Nevro Corp (NVRO) 2018 Q1 法說會逐字稿

Good afternoon. My name is Chris and I'll be your conference operator today. At this time, I would like to welcome everyone to the Nevro Q1 2018 Earnings Call. (Operator Instructions) Katherine Bock, Senior Director, Corporate Development and Investor Relations for Nevro, you may begin the conference.

Thank you, Chris, 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, 2018. A copy of the press release is available on the company's website.

I'd like to remind you that on this call, management will make forward-looking statements within the meaning of federal securities laws. All forward-looking statements, including our discussions of operating trends and our expectations of future financial performance, including our 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 quarterly report on Form 10-Q 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, May 7, 2018. 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'll start with a review of our first quarter 2018 performance, then I'll discuss revenue guidance for 2018 and conclude with details on our commercial progress. Andrew will follow with a deeper review of the first quarter as well as expectations for 2018, then we'll open up the call for your questions.

Worldwide revenue for the first quarter was $87.6 million, an increase of 28% as reported compared to the same period of the prior year. U.S. revenue for the quarter was $70.6 million, an increase of 33%. First quarter international revenue was $17 million, representing an increase of 1% on a constant currency basis. These results are driven by continued adoption and demand for HF10 as we continue to scale our organization to deliver our best-in-class therapy to more patients around the world. We are reiterating full year worldwide revenue guidance of $400 million to $410 million.

Reflecting on our first quarter, I'm confident in the fundamentals of our business and in our ability to achieve market leadership by continuing to deliver unique value to patients, physicians and payers. As we expected at our scale, our first quarter was marked by seasonality within the range of industry trends, resulting in a sequential decline in revenue relative to our fourth quarter. Having said that, we remain in a dynamic growth phase, and our ramping territories propelled us to deliver an industry high growth rate this quarter. We continue to drive optimization of our sales structure, territories and systems in order to deliver sustainable growth as we scale. I'm confident in our sales team and I believe our focus and investment in our sales organization will result in continued growth as we advance towards market leadership.

I recently had the opportunity to spend time with our sales team in the field, and from my conversations with them and our customers, I saw both the real impact we're having on our patients and the momentum we're building in our business. One physician in particular noted how in his early experience with HF10, he's had 2 patients completely eliminate their opioid medication, which is something he'd never experienced in his 7 prior years utilizing low frequency stimulation. During this time, when opioid addiction is of particular focus, the story is a reminder of the powerful role HF10 can play in providing clinicians the tool to manage this challenging condition. These types of stories highlight our advantage and the value we uniquely deliver.

Through all my travel, I met with a number of physicians who were recently new to HF10 and were excited about the impact it is demonstrating for their patients and on their practice. This progress is a reflection of our sales team as well as our investment in leading clinical evidence. We're advancing neuromodulation and physicians are taking note of Nevro as the only company committed to helping them treat a broader array of pain patients by investing in the necessary clinical evidence to elevate the field. We're proud of the impact we're having and look forward to supporting more physicians and having a more meaningful impact in their communities.

Additionally, we continue to leverage our HF10 Matters campaign to drive more awareness of HF10 directly to patients and clinicians. One recent story that captured the impact of HF10 is the story of Kelly.

Kelly is a very active 59-year-old. He works full-time, alongside his wife, managing the pet store they own and also looks after several of their dogs. His first spinal fusion was at age 21. Eventually, he developed chronic pain in his back and legs, which he's been battling for the last 20 years. Kelly found that staying busy and constantly moving helped to distract him from his pain, but he also found that when he stopped moving, the pain really hit him.

