Nevro Corp (NVRO) 2017 Q1 法說會逐字稿

Good afternoon. My name is Leandra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Nevro First Quarter 2017 Earnings Call. (Operator Instructions) Thank you.

Ms. Katherine Bock, Senior Director of Corporate Development and Investor Relations, you may begin your conference.

Thank you, Leandra, and thank you all for participating in today's call. Joining me are Rami Elghandour, President and Chief Executive Officer; and Andrew Galligan, Chief Financial Officer. Earlier today, Nevro released financial results for the quarter ended March 31, 2017. A copy of the press release is available on the company's website.

Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meanings of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Any statements contained in the 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, expectations with regards to future product enhancements and releases as well as our future financial expectations, which include full year 2017 revenue and expected guidance, are based upon current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission, including our annual report on Form 10-K filed on February 23, 2017, and our quarterly report on Form 10-Q, which we expect to file today.

Nevro disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 8, 2017.

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

Thank you, Katie, and thanks, everyone, for dialing in today. We've had a strong start to the year in positioning Nevro for near and long-term success by expanding access to HF10 therapy through the launch of our Surpass surgical lead, scaling our commercial organization and investing in leveraging our proprietary platform to investigate new clinical applications.

That said, our U.S. revenue in the first quarter fell short of our expectations. We believe we've identified the contributing factors, which I'll talk about shortly and which we are in the process of addressing. We remain confident in our business and are reiterating our worldwide revenue guidance for the full year of 2017.

Earlier this afternoon, we reported worldwide revenue for the first quarter of $68.4 million, an increase of 64% as reported compared to the same period of the prior year. U.S. revenue for the quarter was $53.1 million, an increase of 80%.

First quarter international revenue was $15.3 million, representing an increase of 30% on a constant currency basis. These results were driven by the continued global adoption of HF10 therapy. In the U.S., we saw strong growth from our most recent classes of hires to reach their fourth and fifth quarters in the field. However, our Q1 results were affected by greater-than-expected seasonality, coupled with growing pains relating to scaling.

Specifically, the expansion of our sales management team did not keep pace relative to the rapid growth rates we've experienced. We believe this impacted our execution in Q1, particularly with respect to business planning and customer engagement in some of our existing accounts. We have taken steps to improve execution as we scale our sales organization in order to broaden access to HF10 therapy.

Over the past 2 quarters, we've added to our sales management team. With our expanded team, we are resourced to maintain focus on our existing accounts as we scale. As always, we are focused on continuous improvement, and we'll continue to strengthen and support our team. Our U.S. sales team has done a tremendous job of driving rapid market adoption, and we remain confident in our team and our business both this year as well as over the long term.

On the hiring front, in the U.S., we ended the first quarter with 232 hired and trained reps, a net increase of 39 reps from the previous quarter count of 193. We have doubled down on our hiring efforts and are pleased to have been able to invest in the expansion of our U.S. sales force as we worked towards covering the broader U.S. market. This new class of hires positions us for success in 2018 and beyond.

Internationally, we have continued to build upon our strong share position in our key markets. Underpinning our strength in Q1 were strong performances in Europe and Australia. This performance is a credit to our outstanding sales organization, which continues to demonstrate the long-term benefits of our therapy. We ended the quarter with 71 international sales reps trained and in the field, and we continue to invest in our team as needed to support our growth.

With respect to the launch of our Surpass surgical lead, we are pleased to announce that after receiving approval for the PMA supplement in January, our controlled launch is underway. To date, feedback on our surgical lead has been very positive, most notably with respect to reproducing the clinically superior outcomes of HF10 therapy.

On the operations front, we believe the design change successfully addressed the yield issues we experienced, and we are continuing to ramp inventory to meet demand in the market. From a market perspective, our sales team continues to be busy engaging in the account opening and onboarding process, which was a particular area of focus for us in Q1. We are excited to broaden access to HF10 therapy to our surgeon community and have been very pleased with our early experience thus far.

On the topic of R&D, our product pipeline is progressing in line with our plans. We are working on a number of product enhancements that we believe will strengthen our portfolio and business. First, we are planning to launch a new smaller profile IPG in the next 12 months. We believe this new product will provide a number of benefits to our patients, customers and business.

Additionally, we continue to pursue MRI compatibility for our system -- enhanced MRI compatibility for our system. As a reminder, our product currently supports MRI compatibility for the head and extremities for 1.5T and 3T machines, which retroactively applies to every patient implanted with the Nevro system, a significant advantage to our approach.

On the clinical research front, building on early evidence suggesting that painful diabetic neuropathies can be effectively treated with HF10 therapy, we are initiating a larger randomized, controlled trial to generate Level I evidence in support of this patient population. We view this as a potentially meaningful opportunity and are excited to again lead the field in pursuing the evidence needed to advance patient care.

