Nevro Corp (NVRO) 2017 Q4 法說會逐字稿

Good afternoon. My name is Sheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Nevro Fourth Quarter and Full Year 2017 Earnings Conference Call. (Operator Instructions)

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

Thank you, Sheryl, and thank you all for participating in today's call. Joining me are Rami Elghandour, President and Chief Executive Officer; and Andrew Galligan, Chief Financial Officer.

Earlier today, Nevro released financial results for the quarter and full year ended December 31, 2017. A copy of the press release is available on the company's website.

I'd like to remind you on the call that management will make forward-looking statements within the meanings of federal securities laws. All forward-looking statements, including our discussion of operating trends and our expectations of future financial performance, including full year 2018 guidance and our expectations with regard to profitability, are based upon our current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ. Accordingly, you should not place undue reliance on these statements. See our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, which we expect to file today, for a description of these risks and uncertainties.

Nevro disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise.

This conference call contains time-sensitive information and is accurate only as of the live broadcast today, February 22, 2018.

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

Thank you, Katie, and thanks, everyone, for dialing in. For today's call, I'll start with a review of our fourth quarter and fiscal year 2017 performance. Then I'll provide our revenue guidance for 2018 and conclude with details on our commercial progress. Andrew will follow with a deeper review of the fourth quarter and full year financials for 2017 as well as expectations for 2018, then we'll open up the call for your questions.

Worldwide revenue for the fourth quarter was $98 million, an increase of 39% as reported compared to the same period of the prior year. U.S. revenue for the quarter was $81.1 million, an increase of 45%.

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

We delivered full year revenue of $326.7 million, an increase of 43% as reported. In the U.S., revenue of $263.5 million represented an increase of 52%.

International revenue of $63.2 million represented an increase of 13% on a constant-currency basis. Looking back on 2017, I can say across the organization, we performed at the Nevro standard, achieving success and building a foundation for sustainable growth. Underpinning our success are our people and culture.

In 2017, we scaled the organization from around 500 to nearly 700 team members globally, while maintaining our sense of purpose, passion and teamwork.

We leveraged our differentiated product, coupled with our unique go-to-market strategy centered around delivering superior patient outcomes to continue our march towards market leadership. To date, our progress has allowed us to touch the lives of over 28,000 patients. Our R&D and regulatory teams secured 3 key approvals: our Surpass surgical lead, Senza II CE Mark and Senza I full-body MRI CE Mark.

Our clinical team continued to advance the platform applicability of HF10 with outstanding research demonstrating the long-term potential for our therapy in a number of new pain areas.

We initiated 2 RCTs in 2017, which we expect to further differentiate HF10 as the therapy of choice in SCS. HF10 has garnered many accolades, most notably, in 2017, receiving recognition from Neurosurgery, the official journal of the Congress of Neurological Surgeons as the journal's Top Pain Paper of the year for the 24-month SENZA-RCT publication.

That is an outstanding honor for Dr. Kapural and the investigators for the SENZA-RCT, which remains the most robust study in the history of our field.

Commercially, in just 2.5 years post-U. S. launch, we are delivering on the promise of HF10, establishing a $400 million business based on our 2018 guidance. Coupling our best-in-class products with the best-in-class sales organization has brought us tremendous success.

We catalyzed the SCS market and as a result of our impact, have seen a growth from $1.5 billion in 2014 to approximately $2 billion in 2017, with Nevro contributing about 2/3 of that market growth over that time period.

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

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

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

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

We remain committed to sustainable growth by leveraging the Nevro brand in future category expansion initiatives. The success of our strategy is evident in the scale of business we've built in a competitive market.

It was also evident during the NANS meeting, where we presented positive forward-looking data across a range of indications. These data were presented by a global group of clinicians demonstrating our broad commitment to advancing neuromodulation.

We are reiterating full year worldwide guidance of $400 million to $410 million. As of this quarter, our record activity remains consistent with the historical metric of an average of $1.3 million to $1.5 million after 12 to 15 months, and we continue to expect new hires to ramp to these levels.

Going forward, as the business has matured in scale, the revenue per rep metric is becoming a less accurate and less relevant way to reflect the progression of our commercial business to the investor and analyst communities.