For the past 10 years, he used a traditional SCS system which provided him about 50% relief in the legs, however, very little relief for back pain. He used it about 2x to 3x per week but wasn't completely satisfied. That's when his physician recommended [doctor] Kelly replace his current stimulator with an HF10 system. Within days, Kelly was experiencing 80% relief of both back and leg pain which continues to this day, and his sleep has improved, with Kelly now sleeping consistently for the first time in 25 years. He stated, "I didn't realize how much I was missing now that I have such great pain relief all of the time". Kelly's story not only highlights the impact of HF10. It also demonstrates the robustness of the therapy and its ability to provide a benefit above and beyond traditional SCS. We're committed to our mission, which has enabled us to touch the lives of over 31,000 patients like Kelly and help them live richer, fuller lives.

In Q1, we secured 2 key approvals that we believe will bolster our commercial progress. First, we secured approval for Senza II, our smaller profile IPG, which couples the full benefit of HF10 with the same battery longevity and industry best charging rate in a more refined package. We also secured approval for full-body MRI compatibility for our Senza I system. Unique to our approach, this approval is retroactive and applies to every patient implanted with the percutaneous Senza I system to date. We are pleased to offer this additional benefit to our patients and proud to do it in a way that is inclusive of every patient we've had the privilege of supporting.

On the clinical pipeline front, we continue to expand the reach of HF10 through our commitment to high-quality clinical research. We're currently enrolling in our painful diabetic neuropathy or PDN RCT, at our European nonsurgical refractory back pain RCT, and are looking to initiate a U.S. nonsurgical refractory back pain RCT in the near term.

Additionally, based on the results from our pilot studies across a number of indications, we continue to be tremendously excited about our pipeline. We're in a unique position in medical devices where we have an organic pipeline that is more typical in biotechnology. And we're poised to leverage it to enhance the lives of many more patients in need over the coming years.

In closing, I continue to be excited about our near-term opportunity and the long-term potential of our company. We have incredible people in our organization that are driven to make a difference, passionate about what we do and are committed to always doing the right thing. Those values have been the foundation of our success and recently allowed us to be recognized as one of the best places to work in the Bay Area.

Notably, we are the only medical technology company on the list of midsized companies recognized, a reflection of building a dynamic values-driven high-growth company in the field. I continue to be inspired by our mission and look forward to our expanding impact as we drive towards market leadership.

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

Thank you, Rami.

Revenue for the 3 months ended March 31, 2018, was $87.6 million, an increase of 28% year-over-year on a reported basis. U.S. revenue in the first quarter was $70.6 million, up 33% from $53.1 million during the same period of the prior year. International revenue was up 11% to $17 million from $15.3 million during the same period of the prior year. This represents constant currency growth rates of 1%.

In international markets, constraints such as capitation and our increasing share result in lower growth rates than in the U.S.

Gross profit for the first quarter of 2018 was $62 million or 70.7% gross margin as compared to $46.4 million or 67.8% gross margin in the same period of the prior year. The gross margin improvement is primarily due to the absence of charges for inventory-related write-downs in the current period.

Operating expenses for the first quarter of 2018 were $77.7 million, an increase of 31% compared to the first quarter of 2017. 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 litigations. Legal expense in connection with those litigations was $8.6 million for the quarter as compared to $2.4 million in the same quarter of last year.

Net loss from operations for the period was $15.7 million compared to $13.1 million for the first quarter of 2017. Excluding the effect of the IP litigation spend in each period, we saw a $3.5 million decrease or 33% improvement in net operating loss this quarter as compared to Q1 of 2017.

At the end of the first quarter of 2018, we had $259.6 million in cash, cash equivalents and short-term investments. Cash used for operations during the period, excluding cash payments in relation to our IP litigation, was less than $1 million.

Turning to our guidance for 2018. We are reiterating worldwide revenues for 2018 to be in the range of $400 million to $410 million. As background, we continue to believe the U.S. SCS market should grow in the low to mid teens. In our international business, we now believe that we could grow in the high-single digit to low-teen constant-currency rate for the balance of 2018. With our current guidance, $400 million to $410 million, we expect to continue to take share. For gross margins in 2018, we continue to expect margins to be in the 70% to 71% range. With regard to our operating expenses for 2018, we continue to expect to see a total of approximately $290 million to $300 million for the year excluding litigation expenses.

