Nevro Corp (NVRO) 2018 Q3 法說會逐字稿

Good afternoon. My name is Denise, and I will be your conference operator today. At this time, I would like to welcome everyone to the Nevro Third Quarter Financial Results Conference Call. (Operator Instructions)

Lynn Pieper, Investor Relations, you may begin your conference.

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 September 30, 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 discussion of operating trends and our expectations of future financial performance, including full year 2018 guidance and our expectations with regards 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 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, November 5, 2018.

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

Thank you, Lynn, and thanks everyone for dialing in. Worldwide revenue for the second quarter was $95.6 million, an increase of 16% as reported compared to the same period of the prior year. U.S. revenue for the quarter was $79.6 million, an increase of 20%; and International revenue was $16 million, which represents a 4% increase on a constant currency basis.

We are continuing to drive global adoption of HF10 as we broaden access to our innovative therapy and advance our development pipeline and clinical trials.

On the commercial side, in the U.S., we are continuing to manage through some near-term headwinds. As such, we are expecting to be at the low end of our previously announced guidance range of $385 million to $390 million for the full year 2018.

Over the past 3 months, we have been able to better evaluate and take the necessary steps to continue to scale our commercial organization following the transition of our Head of Sales. This has been a critical year as we are launching a new product, Senza II; expanding our regional and area sales management team; and continuing to hire to cover the broader U.S. market in a competitive environment where 2 of our 3 major competitors have had their first platform product launches since 2013.

Equally importantly, we have grown to a significant scale in the U.S. and at this juncture, we have a large base of business to support as we also advance into a broader segment of the market.

We remain confident and committed to attaining market leadership, and I'd like to detail some of the initiatives we have undertaken to achieve our goal and navigate the near-term challenges along that path.

First, we have strengthened our U.S. sales management team by expanding our regional and area sales leadership. The area sales leaders manage our regional directors and provide senior leadership for our U.S. sales organization. This expansion will improve our ability to tactically execute across all of our commercial activities from hiring, retention and sales strategy and execution.

While we're still experiencing the impact of attrition, we have made meaningful progress in rebuilding our hiring pipeline with 17 net sales adds in the third quarter. With respect to our VP of Sales search, we're evaluating both internal and external candidates and are seeing exceptional talent and interest in the role. As discussed, we will take the appropriate time to ensure we land the right person to lead our outstanding team. Internationally, we have also bolstered our EU sales management through internal promotion and are seeing a positive trend in that business.

We have also made a number of operational improvements across hiring and territory allocation that we believe will contribute to improve execution. As we aspire towards market leadership in a competitive environment, we continue to recognize the importance of product innovation in our success to date and anticipate product and new indication launches in 2019 and 2020.

On the product front, we have multiple programs currently in progress directed at bringing our next-generation platforms to market and improving upon our therapy for back and leg pain. These programs are driven by our scientific research and R&D teams and are aimed at maintaining our innovative edge in the market.

On the indication front, we are on pace to launch new indications to the market in the next 12 to 18 months. Given the competitive nature of our market, we don't plan on releasing further detail on these programs until launch. However, we wanted to highlight the anticipated cadence.

Looking forward to our upcoming conferences, we will present 12-month results for our upper limb and neck-related studies, as well as our chronic abdominal pain, chronic postsurgical pain and interim results on our predominant leg pain studies. We will also present 24-month results from our painful peripheral neuropathy study and 6-month results from our migraine study. These results represent our continued efforts to advance neuromodulation and deliver on its long-held promise for patients and clinicians. This data also further highlights the differentiation of our product by demonstrating the unique efficacy of HF10 in a range of difficult to treat conditions.

In concert with the release of this upcoming data and our anticipated product launches, we also expect to continue to evolve our marketing message and commercial programs. We have been extremely -- we have been served extremely well by our current marketing positioning, which led us to our current scale and are excited for it to evolve along with our product evolution.

Additionally, we continue to make progress with our DTC programs, which serve to highlight the benefits of our therapy directly to patients. We believe, given the uniqueness of our therapy, we are well positioned to leverage this platform to drive greater share of the market by creating awareness for patients in need. The power of this program is driven by real stories of real patients that have had positive outcomes with our therapy and are getting their lives back.

One story we'd like to highlight is of Reverend Gayle. Before her HF10 trial and permanent implant in late 2017, Reverend Gayle couldn't move around without pain. Despite taking pain medication and muscle relaxers, she was unable to preach, climb stairs, cook, fold laundry or go shopping for more than 15 to 20 minutes, and she rarely got a good night's sleep.

Now that HF10 has reduced her pain by a consistent 85% to 90%, she is not only preaching again, but she has helped 2 revivals and can engage in many routine physical activities which were impossible before due to her constant back pain. She said she feels so good after getting her HF10 implant that, "I just feel like baking a cake for the first time in a long time." And she has gone on to say that she has had the dream of going back to school, and "I'm feeling so good, I just may do that now," said Reverend Gayle.