As such, we will shift away from providing productivity and rep hire numbers starting with this call. To be clear, our underlying process for hiring, the type of reps we hire and our cadence of hiring is not changing. We're simply no longer reporting on those metrics.

Given the opportunity ahead of us, we intend on continuing to hire meaningfully in pursuit of our goal of market leadership.

At our size and scale, we believe our guidance, coupled with our view in the overall market, are appropriate and in line with the disclosures from others in the market. Andrew will provide more color on the market later in the call.

We're excited about our opportunity in 2018 and as we look ahead, there is a foundation for continued success. We're committed to scaling our outstanding sales organization as we continue to see exceptional talent attracted to Nevro. And as we work towards ensuring every patient has access to our clinically superior therapy, we are committed to raising awareness to patients in need through our HF10 matters campaign.

A central part of our campaign is sharing the impact HF10 has had on the lives of real patients. A recent example is the story of Jane, a 72-year-old retired Navy corpsman, who spent her time in the Vietnam War taking care of amputees. She also spent over 48 years as both a nurse and a certified radiology, oncology tech. Jane has suffered from back pain since her early 20s and later in life, was diagnosed with upper limb and neck pain. After receiving HF10 therapy, Jane's back pain is minimal and she's entirely off all pain medications. She's also thrilled to report 0 upper extremity pain.

Because of her relief from HF10, Jane can work up to 40 hours a week with the home health agency and for fun, she spends time playing with her grandchildren, swimming, going to the beach and making afghans for the VA. Over her life now, Jane says, "before HF10, I was unable to lift my head up, and now I can enjoy all the things I want to.

This is a great example of the impact HF10 can have on a patient enabling them to have a positive impact on their families and communities.

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

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

On the clinical front, we hope to have a read on enrollment rates for our 2 recently-initiated RCTs in the back half of 2018. At that juncture, we may also be in a position to discuss new clinical work pending continued progress on those fronts.

One area of focus for us is to leverage our scale, brand and amazing people to make a positive difference in the world. Recently, we partnered with 2 organizations whose missions are to support women in the pursuit of leadership and scientific achievement to sponsor 3 events.

Diversity and inclusion are central to our success at Nevro, and we're proud to support organizations that endeavor to make that a reality in neuromodulation and across other businesses and fields.

In closing, I'm incredibly proud of what we accomplished as a team in 2017, and I'm equally excited about our future. At our core, Nevro is comprised of exceptional people, a truly once-in-a-generation medical technology innovation and a culture that focuses on allowing everyone to do what they do best every day.

We are capitalizing on our opportunity to lead and transform a large and growing market. And through that work, I know together we will continue to change lives and make a positive and lasting difference.

And with that, I 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 3 months ended December 31, 2017, was $98.0 million, an increase of 39% year-over-year on a reported basis.

U.S. revenue in the fourth quarter was $81.1 million, up 45% from $56.0 million during the same period of the prior year. International revenue was up 17% to $16.9 million from $14.5 million during the same period of the prior year. This represents a constant currency growth rate of 10%.

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

Gross profit for the fourth quarter of 2017 was $69.5 million or 71.0% gross margin. As compared to $48.8 million or 69.2% gross margin in the same period of the prior year.

Operating expenses for the fourth quarter of 2017 were $71.7 million, an increase of 30% compared to the fourth quarter of 2016. The increase in operating expenses was driven primarily by increased headcount and related personnel costs as well as legal expenses associated with the Boston Scientific intellectual property litigation.

Legal expense in connection with those litigations was $6.7 million for the quarter. Net loss from operations for the period was $2.2 million compared to $6.3 million for the fourth quarter of 2016.

On our third quarter call, we mentioned that we achieved positive EBITDA, excluding litigation expense. The same holds true for our Q4 2017.

Now turning to the full year 2017, revenue was $326.7 million, which represents growth of 43% as reported. U.S. revenue was $263.5 million, up 52% from $173.3 million in the prior year.

International revenue was $63.2 million, up 15% from $55.2 million in the prior year. This represents a constant currency growth rate of 13%. Gross margins were 69.7% for 2017 compared to 67.0% for 2016.