We have hired and will continue to hire experienced sales reps ahead of the revenue ramp and in support of our expansion of HF10. We additionally plan continue investing in our clinical trials and development activities.

Accordingly, we do not expect R&D to decline as a percentage of revenue in 2018. As a result of our continued investments in the long-term success for business, and as our revenues and related gross profits 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'll conclude our prepared remarks for today. Chris, please open up the call for questions.

(Operator Instructions) Your first question comes from Robbie Marcus with JPMorgan.

Rami, maybe I could start with a market growth question. So when I look at the spinal cord market on our numbers for the first quarter, it looks like the market itself declined about 5% from fourth quarter and Nevro was down 13%. So when I think about that versus the market, maybe you could give us a little color on, one, what's driving that; and two, how much of that was because of the very strong fourth quarter that Nevro had?

Sure, Robbie. Maybe I'll kind of step back and provide a little bit of context, and then dive into, more specifically, your question. Obviously, as you mentioned, we're coming off a very strong, in fact, a record quarter for us in the fourth quarter. And so we certainly would've hoped and expected for a little bit of a stronger Q1. But if you put that into context, we delivered an industry-leading 33% growth. That puts us on the path to guidance for the year, and that guidance for the year puts us on a path, certainly, to take share. So I think being in a position to deliver on our guidance and to deliver an attractive growth profile for the year is something, despite a little bit of the softness in Q1, we feel good about. In terms of the specifics on the growth rates, the reality is it seems like, obviously, we and some of our peers experience seasonality where others do not. So when you look at the average seasonality across the peer group, it could be a little bit misleading because depending on how others may manage their business, I mean one of our competitors in particular doesn't seem to be experiencing seasonality at all, and has, in fact, had the same roughly revenue number for the -- last 4 consecutive quarters. So it's hard for us to make sense to that, to be honest. But we felt like our performance in Q1 was within the range of what we would have expected in seasonality. It turned out to be at the higher end of the range but still within the range of what we would have expected. So that's kind of our perspective on the quarter.

All right. And then maybe if you could talk about what you're seeing in the market, you have Boston Scientific launching a new system. You have Medtronic launching a new system. And Nevro just got approval for a new system in the first quarter. So maybe you could give us a little flavor for what you're seeing in terms of the competition and then maybe how your new product can help Nevro in the quarters ahead.

Sure. Thanks, Robbie. Yes. I mean, look, we don't see any sort of meaningful change or material change in the competitive landscape. I mean, the reality is that we've been commercial internationally now for 8 years and in the U.S. for 3 years. And every quarter, there's something, right? There's some new launch or new talking point. And most of the time, it's less our competition talking about their products and more talking, obviously, against our product. But the reality is that there's really nothing in the competitive landscape that was different in Q1. And I think, again, think about it, the world didn't change all that much in the quarter, right? We're just coming off a very strong Q4 and there's really not a lot that we can point to, certainly from a competitive perspective, that materially change or really is anything more than incremental in the first quarter.

Your next question comes from David Lewis with Morgan Stanley.

Rami, so I'm just going to push a little bit more here in the first quarter. There's a pretty dramatic growth disconnect between the fourth quarter and the first quarter. If the market is stable, it does look like you lost share this quarter for the first time in 3 quarters. I think investors kind of want to get a better flavor here for the first quarter. So do you believe that weather had any impact in this particular quarter? We've seen some seasonality across broader medical devices. It also does happen with the quarter where you did see a couple of competitive launches. And can you just give us an update on sort of sales force training, some of the new initiatives for your new sales leadership just to kind of push you a little more here on this first quarter dynamic. Because I think for most investors, it's going to look like a change, and it doesn't sound like you see a material change.