While the SCS market is increasingly competitively driven by studies that focus on product feature differentiation, we continue to commit resources to expand and enhance patient care through meaningful clinical evidence and new indications. As you recall, promising early preliminary results were presented at the 2017 NANS meeting in January. Stay tuned for an update on our progress with this initiative with respect to study design and time lines.

In terms of reimbursement, we have positive news to report. Blue Cross Blue Shield has updated their evidence review on SCS and concluded that high-frequency SCS results in a meaningful improvement in net health outcomes. This is a reflection of the strength of our clinical evidence base as well as the efforts of our market access team.

With this update, Blue Cross, one of the largest policymakers in the U.S., now considers HF10 therapy to be a technology that can benefit patients and that is, therefore, appropriate for regional plans to reimburse for the technology. As you may recall, a small number of Blue Cross regional plans did not cover HF10 therapy. We have already heard from some of those plans that they plan on adopting the updated policy starting June 1, and we are working to ensure the small number of remaining regional plans do so as quickly as possible.

We are pleased that HF10 therapy and the clinical evidence base supporting it have been validated by another independent agency and that it is covered by all major commercial payers in the U.S., providing more patients access to this clinically superior therapy.

In closing, I remain excited about the impact of HF10 therapy on the patients we serve and the physicians we support. It is clear we have reinvigorated the SCS market, and I remain confident in our ability to establish a global leadership position in this space.

Our team has built a strong foundation over the last 2 years. In this short time, we have continued to grow internationally, established the substantial U.S. business and scaled our organization in a way that maintains our entrepreneurial culture and values.

Additionally, we have worked towards delivering on the promise of neuromodulation by investing in meaningful new indications, which we believe will continue to set us apart in the field. We will lead by delivering a superior therapy that truly makes a difference in patients' lives across a range of meaningful indications.

I know the talented Nevro team is up to the challenge of building on the great foundation we have established and reaching new heights.

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

Thank you, Rami. Revenue for the 3 months ended March 31, 2017, was $68.4 million, an increase of 64% year-over-year on a reported basis. This increase was primarily due to the continued global adoption of HF10 therapy. U.S. revenue in the first quarter was $53.1 million, up 80% from $29.5 million during the same period of the prior year.

Back in February, we forecasted that on a sequential basis, our U.S. revenue for the first quarter will be more in line with the fourth quarter of 2016. However, as Rami noted, our U.S. revenue for the quarter came in below our expectation.

International revenue was up 26% to $15.3 million from $12.2 million during the same period of the prior year. This represents a constant currency growth rate of 30%. Both Europe and Australia did well in the quarter.

As we've previously stated, we believe that the international market is subject to capitation constraints, which will result in moderation of our international growth rate over time.

Gross profit for the first quarter of 2017 was $46.4 million or 68% gross margin as compared to $26 million or 62% gross margin in the same period the prior year. Gross margin increased year-over-year, primarily due to fundamental cost improvements. Sequentially, gross margins were down slightly due to an additional $1 million write-down of inventory that did not conform to our product requirements. Absent that, margins would have been in line with the fourth quarter.

Operating expenses for the first quarter of 2017 were $59.4 million, an increase of 70% compared to the first quarter of 2016. The increase in operating expenses was primarily driven by scaling the organization for the increasing size of our business. Legal expense, in connection with the Boston Scientific litigation, was $2.4 million for the quarter.

Net loss for operations for the period was $13.1 million compared to $9 million for the first quarter of 2016. At the end of the first quarter of 2017, we had $264.1 million in cash, cash equivalents and short-term investments.

Turning to our outlook. We are reiterating our worldwide revenue guidance for 2017. We continue to anticipate worldwide revenue for 2017 to be in the range of $310 million to $320 million, as we announced back in February, and expect productivity in the range of an average of $1.3 million to $1.5 million per rep after 12 to 15 months.

For gross margin from 2016, we still expect to end the year at approximately 70% with progress towards this number during the year, excluding any material write-downs of inventory.

With regard to our operating expenses for 2017, we now expect to end the year at approximately $230 million to $240 million in operating expenses, excluding litigation expense. This is a $5 million increase over our previous guidance in February due in part to our plan to continue to scale our sales force.

Now back to you, Rami.

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

(Operator Instructions) Your first question comes from the line of Mike Weinstein from JPMorgan.

And let's start, if we can, with the commentary just on the quarter. As you're aware, you came in generally in line with our expectations from the Street, but the Street was a bit more optimistic. And you commented that you had business that didn't do as well as you were hoping this quarter. So can you just spend a minute on why that was the case? And then second, could you share with us your thoughts going forward? Obviously, you're still incredibly bullish based on the rep hires that you continue to do. Certainly, no one was even close to thinking that you would hire another 39 reps this quarter. So what's driving that thought process? How much of a challenge is it to keep adding reps at the rate you've been adding over the last 12 months? And then we'll go from there.