This, like many of our patients' stories, highlights the power of HF10 therapy, cannot only treat pain, but to give people their lives back and to help them reduce or eliminate their dependence on opioids. We are proud to offer a non-opioid, non-pharmacologic therapy and are inspired by stories like Reverend Gayle to fulfill our mission.

On my recent travels, I visited one of our regions where our team has been so dominant that the physicians there wonder why, in other areas around the country, HF10 is not the therapy of choice. I've also traveled in areas where due to access and turnover challenges, we have limited share relative to our national market share, and thus a large remaining opportunity.

We operate in an exceptionally competitive market against 3 large, tenured competitors with long-standing relationships. We know from our experience we can ably compete and win against them. We also know that due to intrinsic and extrinsic factors, some of those opportunities will take longer than others to realize.

With the expansion of our sales management, our product pipeline and the evolution and growth of our commercial programs, we believe we continue to be well positioned to attain market leadership. At the center of that goal and our mission is the impact we continue to have on the lives of those patients in need.

In closing, our platform for long-term success and growth remains very much intact, starting with our differentiated products, which continues to drive best-in-class efficacy, patient experience and procedural efficiency.

We have further differentiated our product by uniquely tracking real-world outcomes on over 10,000 patients and growing. We are also continuing to invest in Research & Development to further differentiate and improve our product offering and attempt to continually raise the bar.

We remain committed to attaining market leadership through true product differentiation and are progressing our pipeline to support that goal. This has been a challenging year on many fronts, and I'm proud of our team for their continued dedication and drive in support of our mission. Our company is comprised of truly exceptional individuals, and our culture celebrates and supports their diversity, growth and contributions. Common amongst this exceptional group is the passion to make a positive difference and commitment to each other and to our mission and values. I remain confident in our team, the quality of talent we are attracting and the opportunity ahead. Our team is aligned, driven and committed to deliver on the promise of our therapy and the potential for our company.

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 September 30, 2018 was $95.6 million, an increase of 16% year-over-year on a reported basis. U.S. revenue in the third quarter was $79.6 million, up 20% from $66.3 million during the same period of the prior year.

International revenue was $16 million compared to $16 million in the same quarter of the prior year. This represents a constant currency growth rate of 4%.

Some strengthening in our European markets in the third quarter were offset by weakness in the Australian market. Gross profit for the third quarter of 2018 was $67.2 million as compared to $57.9 million in Q3 2017, representing an increase of $9.3 million.

Gross margin for the quarter was 70%, consistent with the same period of the prior year.

Operating expenses for the third quarter of 2018 were $76.5 million, an increase of $14.1 million or 23% compared to the third quarter of 2017. The increase in operating expense was representative of an $11 million increase in sales, general and administrative expenses as we continue to develop our U.S. sales force as well as an increase of $3.1 million in Research & Development expenses.

Legal expenses associated with the Boston Scientific intellectual property litigations were $3.5 million for the quarter as compared to $4.6 million in the same quarter of last year.

Net loss from operations for the period was $9.2 million compared to $4.4 million for the third quarter of 2017.

At the end of the third quarter of 2018, we had $258 million in cash, cash equivalents and short-term investments.

Cash flow from operations, excluding intellectual property litigation, was a positive $6.6 million for the quarter and positive $8.3 million year-to-date.

Turning to our guidance for 2018. We expect worldwide revenue to be at the low end of our previously stated range of $385 million to $390 million for 2018. In our U.S. business, we had a particularly strong fourth quarter in 2017 and expect growth of approximately 9% to 10% in Q4 2018 versus the year-ago period.

Turning to our International business, we believe that the strengthening of the U.S. dollar will offset constant currency growth resulting in low single-digit growth.

With respect to the broader U.S. market, we have benchmark unit sales data that suggests that the U.S. growth rates have slowed significantly from approximately 20% in 2017 to a 5% to 8% growth rate in the third quarter of 2018. We believe this unit growth rate is likely to continue into 2019.

For gross margins in 2018, we continue to expect margins to be in the 70% to 71% range.

Turning to our operating expenses for 2018, as we ramped up our sales hiring over the latter 6 months of 2018 in support of our expansion of HF10 and as we continued investing in our clinical trials and development activities, we expect to see total OpEx of approximately $290 million for the year, excluding IP litigation expense. While we continue to invest in the long-term success of our business, we do expect to continue to have positive cash flow in the fourth quarter and the year, excluding IP litigation expense.

Now back to you, Rami.

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

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

Rami, I wanted to start at a higher level. And if you'll indulge me a little bit on some forward-looking commentary here, because it does look like things have stabilized in the near term, adding 17 net reps, came in a little better than The Street. So as we look for -- towards next year, maybe with procedures overall in the market slowing from historical levels, can you give us a sense of how you want The Street to be thinking about forward growth here? Given that comps are a bit tougher next year, but it does seems like the business is stabilizing here? Help us reconcile the 2.