Sure. Thanks, David. Obviously, there's a lot in there. I'll do my best to address it. Look, again, yes, we don't really -- I mean we looked at that, obviously, as we do with every quarter. And outside of seasonality, we didn't see anything that was different about this quarter than Q4. And again, just the world didn't change that much in 3 months. We did a pretty deep dive into our business. And really what we saw overwhelmingly is our top customers that we feel very confident are still predominantly Nevro were down in Q1 relative to Q4, and that explains the vast majority of it. I think you also have to look at kind of your territory ramps. And as we scale, and as we have a larger footprint, the kind of territories that are in the early ramp phase are, obviously, going to have less of an impact to offset seasonality than they would in prior years just because they're a smaller percentage of your overall footprint. So outside of that, it's certainly some of the seasonality. It's always -- it could be weather, it could be holidays, it could be just slow patient traffic. Whatever it is, it's going to be idiosyncratic things for different customers. But again, it would certainly be easy for us if there was something beyond that to talk about. But in our estimation and in our analysis, there's really not anything that we saw change outside of seasonality in terms of the impact for the quarter.

Okay. So just to kind of follow up here on guidance. So it's a slower start to the year. We saw a similar trend last year. Basically, the percentage of revenue in the first quarter last year looked similar to this quarter relative to the midpoint of your guidance range. But can you just talk a little bit about what gives you confidence in the $400 million to $410 million range given where you started? Is it simply just seasonality looks a lot like last year? Maybe other factors that can give people confidence in that range? And then, Andrew, kind of related to this, your international guidance, did you take up international guidance even with the weaker first quarter. And just maybe if that's true, some of the (inaudible) around that?

Sure. Thanks, David. Yes, look. I mean -- again, we looked at a lot of things. I think the first thing is you look at your growth rate within the quarter and does that put you on a trend to achieve your view within your guidance for the year, and we certainly see that and I highlighted that in my comments. So that's certainly one thing. I think you look at your historical performance, and exactly what you said, David, which is what percentage of your revenue tends to be allocated on a quarterly basis throughout the year, and you look at those trends. So that's at least 2 ways. I mean, we looked at a couple of different ways here, what our year looks like in light of kind of the output of the first quarter, and we felt good about our guidance and that's why we're reiterating it. And I'll ask Andrew to comment on your question regarding international.

Sure, David. Yes, you picked up correctly. I think at the beginning of the year, we were more cautious about the international market than we are at present. We've had to look at how the New Year's budgets in various of the territories we operate in have come together and are positioned vis-a-vis those budgets, and now believe that actually over the balance of the year, we're going to be able to produce high-single digits, low-teen constant currency growth. And then obviously, we have, on a reported basis, there's some tailwinds from currency. But I think everybody in the industry has at the moment.

Your next question comes from Bob Hopkins with Bank of America.

With apologies, just one more on Q1 here. You gave guidance for 2018 at the kind of the end of February, and you seemed super confident at that point in the tone of the business. And so I assume, just given the quirkiness of when you reported Q4 so late in Q1, that the issue with Q1, if it was a little bit slower than you thought it was going to be in the U.S., was primarily March. So it might be a little bit granular. But I'm just curious, is that an accurate kind of way of thinking about it? And if so, any color around that?

Sure, Bob. Look, I mean I think the way it actually plays out, right, as we reported, I think, in the third week of February, so you really have some -- obviously, you have a really strong visibility on January and you might have a week or so of February results under your belt that are clear and so on. So there's certainly -- I don't think it's quite as granular as you put it in terms of just March. But I do think that it's not -- the reporting calendar that I think it was on Thursday of the third week in February. So you're not as far along perhaps as people tend to think. And again, I would say that we still are very confident in the business for the year. I think the results -- again, it was very transparent at the beginning. We, obviously, would've hoped for a little bit of a stronger quarter coming off such a great Q4. But nothing has really fundamentally changed in the business. We feel good about it, we feel great about our people and where we're taking the business this year and beyond. And so I don't -- notwithstanding kind of where we landed, it's within kind of the seasonality range and it still puts us on track for guidance for the year.