Great. Thanks, Mike, for the question. So I think let me start by saying the fundamentals in our business haven't changed. We remain very confident in our business, both in the near and long term. But as I discussed, there were some operational things that we have to work through. So let me maybe build on that a little bit to provide a little bit more context. Sales management are core to execution. I think we can all agree that management and leadership matters, and we were shorthanded with respect to our sales management team, which I think was also further magnified by our increased hiring of late. New reps that we add to the company certainly need support in terms of building their territories, but established territories as well need support with respect to vetting additional targets, continuing to open accounts, bringing on clinical support and integrating that clinical support. Additionally, sales management plays a pretty critical role in customer engagement. They're in the field every week, and that layer of engagement with our customers is critical to our near and long-term success. As a result, that absence of management really puts a lot of undue burden on the field. And I think certainly, we saw that impact execution this past quarter. Our existing sales management team, frankly, did an admirable job when considering the hiring that they were able to produce as well as managing the overall scale of the business that moved very rapidly. And we've really been working to address this particular challenge in the last 2 quarters. And in fact, we've nearly doubled our sales management team over that time period. So we've got a great sales team. We remain very confident in our business. We don't see or believe that anything has fundamentally changed. But we have to make sure that our team is well supported in their endeavors, and I think we feel very good about where we are in terms of addressing this challenge at this point in time.

Yes. So let me ask, the -- if I listen to just the commentary just on sales management, part of it is that you've gone through this last year a second wave of hiring, as I think about it. You added 25 to 28 reps in 2Q, 3Q, 4Q. And now you've added 39 reps. Is part of the challenge getting all these new reps that you've hired and where you're recutting territories, getting the territories settled? And is part of it just getting these new reps who are new to SCS up the productivity curve?

So that's a great and insightful question, Mike. This really doesn't have anything to do, per se, with cutting territories. I think we've talked about in the past that our territories are pretty dense. And where we felt like we weren't going to be able to expand coverage in a timely fashion, we have been adding to our sales team. But this does have to do with the overall just number of hires. You have, if you will, the number of folks that each individual manager have to cover on top of hiring, on top of customer engagement just ballooned to levels that were difficult to manage. And it's not that we didn't see this coming. I think, effectively, you have a couple of different choices when you're faced with this situation. One is to try to do both in parallel, which is -- meaning fill in your management team as you continue to hire; or two, take a pause in terms of hiring and then fill in the management team and put in the hiring afterwards. We certainly chose to do the former, and I think that's the reflection of the strength of the managers that we did have in place. But it -- I think eventually that costs us in this particular quarter in that the execution wasn't up to the level that we have come to expect. And it's principally in our view and my belief that it just came down to having people that were stretched too thin to be able to deliver on everything that we needed to deliver.

Okay. Last couple of questions. So if we think about the paddle lead launch, let's call it a baseball game, are you still in the first inning of that launch? Is that the right way to think about it in terms of seeing the benefit from it?

Yes. I think we're just -- we're early first inning, I would say. I mean, we spend a lot of time, as you know, opening accounts. Those are longer-term type of accounts to open because these are more done in hospitals or primarily done in hospitals. So we're very early, but been very encouraged by the feedback that we've received. As I mentioned, I think our sales team is doing a great job of executing on this particular launch, but we still have a long way to go here and a lot of opportunity ahead of us.

Understood. And the second to the last question is one of the questions everybody has is that St. Jude had a very good quarter So if we look at the sequential performance, Boston's U.S. SCS business, I think, was down about 16% sequentially, but still a bit better than what the Street was modeling. The St. Jude business grew, by our numbers, about 7.5% sequentially. Now that -- obviously, they're reflecting some benefit from the DRG stimulation. But on the pain stim business, they more or less had a good quarter. Is there any sense in your view that momentum has shifted? Is this anything in your view to be a competitive issue, recognizing that St. Jude was trying to get out in front of your paddle lead launch as well?

I don't -- I think it's hard for us to comment on how their particular business is going. I think, as you mentioned, that's -- there's a lot that was added to that portfolio, which makes it a little bit harder for us to comment. I think we saw the purer portfolio of Boston demonstrate the typical seasonality that you would expect to see in Q1. So it's hard to comment. I think that, generally speaking, my comment on competition is it's intensifying. I think there's a reaction to our increasing success and the execution of our sales team, and we see all sorts of things, whether it's bulking or pricing or deceptive marketing or all sorts of different tactics employed in different areas of the country. And I don't know that I would hang my hat on that. I think, for us, it's -- we've got a lot that we -- that's going for us in a very positive direction. And I think we will continue to execute at a high level going forward.