Operating expenses for 2017 was $257.3 million or $239.5 million, excluding legal expense in connection with the Boston Scientific litigations, which represents an increase of 37% from the comparable number in 2016.

At the end of the fourth quarter of 2017, we had $269.3 million in cash, cash equivalents and short-term investments and we're again cash flow positive for the quarter, if you exclude the cost incurred as part of the Boston litigation.

Turning to our guidance for 2018. We are reiterating worldwide revenue for 2018 to be in the range of $400 million to $410 million.

As background, we believe the SCS market should grow in the low to mid-teens in the United States and mid- to high single digits internationally for 2018.

As our current guide of $400 million to $410 million, we expect to continue to take share. In addition, similar to our peers, we expect to be impacted by seasonality.

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

The SCS market then typically experiences sequential growth into the second quarter. For gross margins in 2018, we expect margins to be in the 70% to 71% range.

With regard to our operating expenses for 2018, we expect to see a total of approximately $290 million to $300 million for the year, excluding litigation expense. We have hired and will continue to hire experienced sales reps ahead of our revenue ramp and in support of our expansion of HF10.

We additionally plan to continue investing in our clinical trials and development activities. Accordingly, we do not expect R&D to decline as a percent of revenue in 2018.

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

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

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

Let me start with the market. The -- by our math, the U.S. SCS market end up growing just over 20% in 2017. In every quarter except the third quarter was north of 20%, fourth quarter was obviously very strong for you guys but also for the market. Can you tell us kind of with that backdrop how you put your thoughts together for 2018? And then the second part of the question, just Andrew, I don't know, surprised by you just highlighting the typical seasonality but are you expecting the 2018 seasonality, the 4Q, 1Q to look any different than what you've seen over the last few years? And I'm talking about the market, not specifically you guys.

Mike, thanks for the questions. So in terms of kind of our outlook on the market, I think as we've said in the past, we're certainly very confident in our ability to continue to grow and drive the market growth as we have historically. And we certainly take a look at our view of the market and our -- the broader players and what we believe they might be able to contribute in any given year and that formulates our view on the market. And in terms of seasonality, I'll let Andrew comment further, but I think again, you can kind of look at historical trends in the market and generally for the reasons Andrew described in the comments, there is a seasonal trend. And as -- obviously as the business scales, we're looking at $400-plus million business this year based on our guidance, there's gone -- we're going to experience that sort of seasonality, but I'll ask Andrew to comment further.

Yes, I'm not sure that we expect anything terribly different from the market this Q1, compared to other Q1's. But we're just trying to make sure that people in general understand that we are in fact -- and the market has a large seasonal element in it because we're a electric procedure and that seasonality tends to be a little more enhanced than in the average Medtech. So just making sure that it's very clear to everybody, not just -- I know as analyst, you're probably fully aware of that, but for other participants on the call, it's good that I think we emphasize that, that's what our industry sees.

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

We're not going to -- I get really way to close to actually giving the quarterly guidance, which we don't want to do.

I had to try. You know I had to.

I was going to say, nice try, Mike.

And then I completely understand and -- the commentary about -- we kind of got too much into the weeds the last 2 years on all the rep productivity discussion and then ended up being a bit misleading to people. But could you just talk more bigger picture about how you think about growing your sales force? And you've talked about the reps coming up the curve being -- if anything, probably the biggest factor in kind of dictating your ability to grow at this point. So how are you thinking philosophically about growing the sales force from here and not just in '18 but over the next couple of years?

Sure, thanks, Mike. Look, as I said on the call, we have a massive opportunity ahead of us to lead and transform this market, but we certainly have every confidence of achieving market leadership and simultaneously also grow in this market. So we see no reason to deviate from what we've done over the last couple of years. We'll just continue investing and attracting exceptional sales team members to the Nevro organization and taking meaningful share and achieving that leadership position. So we see, as I said on -- in my prepared remarks, we see no deviation from what we've done historically, which is identify exceptional talent, bring them on board and have them ramp up to the levels that we expect. And I guess as you said in your comment that it just wasn't helpful to continue to talk about this, particularly, at the scale of the business that we're at but it doesn't reflect any underlying change in our approach or execution going forward.