And then just as a quick follow-up, anything worth calling out in terms of the cadence of the quarters from here for the rest of the year? And Andrew, I'm sorry, I'm not sure I really understood the answer to David's last question just in terms of why you're boosting the guidance exactly for OUS.

OUS revenue is primarily driven by government run systems where what's really important is what the budget's availability for SCS is going to be, number one; and number two, where we think we are rechargeable versus primary sale. And we have more visibility now than we had back when we were issuing the overall worldwide guidance. So we think it's appropriate to tell people that we're going to be doing I think a little bit better internationally than we had expected to do a short while ago.

Can you give anything on the cadence?

I think we see -- we'll see a pickup in the second quarter that then continues each quarter.

Your next question comes from Danielle Antalffy with Leerink partners.

And sorry to harp on this, but I do have a follow-up on Q1. Rami, 2 things. Number one, you mentioned high-volume Nevro users declined. Do you have any sense -- so their total procedures declined, or just their use of Nevro? And then my second follow-up here is just as it relates to some of the commentary around doing a little bit worse than you had hoped, you have some level -- or my understanding is that you have some level of lead time given trialing here. Have you seen a material shift in trial department and implant rations given timing of when you reported Q4 versus now?

Sure, Danielle. Obviously, my reference was very specifically to overall procedure volumes. We didn't see any, or anticipate any change in share in the accounts that we're in. And obviously, our share, we tended to already have a kind of a dominant share in a lot of the accounts that we're in, and that's only grown with time. So in that regard, perhaps some of the seasonality impact was due to that larger footprint when those practices slow down overall. In terms of trialing, nothing really that I can comment on here. Obviously, what happens in Q4 is you tend to do more permanent implants, which kind of robs you of some ability to do trials in the fourth quarter that would help you in Q1. And you try your best to kind of replenish that and drive through the quarter, and obviously, that played a role in this as well, just our ability to more quickly replenish those and build that momentum intraquarter relative to that record Q4. So there's a little bit of that, I'm sure, as well. But I mean, largely, you're trying to do that in the face of the seasonality, which the combination of the 2 things makes it difficult.

And just wondering if you could comment at all, did pricing have any impact here? Or has pricing been relatively stable?

Yes. No pricing impact at all on this quarter.

Your next question comes from Dave Turkaly with JMP Securities.

And I know you guys collect a lot of data on your patient by docs. And I was just curious -- no changes as well, I just wanted to confirm, in sort of the outcomes you're seeing and explants or anything like that. Just any color on sort of the overall trend you're seeing.

No updates on fake news, Dave. So yes, our national trial success rate is still the same, roughly, since launch. I think the latest was 84%, I think, versus a historical 85%. So nothing -- yes, nothing at all on those fronts. We continue to deliver best-in-class outcomes to our patients and we uniquely are in a position to actually know that versus claiming to know that given the type of data we collect. And so we feel great about our therapy. We feel good about the long-term outcomes both in the real world as well as through our clinical studies, and that continues to be a big differentiation for us in the market.

Great. And a quick follow-up on the U.S. NSRBP trial. Any color you'd be willing to give us in terms of timing or size, that would be great.

Sure, Dave. I mean, look, we're trying to get that off the ground. I think, obviously, we talked about the prior study. And I think we realized that rather having one combined study, which was kind of what we're thinking somewhat at the beginning, we realized just the health economic environments are sufficiently different, that it's best to kind of have 2 distinct studies instead, and so that's kind of where we are. But we feel good about that study and the potential impact it can have. It's obviously, part of a cadence that's a little bit behind the PDN study, but we hope to get it up and running as soon as we can.

Your next question comes from Joanne Wuensch with BMO Capital Markets.

You got a couple of products which have come out. Your paddle lead came out in the middle of last year, you have a second-generation product, and you have an MRI-safe label. Could you give us a little bit of information on how you think about using that as a differentiated factor in a market that's changing pretty rapidly with new product introductions?