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

Rami, I just want to pick up on some of those last points. So I guess, the first thing, you're talking a lot about middle management on this call. But as I just think about the business, Rami, it feels like perhaps you're talking about sales leadership. But how much of this is just you don't have enough reps? It feels like from the earliest part of 2016, you may have been under-repped from an investment perspective. I noticed you've added in the last 2 quarters more reps than you added in the prior 3 quarters. So a lot of focus on management. I'm just sort of wondering, is this just about not having enough reps to grow at the rate you can grow at?

I think -- look, David, that's sort of the underlying reason why we got -- we effectively were expecting flat revenue in Q1, right? It's because we hadn't hired enough folks earlier on that we should have -- that we would have expected to kind of continue to grow sequentially. So that's sort of the underlying basis. But that's not really the reason why we had this challenge in Q1, right? It isn't particularly related to this management challenge that I discussed. So in a sense, you can -- to address your question specifically, it would be both, right? It was that we were understaffed in the rep department and we had this -- yes, issue as well. And that would be -- that would argue why we came in both lower than -- and we had guided for flat in the first place. Does that make sense?

Okay, that's very helpful. So a couple of quick ones here. Revenue per rep this quarter was down year-over-year. And I guess, to some that may seem surprising. A lot of the fact that -- on one hand, you have more reps, so that would suppress revenue per rep. But then you have paddle lead, a little bit of contribution from ULN post-NANS. So could you kind of just walk us through the driving forces there between things that were helping revenue per rep and things that were working against it?

Sure. Yes. I think you hit the nail on the head, David. I think there are some things that are working towards it in terms of new data. I think the paddle will -- could potentially help. But again, we're very, very early innings there. But I think the reality is we've continued to talk about this that we expect our productivity to be in the range that we described. And I think there was a whole host of different reasons why that was overshooting at the beginning. So the mix of reps has changed over time to more non-SCS reps, which I think push -- put some weight on that. I think if you -- you can imagine that our mix from a quarter-to-quarter basis might shift as well in terms of number of reps versus clinicals, and that sort of can lay on it as well. So there's all sorts of different puts and takes on that. But overall, the core message is still the same that we have expected productivity in this range. We don't have data to suggest that it will be out of this range. And the fact that we're beating it was -- had a lot to do probably with the early launch phase than anything else.

Okay. The last question for me is just 2 parts. So one, we talked a lot about these sales-related dynamics, but you also mentioned seasonality. I just wanted to come back to that. Is that selling days, classic SCS first quarter to first quarter dynamics? Or is that the timing of NANS this year? And then related to that, maybe for Andrew, just second quarter expectations, just so we can level set expectations. Is the way to think about the second quarter similar rates of revenue on a percentage basis in the second quarter of '17, like we saw in the second quarter of '16, so that's sort of 24 percentage, which should be sort of in that mid-70s range for the second quarter? And I'll jump back in queue.

Well, let me hit the guidance upfront. We don't want to actually give quarterly guidance, so not really prepared to go there at the moment. But what I will say as background is if you remember, back to we had a perturbation in Australia in Q3, and it takes a quarter or 2 in this industry before you can turn anything around because you have this whole reestablishing files and the delay between trials and the actual implant, which is the focus of the revenue. So I would have -- I mean, I would say this isn't going to turn around overnight. So it will be -- it will have an impact on the second quarter.

And then just in terms of seasonality, Rami, anything specific about seasonality you wanted to call out?

I think, no, nothing specifically. Primarily it's the Q4 to Q1, right? So we talked about this in the past. In Q4, physicians both move up -- spend more time doing permanent implants, which also kind of robs you from doing additional trials in the fourth quarter, which generally carries over into the first quarter. I think that's primarily it. I'm sure it had some effect as well, anticipating on the margin. So -- but that's kind of what you would expect. And I think, as Mike mentioned earlier, that's likely what you saw from Boston.

Your next question comes from the line of Bob Hopkins from Merrill Lynch.

So when I look at the numbers for the U.S., it seems like sort of the simplest way of saying this is that the market was very healthy in the first quarter, but your market share in the first quarter was pretty flat relative to the fourth quarter. And that's sort of the first time that's happened since the launch. And I guess, we're trying to understand why share was flat sequentially because, again, the market seemed very healthy. So I guess, my question is, just to be super specific on the issues that you're calling out in terms of these scaling issues, was there sort of -- was there a turnover in the rep or support base? Or was this really just a matter of scale? I'm just trying to understand kind of a little bit more what happened. Because on -- again, on the face of it, it seems like some competitors launched some products, and that hurts your ability to take share.

Yes. Thanks for the question, Bob. I think in terms of turnover, that's sort of a -- that wasn't different in this particular quarter. So I think we've talked about that in the past, but there was nothing there in particular that drove this. Yes, so I think your assessment is right. I think it just really came down to us -- to our execution. We've gone pretty deep on this and looked at it a bunch of different ways. And for us, it really came down to being stretched a bit thin and not pushing and getting the type of close that we typically expect at the end of any given quarter. It just didn't happen based on our prior experience. And I think a lot of that, it's just being under-resourced to make it happen.