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

Rami, just want to start off on the commercial side, and a couple of quick follow-ups. I appreciate your view on the market, and obviously, you continue to manage share gain here. Can you just talk generally about how you see the competitive environment for Nevro in '18 relative to '17? And maybe kind of related to that, with new sales leadership, any early observations you can share? Are you expecting higher attrition? Any material changes to organizational structure other than Jim?

Sure. So thanks for the questions, David. In terms of competition, I think the first thing I would say is, look, we haven't been in a monopoly for the last 7 or 8 years here. We've always had competition. I think my sort of interest in take on competition is that, we have large competitors. They do a reasonable job every year of tweaking their marketing message. And what we've seen in '17 and what we're seeing in '18 for us isn't different than what we have been seeing over the last several years. I think kind of similar to the comment Mike made, maybe perhaps when people look closer, they saw something that to us was pretty normal and that just kind of refreshed marketing messaging but to maybe people who weren't looking as closely before may seem new or different. I think a lot of the initiatives that we saw in '17 and heading into '18 have been around for 3-plus years. In many instances, there have been a lot of product launches from our competitors over the last several years, and I think it's been clear from our performance that, that hasn't had a material impact on our ability to execute and certainly our -- on our growth. And again, reflected on our guidance, we don't -- we certainly don't -- we don't see anything that would change that in '18. As far as Jim, as I said, he is absolutely a welcome addition to the team, and as I said, in the last couple of opportunities we've had to talk to investors and analysts, I think our fourth quarter performance reflects where we are as a business. We have a healthy business that's continuing to grow. I think Jim is going to help us continue to go to the next level and really reach the full potential, not just our existing product or our platform and we're certainly very excited to have him on board.

Okay, very clear. And then Andrew, just a quick update on maybe some of this, Andrew and Rami, but operating expense guidance, excluding legal expenses. Legal expenses were something around $18 million for '17. Is that a reasonable estimate for '18 or probably high because some of the discoveries already happen? Can you just update us on sort of the timelines for the legal process this year with Boston?

The trial, I think is in October, in the fall, and so that's -- there's -- and that hasn't changed. I don't think in quite some time.

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

Your next question comes from the line of Bob Hopkins of Bank of America.

I apologize for the background noise. I'm in an airport. So I'll just be brief. Andrew, I'll try on the first quarter just again, I know you don't give guidance, but let me phrase it a little bit differently. Consensus has you down 9%, roughly and sequentially, that's more than historical seasonality. I guess -- so my question would be is there any reason why there would be abnormally high seasonality in Q1? They would be sort of exaggerated this year? Is there anything unique going on in the marketplace?

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

Okay. And then the other question I wanted to ask you is just to push a little more on the competition. I think a lot of people are big believers in the long-term. And obviously, trying to get our arms around competition and one of the reasons for asking the question is that Medtronic reported a pretty big turn around in their business, this particular quarter with double-digit growth in the United States. And so maybe, Rami, if you could just give a little more comment on what you've seen specifically from the launch of Intellis. Obviously, there was some trialing, the market was strong, so maybe just a little more color on the front since it was such a big sequential turnaround from them.

Yes, I mean look, I think you guys know historically, we generally don't talk about competition. I think these are great questions for them. The only thing I'll say, Bob, is that incidentally it was a great quarter for us in U.S. and also a record quarter for us internationally. So I think, my point still stands. We are, frankly, from our view, we're in a class of our own. I mean, certainly, we occupy the same market as these players but our product is categorically better in every way. And to the extent we have and will continue to execute, we feel that we're going to continue to be a share gainer and achieve market leadership. The in sample things that happen on a quarterly basis for marketing message or launches of another -- of frequency, this or that product are largely not that relevant to us.

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

Andrew, just to -- or Rami, whoever wants to take this. Just on annual guidance for the year, so Andrew, you made clear that you expect to continue to gain market share. This is a market that's been growing, as Mike pointed out, over 20% for the last -- for the majority of the last, I'd say, 8 quarters or so. Even modeling some slowdown in the market, if we assume Nevro continues to gain share on pace with what you guys have done in the last few years, and I imagine you're trying to actually accelerate those share gains. It's just very easy to get to a much higher number than $400 million to $410 million. So I don't know if you could provide any more color on what you're factoring into that guidance. How much of a moderation are you assuming in that guidance in U.S. market growth and what would drive that? Or am I being too bullish on accelerating share gain? Can you give a little bit more color there?