Sure, Joanne. Thanks for the question. Look, I think that what we're trying to do, and I think we've done exceptionally well when you look at our kind of the scaling of our business where we're hopefully on track here to deliver a $400 million, $410 million business according to our guidance this year, we built a pretty significant business in a very short period of time, largely driven by the U.S. launch in the last couple of years based on differentiating our therapy, not the widget that delivers the therapy. So when we talk about product launches from our competitors and when we see them largely as kind of widget enhancements that ultimately clearly fall short of the therapeutic benefit of our product, and so we work very hard, not just from a -- continuing to sell on our clinical evidence, but to the last question, differentiating based on the real world outcomes we can deliver and we can capture and we can share with the physician community. So we feel great about our ability to continue to differentiate our therapy relative to the competitive field. And certainly, the product offerings that we bring, like the paddle and the MRI and the Senza II are -- I think just allow us to expand our footprint just by having an array of products that addresses some of the other cases that may prevent us from getting a particular patient like MRI, as an example. So I think those are enhancements but they're not really core to necessarily marketing against our competition. I think marketing against our competition, first and foremost, comes down to that we deliver better therapy for every patient that we have the opportunity to treat.

And then as a follow-up, is it possible that maybe physicians were holding back, waiting for the Senza II approval? And then can you give us an update on the diabetes enrollment?

Sure, Joanne. In terms of your first question, that certainly, again, was the case, in some instances, for sure. I mean when you know you have something coming up, there's going to be a segment of physicians who prefer to, want to have access to the newest thing, I think sometimes despite our best effort of reiterating that the therapy being delivered is exactly the same. So I think we did see some of that in the quarter, certainly. And then in terms of the PDM enrollment, as I said, we kind of want to get through the midpoint of the year and kind of see where we're at, and we'll try to provide an update on kind of environment to various studies on the back off of the year.

Your next question comes from Larry Biegelsen with Wells Fargo.

Just wanted to clarify first something you said earlier I think in response to I think one of Bob's questions. Andrew, you said you expect a pickup in the second quarter. Were you talking about the U.S. Worldwide dollars or growth rates?

We're specifically talking about international -- well, that question was specifically answering the question on international. So we're talking about -- yes...

We talked about this before. From a seasonality perspective, obviously, Q1 tends to be your weakest quarter in the U.S. and Q2 and Q4 tend to be the stronger quarters and Q3 somewhere in between. So I think we've covered that in the past. There's no change in expectation there.

Okay. Got it. And then I just wanted to ask a couple of more. So all right, we heard in Q4 about some stocking in the industry. And I guess I was just surprised at how strong Q4 was in general. Any -- was there any validity to stocking just kind of, I guess, rumors in the market? And did that have any impact on Q1? And then just, Rami, I guess I'm curious to hear your thoughts on potential new competitor. I've asked about Saluda before, and their pivotal trial ends around May according to clinicaltrials.gov. I know it's paresthesia-based. Is there anything else you can share as to why you don't see that as a threat?

Thanks, Larry. I mean just a clarification. When you talk about stocking, I assume you're referring to our competitors, correct?

I mean, we've just heard about it in general, that there was some stocking in Q4. So I don't know if it impacted you or your competitors, the market. Any color on that? If it didn't impact you, that would be good to know.

Yes. I mean, not that we're certainly aware of. We didn't see that as a factor in our business. Again, we looked at kind of the trends within our business and we saw them as seasonal in nature. Obviously, we didn't have any stocking in Q4 that would have impacted us in Q1. So internally for us, there was no impact. And from an external competitive perspective, again, not that we could certainly measure. So -- or we're aware of. In terms of your competitive questions, look, there's a lot. Any time you have a company as successful as we are, and I've seen this a lot in the past, they're going to get a lot of attempts and sorts of different approaches. But again, we feel we're pretty differentiated with the only paresthesia-free therapy and with superiority we've delivered, and it's hard for us to react other approaches until we see something to react to.