So it didn't seem like the competitors were doing anything different in the quarter. They did have a couple of new products, obviously, to launch. But I'm just curious on the competitive front, you really don't think there's anything different happening in this quarter?

No. Look, I think every quarter we see a new different attempt from the competition, to be honest with you. Clearly, we've really disrupted this market. And yes, having some new products in the market, I'm sure, on the margin, gets a little bit more share of voice, maybe you get a little bit from here and there. But we didn't really view that -- again, we went pretty deep and we certainly considered that as a possibility. But truthfully, we didn't really see that as a driving factor in this particular quarter. Again, on the margin, they have some, I think, similar to, for example, the plot of the paddle launch, right? I'm sure on the margin, we spent a lot of time opening accounts on paddle, and those things on the margin might have some impact. But overridingly, it was really execution on our end, and that's something we feel pretty confident in improving.

Okay. And then, lastly, on a positive note, I mean, in this first quarter, it looked like the U.S. market actually accelerated a little bit and is now growing close to 20%. Obviously, 1.5 years ago, this market was barely growing and now it's growing -- it's one of the best growth markets on all of med tech. So as you guys look forward to this U.S. market and the trends that are driving the acceleration in growth, how sustainable do you think this high-teens market growth is? Have we kind of hit an inflection point in terms of awareness and data and new products? I mean, is this high-teens market growth sustainable, you think?

Yes. We -- I mean, we are confident in a double-digit growth rate for some time, given I think our confidence in our ability to continue to take share and grow the market. I think that -- and sort of the extra boost to that top end perhaps is being driven, as you said, by some new products that our competitors can talk about. Our experience internationally is that those kind of get a bounce and then kind of fade because a lot of the follow-through on those products is just not as good as our product, right? So I don't know that I'm comfortable saying that I think this is going to be a 20% growth rate going forward, but I am confident in a double-digit growth rate because I can attest to what I believe we'll be able to contribute to it on an go-forward basis.

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

Rami, I was hoping you could give a little bit more color into -- I'm sorry, to harp on this, but into the issues -- from an execution perspective in the quarter. Just wondering, did it have more to do with impacts from getting new centers onboard or existing users using less? And I guess, the follow-up there would be what gives you guys confidence that if it is existing users using less that that's not suggestive of a longer-term trend here? Maybe they did some trialing and now they're going back to what they used before or what have you.

Sure. Thanks for the question, Danielle. So I think as I mentioned in the script, our newer classes of hiring are actually ramping up quite well. So this was more of an established business challenge. And again, there are some expected level of seasonality that we would have thought we would see, and I think we certainly saw that. I think what we're saying is that the change there was greater than just simply the seasonality. And I think the reason we're confident in addressing it is that this isn't simply trials that we're early on and went away. I think this was a little bit of share shifting within accounts to a greater degree than we would have expected. You have to remember that a lot of our accounts were not necessarily the only person in there. And I think to the extent that we haven't been as present in those accounts and as I think as organized than we've been in the past, then we're going to see some impact to our business. So that's the reason why we're confident in addressing this. We think that, obviously, with the updates, both to our management team as well as our overall sales team, we'll be in better position to continue to grow on those accounts as we have in the past.

Okay, that's helpful. And I know you guys don't want to necessarily give the metrics from a trial to permanent implant ratio perspective, but just curious if there's been any change on those types of metrics from your end.

No, we're comfortable saying that, that national average is still where it's been. There's been no change there.

Your next question comes from the line of Dave Turkaly from JMP Securities.

Just as it relates to the management, the sales management, did you guys comment at all, I may have missed it, but like how many folks you have? And then sort of as you look at the understaffed issue, I mean, were you talking about 5 to 10 individuals and they're already hired now, so we feel good going forward? Just any other color you could give there.

Sure. Thanks, Turk. Obviously, we didn't give out a number nor did we give out how many regions we have, but I will say it was a significant number. I've said we've doubled it. And yes, we are, at this point, fully staffed. So we are just playing catch up over the last 2 quarters. And like I said, we made a strategic decision to parallel path that with the sales hiring. And I think the net result -- obviously, again, we're disappointed, but we'll take where we are because I think it positions us for the future.

And then just any change that you noticed in the pricing or anything else from the quarter, just to, I guess, take that off the table as well as a potential concern for folks?

Sorry, the question was related to pricing?

Yes.

Yes. I think we -- again, we've seen that on the margin, pricing, bulking. There are certainly -- our competitors in any market are kind of taking a variety of steps to combat us, so we definitely do see that. But I'm not sure we can say that this is kind of like a national strategy or a national kind of wave that we're up against. Certainly, there's pockets of it and we're dealing with it.

