There are no further questions over the phone. I will turn the call back over to the presenters.

Great. Well, thank you very much for dialing in today, and again we look forward to future updates.

Thank you.

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