Your next question comes from Malgorzata Kaczor with William Blair.

My question, initially, is on sales reps. And I know you guys aren't giving your number of sales reps. But if we take some of the historical data that you gave us in the past regarding the number of rep adds, which seemed like they had a nice increase in late 2016 and early '17, as we look at the results now, have some of those reps become contributors or larger contributors to sales? Or are they primarily focusing on some of these new territories that you referenced earlier in the call? And so more of their impact is still to come. How do we look at those hires?

It's hard to kind of answer that question, Margaret. I mean, the way -- nothing has really changed in terms of our sales folks come on board and ramp in the sense that they come in to a territory, they try to build it up to a certain level that we've talked about in the past and as they approach that level from a revenue perspective, additional resources are added in order to continue to take share, just as we've talked about in terms of the kind of sustainability of the amount that any person can manage in this industry. So that really hasn't changed. So I don't -- I'm not sure that's answering your question or not, but I can't really get into the specifics of what individual reps are, where they are in terms of particular territories, depending on when they were hired.

Okay. So with that, I guess, in mind, if we look at some of the new accounts that you guys are opening, some of the new territories that you're opening, has there been any change relative to the pace of those new accounts? Or those new territories relative to a few quarters ago? And are they, in terms of ramp, coming on at the same pace or faster relative to some a year ago when [you account with].

Sure, yes. I mean, look, we feel good about the pace relative to kind of expectations which we've talked about in the past. I think sometimes, depending on when people hit sort of their inflection quarter, if it comes to being a seasonally down quarter, it could be a little bit at the lower end of the range. If you hit your inflection quarter in a seasonally positive quarter, it could be at sort of the higher end of the range. So it kind of bounces around within our expectation. But we certainly see people continuing to ramp well and we feel like we're going to have a positive contribution throughout the year.

Your next question comes from Jason Mills with Canaccord Genuity.

So just asking the sales rep question a different way, Rami. The operating expense growth, even backing out the legal expenses, was a little higher. So I suppose the question that comes to mind is whether or not perhaps you're adding more new reps than we expected, which would be good. But wondering if you're seeing attrition of maybe some -- a few productive reps that are being backed up with newer reps, and it just takes, obviously, a longer period of time for them to get up to speed relative to where the productive mature reps would've been. The question is generally about attrition, whether you're seeing any change in the curve there.

Yes. We haven't seen any change in the attrition curve at all including in Q1 and Q4. So in any given quarter, you obviously have your ramp. You've got your -- some positive or negative impact of seasonality, and then you've got your attrition factored in. And we didn't see anything this quarter, this past quarter on Q1 that was different than we've seen in the past on that particular topic that would've explained the outcome.

Okay. So it sounds like seasonality played a bigger role. But in terms of the general dynamics of how the sales rep -- the sales force in the U.S. is being productive, not a discernible change from the trend lines? Just a follow-up to that.

Correct, yes. In other words, the attrition that we're seeing, it was within what we've modeled that helped us arrive at the guidance that we provided for the year. So have we not had the -- say somehow we had lower attrition in 2017, I wouldn't say necessarily in Q1, but throughout 2017, than we actually had, then maybe our guidance would've been different, positively higher. But kind of modeling out what we've experienced, and reality in Q1 was consistent with that experience, there's sort of no net impact on our view of the year or a contribution to Q1. Does that make sense?

It does. It does. And just lastly from me, on the other clinical trial side, I wanted to push a little bit harder on the PDM study. Based on your senior role (inaudible) and our due diligence would suggest there's a lot of excitement about this, there's very little that works, and could be because of that and because of the size of the patient population there that unfortunately suffers from this condition, a large growth opportunity for you. So has enrollment started? And if so, what sort of trends early days have you seen here?