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

To shift the conversation a little bit, we saw a slowdown in the international sales in the fourth quarter. And we've been sort of thinking that, that market or those markets would slow for some time. And then here we go and rebound in the first quarter to 30% growth organic or ex FX. Can you comment on what the rebound is? Or if there was anything in particular that helped the first quarter out outside the United States?

Yes. Sure. So I think, interestingly, in the fourth quarter, we talked about it was the first time that we actually saw a bit of a slow down because accounts just ran out of budget. And I think that probably lowered the Q4 international revenue, which we talked about. I think what really has happened when you look at the numbers is that there was a rebound in those accounts in the first quarter as they try to catch up with the patients that they had increased it in the fourth quarter. So that's one element of what happened. And the other is, as I mentioned earlier, we had that perturbation in Australia in the third quarter. And we said it would take a couple of quarters for it to turn around. And Australia, frankly, is back on track. So we had those combined in the first quarter, which I think gave us a pretty strong first quarter. And then the caution there is, I think in the first quarter in Europe, that's a 1 quarter bump and now they're going to go back to kind of a more subdued growth rate. And again, Australia is kind of back on track. So I think there were 2 elements of why this quarter, in particular, was a little higher internationally that really don't continue for the rest of the year.

Okay. And then one of the things that you've been spending more time in meetings talking about are other applications of the SCS technology. Clearly, there's still a lot more to go in back and leg. But can you sort of discuss some of the time lines for neck, shoulder, peripheral neuropathy?

Thanks, Joanne. Yes, look, I think you highlighted that well. We're very excited about the potential to expand to a number of new applications. And unfortunately, I think as I mentioned before, we're still sorting through a lot of different things like regulatory strategy and clinical time lines. So I think we'll reserve updating specific time lines with respect to those indications as we have more clarity around some of those -- some of the road ahead of us in those. But we are excited about this next particular study that we'll be launching soon with respect to diabetic neuropathy, and we'll certainly update you when we have more information there.

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

One on the pipeline, one on the competition. MRI safe timing, Rami, I'm sorry if you had mentioned it, but the full body -- I didn't hear it, timing. And I was just curious on upper limb and neck. You showed good data at NANS, but that was not one of the pivotal trials you mentioned earlier. Why no plan to do a pivotal trial there? I thought -- you'd said you really need that to drive reimbursement. And then I had one follow-up.

Sure, Larry. Yes. So we didn't mention a specific time line with respect to MRI. I mentioned one with respect to the smaller profile IPG. With MRI, I talked about it previously that we're evaluating from a regulatory perspective and from a testing perspective, what our approach looks like. We're gaining increasing information and confidence in that program, but we want to make sure that we have further clarity before we comment on the time line. With respect to ULN, we have run 3 different studies on that particular indication, and I think we're evaluating our regulatory and health economic perspective on that based on that clinical set while assessing if and what type of further studies are needed. I think, also, we want to prioritize our -- we -- while we have a lot of resources to do important clinical work, ultimately, everything is limited. And so we want to prioritize running larger -- we want to prioritize the studies that we run to potentially -- more meaningful indication, and that's why you see the diabetic neuropathy study taking center stage here.

And then on the competition, a multipart question. So given your success -- obviously, the competition is counter-detailing you. And so a couple of issues, it would helpful, I think, to hear you address. One, is the explant issue, which real or not, is in the market anecdotally. And I just wanted to hear your perspective. And the other is -- it's related to the question that I asked on the last call about the options that the competition has offered -- offering. And for example, BURST, the data may not be as strong as your data. But some physicians like the optionality of Tonic and BURST. And you mentioned on the last call, Rami, that you have something -- you can address that. You just need to communicate that better. So I'm wondering if you could help on this call maybe talk a little bit about more how you're trying to avoid being seen as kind of one-size-fits-all. So apologize for the multipart question. But if you need me to repeat any of it, I'd be happy to.