I think the first thing I'll say, Danielle, is our guidance is our guidance. So I think there's obviously assumptions baked in there, but we don't want to, again, get into this sort of providing parallel guidance or guidance, so our number is our number, I think, you can, obviously, calculate what the growth rate is implied in that and there's not really a lot else I think we want to kind of get into that, not parallels that.

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

Yes, our guidance on the market, certainly, I think has highlighted as more moderate than you saw in '17. I think part of that is certainly a question around can the other 3 large companies maintain the sort of the growth rate that they saw in '17, right? So we kind of have to factor that in, we don't know, right, it's our best sort of assumption at this point in time, based on a lot of factors and our read at the market, both being in the market as well as some of the commentary. But I think that's certainly a part of it. And a part of it is the growth rate that we assume we can achieve at the scale that we're at, which, again, I think we've consistently delivered growth rates that are -- exceed our peer group from a Medtech perspective, particularly at the scale we're at, and we hope to continue to be able to do that.

Okay, that's fair. I appreciate that, don't mean to push you too hard on that, just want to make sure, I'm thinking about it correctly. And then as we think about the upcoming updates on the potential incremental indication. I appreciate that you're not going to give a lot of color today on how big those markets could be, but just at a very high level, I mean, are these the type of markets, felt like predominant back pain, which was really the area that's been growing in the market for the last -- really since you guys entered the market, are these potential indications that could drive a similar type of inflection? Are these more incremental in your view? Is that how we should be thinking about it as we look at our models today?

Yes, look I think we've talked about this in the past. There is a range, right? I think some of these indications we've talked about as being incremental, others, we view as larger market opportunities. The ones that we view as potentially having a larger opportunity size also requires some level of market development or potentially reimbursement work. As an example, we've talked about nonsurgical refractory back pain as an indication that is not generally covered by commercial payers in the large degree and we feel like we need to generate the evidence to make that change. So that's an example of an opportunity that, depending on the market, development efforts could turn out to be larger while others could be more limited in scope or moderate. So I think we're kind of sorting through a lot of that. We have sorted through a lot of that, and we'll talk more and more about them as the year progresses.

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

Can you hear me?

Yes.

I appreciate the commentary you made on the competition and sort of the things you faced in the past and then, obviously, seen you guys out at NANS. You sure seem confident, and I just Rami, I just wanted to get sort of your take on sort of the doc commentary or the physician feedback. I mean, did you sense towards any incremental noise in -- at the conference from the actual doctors side? Any color that you'd be willing to share with us in terms of your conversations with the actual implanters.

Look I -- we had a fantastic NANS meeting. I think those of you who were there would have, I think, seen that. And I think, certainly, the highlight was our lunch symposium, which I talked about in the script where we presented data from around the world across just highlighting the strength of our platform and frankly, the uniqueness of our company that we are looking forward and investing in the future versus a lot of kind of the small-scale marketing studies that you tend to see. Honestly, we don't -- we didn't -- to me, this NANS spell, and a lot of respect, it was kind of like the most relaxed of the last couple that we've had. I mean a lot of the things, I think this is a little bit paradoxical, like a lot of the things that we're getting questions about have been largely, to me, in terms of marketing messages, around for years. I don't want to go into specific details about competitive studies or products, et cetera. But a lot of the stuff has been presented over and over again for the last 30 years, and I think it's -- if anything, I kind of felt like it's been saturated at this point, and didn't really get much of a rise or a reaction. So that's, I think as far as I'm willing to comment on competition.

Appreciate that. Michael tried this before, but I guess, I'll try again, any early sort of commentary on your direct-to-consumer program? What you're focusing on or what you're going to spend as we move forward on that initiative?

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

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

I have a little annoying one, and a big picture one. The annoying one is, 71% gross margins for 2018, given the trajectory that the company has been on and developing that, am I missing something? Is there something that's weighing that down next year or this year?