Yes. Enrollment has started in the PDM study. And look, it's kind of early, so there's a lot of tactical things that you're doing at the beginning of starting a study like this. Not every site sort of lights up in terms of coming online at the same time. There's a lot of sort of training at the beginning that's intensive from our team in terms of making sure that the patient sent in matched the inclusion/exclusion criteria. So there's a little bit of a learning curve and so on. So it's hard to kind of handicap it right now because you've got all these dynamics kind of happening, and that's why we wanted to give it some time before we have kind of a more accurate view of the trend line and kind of giving folks an update on when we would expect enrollment in data.

Your next question comes from Suraj Kalia with Northland Securities.

So Rami, one question for you, one for Andrew, both on OUS sales. So Rami, one of the things we keep hearing in international markets, and this is not reflective of market shares, it's just more anecdotal qualitative information that has come up in recent field checks, is the desire to model it between different waveforms. And a number of key clinicians keep telling us, "Hey, we love some of these newer platforms that are coming out. We can just switch." I'd love to get you guys' perspective on what you were seeing in terms of dynamics. And Andrew, for you specifically, the mid or rather high single digit to low teens on a constant currency basis, can you stratify that in terms of what the net FX impact is year-over-year in your outlook and if any Senza II ASP changes?

Thanks, Suraj. I mean look, in terms of your first question about the, what's called -- what I call kind of the option strategy, right, that's been deployed by at least 2 of our 3 competitors, that's just I think a marketing message. So it depends on who you talk to. I think if you talk to physicians that we haven't yet converted that are heavily in the camp of one of our competitors, they're more likely than not to say that, that's a key factor for them. But it's something obviously that we overcome on a pretty regular basis in pursuit of our growth and our goal here. So it's not something, frankly, that we consider as new or particularly different at this point. They've been saying that for the last couple of years and we've been overcoming it as an objection and doing well. Andrew, if you want to comment on the international.

Sure. A little bit complex there. You can see that the impact of currency quarter 1 and quarter 1 was 10%, and that's because current FX rates are significantly better than they were in Q1 of last year. Then the currencies recovered over the balance of 2017. So if you net all of that together, our modeling thinks that on average, '18 over '17, all other things being equal, currency is probably a 5-ish-percent tailwind on reported numbers on average over the year. And then you add to that our kind of high single, low teen constant, and that combination is our current thinking.

Your next question comes from Isaac Ro with Goldman Sachs.

Just a question for you on guidance. Just thinking through prior year periods where you had -- you pointed out stronger 2Q, 4Q results. Can you help us reconcile what's embedded in your reiterated full year guidance for 2Q this year? Because prior years, you did about 24% of full year revenue in second quarter. But I think if you were to come in on midpoint of your range, annualize it 4 or 5 and do 24% of that in 2Q, that would be under $100 million of rev. So obviously, that would require a pretty big acceleration in the back half. So just trying to reconcile kind of the expected acceleration throughout the course of the year relative to prior year seasonality.

I think, look, I'll maybe answer this a little broadly. (inaudible). There's kind of a reason we don't give quarterly guidance. We have a pretty good fidelity on the annual number I think as we've demonstrated through our history as a public company. But there's just -- especially at the scale that we're at this year for the first time, there's -- we want to be a little bit careful about just the nuanced numbers around specific quarters. So I think we've given the general trend for the year that's consistent with prior years, but we don't really want to comment specifically on percentages per quarter on a quarterly basis going forward for the rest of the year.

Okay. Then just a follow-up on Senza II. Can you help us think through what's embedded in your full year guidance in terms of contribution from that product? Obviously, it's probably a little early this quarter to measure the impact. But as we think about the whole year, how important is that to hitting your goals for the revenue?

Yes. That's -- again, we're not going to get into that level of granularity in terms of our guidance. We feel good about it. And obviously, overwhelmingly, what's going to drive our guidance is performance by our team. It's not going to be kind of factors on the margin like some of these product introductions that we've talked about.

This concludes the Q&A session for the conference. I'd now like to turn it back to Rami for any closing remarks.

Great. Thanks, Chris, and thank you all for joining the call today. We certainly 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.