No. Thanks very much, Larry, both relevant questions. So let's address the explant point first. I think this is where -- if you heard my reference earlier to deceptive marketing, I believe this, very frankly, fits squarely there. So we have one of our competitors, which is Abbott, St. Jude pushing the narrative that primary cell devices are somehow better for patients than rechargeables. I think there's -- let me first state that I believe this is a disservice to patients and physicians and, frankly, in our view, raises the issue of patient safety. There's a reason why the U.S. market and the Australian market have long shifted to rechargeable devices due to patient benefits and improved safety around with fewer surgical interventions. The only markets that really operate the primary cells are that way due to cost constraints, particularly in Europe. So this push for primary cells is really largely a deceptive marketing effort by showing selective data that purports to support the position that primary cell batteries have lower explant rates than rechargeable systems. In a recent study that was shown, in fact, HF10 therapy had the lowest explant rate, even though it was a study that was supported by Abbott. And I think the reality is given the increasingly reported high proportion of primary cells that this particular company notes of having, they will likely be on a path to have larger explant rates because the reality is that those devices have relatively high explant rate to rechargeables and, I'm pretty sure, period of time. I think to kind of wrap this up, this sort of marketing, I believe isn't good for the industry. It's not good for the space. I think it continues to draw attention to something that actually, frankly, plagues the rest of the industry a heck of a lot more than it's us. Having clearly when you have a therapy that works 80% of the time at 2 years competing against therapies that work in the case of the St. Jude BURST 39% of the time at 3 months; and in case of traditional stem, in the 50% range out to 2 years, one of those is going to have a lot worse explant rate than the others. You guys can do the math. So I think this is a misguided attempt by a competitor. And ultimately, I think we have a lot of great things to talk about, so we generally tend to focus on talking about our product. And companies that don't have a lot of great things to talk about try to talk about other people's products. So I think I'll leave that one at that. With respect to the options, again, I think the same data is relevant. The -- our product works in a clinically superior way through traditional SCS therapy. We do have a way to optimize that therapy. And as I talked about on a prior call, there are -- we have to do a better job of communicating that. And I think better than that, we have to do a better job of explaining to the market and to our customers that the level of investment that we make in patient care and follow-up, which is unparalleled in the space. I think a lot of our competitors have taken to borrowing or replicating our messaging, but no other company actually commits the resources or has the product to follow through on delivering the best possible patient outcomes to their -- to that population. So I think we have certainly some work we can continue to do from a marketing perspective. But I feel pretty strongly that we're offering the very best product for patients in the market, and we'll continue to do that and be successful as a result.

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

First question for me is on the sales force. I think you guys probably had the largest sales force in the industry at this point. You mentioned being fully staffed on the sales management side, but do you guys continue to expect to hire throughout the year? And then in terms of the reps that you guys are bringing on today, how do they differ maybe from the original reps that were maybe more SCS focused, where maybe you've learned something about cultural reps or hiring practices that could actually work out in your favor long term?

Thanks, Margaret. So first of all, we do not have the largest sales force in the space, at least not yet. I think, obviously, we expect to continue to grow and hope to grow into that position, but we're not there yet. I think what we've talked about in the past is that we want to hire the best fit for a particular market and either due to available talent or noncompetes or other factors that may or may not always be somebody with prior SCS experience. I think what we've also found is that our sales team that don't have SCS experience have ramped and done fairly well. They're just on a delayed cadence. And that's where the 12 to 15 months comes in relative to our SCS-trained reps. So we feel pretty good about that. We have obviously shifted the mix. And some of that is early, but some of that is playing out. And so far, we're happy with the results.

Okay, helpful. And then in terms of the neurosurgeon accounts, the surgical lead accounts, how many of those, if you guys can share, have you guys gotten into? Maybe how many hospitals have you guys gone into and gotten positive back opinions versus maybe the number that you're still waiting on or targeting? And how does this compare to the original HF10 launch?

Yes. We -- so we don't get into that level of detail with respect to accounts. I can just say that it was -- it's certainly a core focus. And I think I mentioned in the past that this was fairly regional, right? There are certain areas of the country where this is more prominent than others. So we're going to keep plugging away. I think the important thing to take into consideration here is this is not like a relaunch in the sense that we're starting from ground zero. We've obviously got a fair amount of coverage around the country. And so this becomes optionality in terms of when you're adding additional accounts, now you can service a part of the market that we couldn't previously service. But we're still effectively constrained by people, right? So just having this doesn't necessarily just wind up creating instant greenfield. It just gives us long-range ability to continue to grow in certain territories.

Got it. And then maybe one more on the smaller profile IPG. Have you guys filed that with the FDA yet? And is it going to impact the life of the device at all?

No comments on the first. And we can't actually technically comment on the second because the FDA determines that, but the intent is no. It should not impact the life of the product. But that certainly is where labeling comes in, so we're hopeful.

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

So couple questions on the sales force and then maybe one other follow-up. So as you -- as David mentioned earlier in the call, your addition to the sales force over the last 2 quarters, you sort of -- the additions you had over the previous 3, almost 4. I'm just wondering -- given that complexion of your sales rep hires changed marginally and you've also talked a lot about sales management on this call, I'm wondering if the ramp algorithm, if you will, from sort of initial hire to 100% productivity, I'm wondering if that algorithm has changed. Have you seen any major fluctuations in the path of growth for a rep -- an average rep from 0 to -- on her or his way to 100% productivity?