Yes. We have a little bit more complex product structure in 2018 with the introduction of the SENZA II. And as you probably are aware, the initial period of product launches, they tend to have a little bit higher basic cost structure, but then comes down as you get more experience in making them. And that's allied with, as people hopefully are aware that we're fully outsourced and then what we're doing here is we're actually splitting our volume so that actually puts a pause in some of the volume efficiencies that we would normally take up. So 2018, we'll make some progress I think on large and -- but it will be more taking a breath as well.

Helpful. Then the big picture question is, you have a new head of sales, what do you think, he's going to be doing different or differently than the previous person? And what kind of marching orders does he have that you can share?

Thanks, Joanne. Look, I think, I've talked about this in the past. Jim just brings a wealth of experience, particularly as it relates to having a unique product offering, and I think also in terms of launching a platform therapy and getting to $1 billion-plus in sales, close to $2 billion in sales. So I'll refocus the question from what he'll be doing differently to what does he bring that syncs up with the opportunity ahead of us, and I think he brings a ton that really syncs up with maximizing the value of the opportunity ahead of us as an organization.

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

Just a couple of quick ones for me. Andrew, international growth in 2018, kind of what's embedded in the guidance? And the Street, as you right now, at a GAAP profitable in 2019. Is that your expectation? I'll just add one follow-up.

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

Okay. And then the OUS growth embedded in the 2018 guidance, I'll just ask my follow-up right now. Rami, I don't know if you've talked about next-generation platforms before. But in your prepared remarks, it was the first time I had heard you mention those next-generation platforms. So I know you're not going to disclose a lot right now, but is there any color you can provide or tell us when we might get more visibility on those?

Very quickly on the international, I think we said in our prepared remarks that we're expecting low single digits, low to mid-single digits, yes.

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

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

The first one from me is more kind of big-picture market perspective because we did see a really strong growth in the market in 2017. So I'm just curious if you guys have any context for where that's coming from? Whether it's new implanting physicians that may be haven't done so in the past whether the orthopedic surgeons are now starting to play around in this, or not, or do you think that the market growth is really coming from the existing implanters of SCS?

Sure, Margaret. Obviously, we know on our end, where it's coming from, and obviously, it's share capture and some element of market growth. For the rest of the market, we can only sort of infer based on our -- what we learn in the marketplace. I think those are great questions for our -- for the other players and see if they are willing to answer them and kind of give you more specificity around how they are driving their growth. But I think suffice it to say, we had some questions around the sustainability of some of those tactics without getting into detail, and that's -- that certainly guided our view of the overall market growth for the year.

Okay. And then in terms of kind of your implied operating expense growth, if we back out a similar percentage for R&D, as you guys have had in the past, it kind of gets us to those mid-teens, let's say, sales and marketing growth. Can you guys talk about where that growth is coming from? Is that majority of sales reps? Is that more DTC? What are you guys going to be spending on as you go on throughout this year?

Sure. Yes, I think let's clarify a couple of things there, and make sure I answer your question. So DTC, we're in an exploratory sort of phase, and again, I would categorize it more as generating awareness than necessarily, I think what a lot of you guys would get to full-blown DTC at this stage. I think we've talked about this in the past about our sales hiring because of our sort of time to ramp, et cetera, which we've been talking about since IPO, it takes time, so hiring that we do this year is really generally in support of the future, not necessarily for this year. So I think we're, as I've said, we're committed to continuing to hire meaningfully and as much as we certainly believe in our ability to continue to grow not just this year but over the next several years and so we're certainly going to be committed to doing that.

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

Andrew, one for you, and one for Rami. Andrew, just the price differential on the Senza II in Europe? And Rami, how do you see the impact of the upcoming NICE guidelines or statement that they are going to be putting up, I believe, in even a week or so just in terms of impact on the U.K. and Europe, in general? I'd love to get your perspective on it.

Sure. So Suraj, look, we're not going to comment any further on pricing strategies or Senza II, just principally for obvious reasons, there's just too much interest from our competitors on these calls that we wouldn't get into further detail. Honestly, the same goes for the NICE application and I think until we have further clarity in the decision, we're not going to comment further.

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

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

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