I'll take that, Jason. So we're still predicting the 12 to 15 months. And we've said that the non-SCS people are on the higher end of that range. And then as our mix has moved towards more SCS people on average, the -- that productivity ramp will be a little bit later than it has been in the initial launch, where it was mostly SCS people. So I think there are some perturbations there. But frankly, at this stage, we have no data to suggest that it's any different than our guidance at the moment, which is 12 to 15 months, $1.3 million to $1.5 million. It's just moving around in that range.

Okay, that's helpful. And ultimately, based on what you've seen thus far with the non-SCS reps, I know you commented, I think, earlier this year, I think you were -- if it was an Investor Meeting or somewhere else that you saw some SCS reps sort of lose focus maybe in the fourth quarter, and you had to do some rep turnover. Wondering, the non-SCS rep, whether you're seeing those reps or hiring folks that are perhaps a bit hungrier that are used to a bit more competitive landscape, whether it be in orthopedics or spine or a little more competitive areas and whether or not that sort of -- you have some optimism as it relates to how they'll climb the curve and integrate within the sales force.

No. I think SCS has historically been a very competitive industry. I mean, then Abbott or St. Jude, Medtronic and Boston were always fiercely competitive. So I don't think there's any difference in rep's ability to deal with competition between the non-SCS and the SCS. It's just the non-SCS people come in and they need about 1 quarter to familiarize themselves with the industry. But from there, their raw ability, I think, is about the same as the SCS people. It's just we go for athletes over kind of knowledge.

Okay, all right. That's helpful. I appreciate that. And to an earlier question, on pricing, Rami, I believe you said you haven't seen any -- you've seen pockets of pricing and bundling competition. I'm wondering if you could comment on your pricing, whether or not these activities on the part of your competitors has caused anything notable in terms of your pricing on average across the country. Define notable, I know it's sort of a difficult thing to do. Let's say, anything north of 5% or so on average over the course of the last 12 months as it relates to your product.

We found -- I'll answer that one, Jason. We found actually our pricing has been pretty stable in the $23,000 to $25,000 average over the nation. I mean, there are obviously differences regionally in that pricing, but it averages out $23,000 to $25,000.

Perfect. Last question for me. We've talked to a few folks in different parts of the country, maybe characterize them as sort of medium volume versus the high volume. And there are in certain geographies high-value accounts that do a lot of HF10 therapy; and then 5 miles away, medium volume accounts haven't had a Nevro rep calling them. Wondering, is that sort of -- obviously, that's an example of being under-repped. But how do you think about the complexion of your account base at this point in time? Will you move -- I don't mean this disparagingly, but downstream to lower volume accounts as the number of reps and your ability to cover the industry expands? Or how should we think about the complexion of your accounts over the next, say, 12 to 24 months?

Sure. No worries. Yes. So let me clarify. We don't actually target purely on volume. And in fact, some of our best accounts and best customers are lower or medium volume accounts because if we have an account that is patient focused that buys into the therapy and the technology, they can meaningfully grow that business by -- and really help a lot more patients by leveraging our platform. So the size of a particular account isn't really the primary driver for adoption. It's just may be happenstance in the particular areas where you look that we were still under-serviced. And I think that is just a function of the fact that there's still a lot more opportunity to go after. There's still a lot of places for us to go, and it is really purely a function of having a feet on the street. And as you can see, we're working hard to address that but certainly trying to do that in a way that where we're structured and have the same sort of control that we had at the beginning of our launch.

Your next question comes from the line of Suraj Kalia from Northland Securities.

Rami, most of my questions have been asked. So I'll just stick to one. Can you give us the status of explants? And the reason I ask is just trying to understand how you manage the patients implanted with Senza. Obviously, there is a desire for solid growth. But then you have to balance the outcomes in these patients also somewhat, and not all-comers are going to get Senza. What I'm trying to understand is, how do you train your reps to go out in the field and basically provide this balance so that we don't get poor outcomes once Senza is implanted?

Sure, Suraj. So look, I think this is not something that is unique to us. All SCS companies have a long-term follow-up component to their business. I think the difference between us and everyone else is that: One, our therapy is more effective and more durable as it has been proven in clinical studies. So that naturally provides a huge benefit in this particular component. And then two, we have built in the support team that -- and teams and folks that don't exist in other companies whose responsibility is to help with longer-term follow-up. And I think the combination of those 2 things, being more effective and superior therapy coupled with dedicated resources to address this particular challenge in SCS, is what's allowed us to be successful. I think when you look at our international success, where we continue to grow and now year 7 of our commercialization, are there perturbations based on competitive stuff like this sort of messaging at any given quarter? Yes, absolutely. But over the long term, I think we've demonstrated that our model and our therapy can withstand, I think, the test of time, and that's what we look forward to proving here over the long term in U.S. as well.

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

Thanks, Leandra, and thanks, everyone, for joining the call today. We sincerely appreciate your continued interest in Nevro and look forward to our next progress update. Have a great day.

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