Sure, Robbie. So I think the way to look at it -- obviously, it's a little too early for us to be giving guidance. But in general, we're feeling good about the momentum we're building in the sales organization and some of the activities here in terms of catching up this quarter, and we expect to continue to leverage those going forward. At the same time, we certainly need to factor in the deficit in hiring from the second quarter, which we haven't fully made up this quarter. The overall market growth rate's slowing, as you alluded to, and certainly the competitive environment. So while we feel good on a number of fronts, I think it would be important to factor in those variety of factors and conditions into one's view on a forward basis looking into 2019.

Okay. Is it fair to say that The Street is modeling low teens growth for next year? Is -- are you comfortable saying that's a good spot, at least the way you see the business right now?

Well, I'm not going to comment on what people are modeling. I think it's important, again, Robbie, to factor in the variety of inputs we talked about in our prepared remarks today and make sure those are reflected in people's views on a go-forward basis.

Okay, great. And maybe just a follow-up, Rami. We have seen a pretty big fluctuation with some competitors growing significantly then slowing and vice versa. Maybe you can give us your latest thoughts on what you're seeing in the market and what kind of success your reps are having with a lot of the new products like Senza II and having the paddle indication? Help us understand how you're winning out in the market.

Sure, Robbie. Yes, I think what we've seen, one of the biggest drivers of growth in this market is new product launches. And as I talked about in the opening remarks here, for 2 of our competitors, this is their first meaningful platform product launch in 4 years. And I think for those 2 competitors, you're seeing a little bit of a resurgence of growth after several years of below double-digit growth, by and large. And I think that certainly, launching Senza II has been something that we were excited about this year and something that we're excited about expanding more and more. But I think for us, our message continues to be centered around the therapy and the impact that we have on patients versus necessarily just the product feature. And I think that's probably continues to be a very big point of differentiation between us and the competitive set.

Your next question comes from David Lewis with Morgan Stanley.

Just a few quick ones for me. Rami, I just want to come back to '19, and I think everyone on the phone knows you're not going to give 2019 guidance. But I just want to make sure we level set. And based on a couple of comments you made, you, number one, implied fourth quarter numbers or sort of upper single-digits, maybe 9% to 10%, and you have this market commentary around 5% to 8% underlying volume growth from the business. So it seems to me that you are trying to suggest that numbers in the upper single-digit growth range for next year are more appropriate than the double digits. I'm just trying to make sure I don't miss the qualitative messaging here.

Yes, David, again, we're not going to comment specifically on anyone's numbers. I think that the general direction we provided was to make sure people understand the dynamics of the market. And at this juncture, it's up to the -- to you and others to interpret that information into how you'll approach -- how to form your perspectives until such time as we provide specific guidance.

Okay. And just kind of 2 more follow-ups for me. I guess, the most important thing, Rami, is 16% growth or so this quarter, maybe 8%, 9%, 10% growth for the fourth quarter. What in your view drives acceleration from the implied fourth quarter level? So what's most important to driving that acceleration? Is it commercial expansion? Is it new platforms? Is it new data and indications? Just give a little sense of how things accelerate from that fourth quarter level? And then I'll ask my second follow-up, Rami. Just -- the underlying unit market, 5% to 8%, your level of conviction that the market has returned to sort of 5% to 8% and sort of why you think that sudden drop-off actually has occurred?

Sure. Good question, David. So in terms of drivers, I think in the near term, clearly, the biggest driver is our continued execution. And I say that in a broad sense and from a commercial perspective, I mean, we've talked about continuing to expand our sales team, our sales management, managing and reducing sales turnover, executing against our existing programs. I think all of those things are important for us from driving growth and continuing to take share on a near-term basis. I think on a longer-term basis, we certainly believe and feel that the emergence of our internal pipeline as well as our clinical pipeline will help us maintain growth over kind of a mid- to longer-term period and we feel good about the progress we're making against those initiatives. So I'd say continued -- in summary, continued execution against our many commercial programs and priorities and, in the mid- to long-term, the product and clinical pipeline. As far as the unit market data, we believe that data represents about 15% of the U.S. market. It's third-party independent data. It fairly represents the share allocation that we believe is representative of the marketplace. And in terms of suddenness, we wouldn't say that it's sudden. It seems like it has been decelerating over the last couple of quarters. So it was double digits in the second quarter and low double digits and decelerated into that 5% to 8% in the third quarter. So we feel it's fairly credible. Again, I think it's important to note here, and it's not inconsistent with our previous comments, that this is unit data versus obviously growth in revenue terms where there are other factors that could weigh into that like, for example, price increases that obviously could be -- have a short-term impact on growth rates.

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

I had a long list. So when I heard your 5% to 8% comment, they all got sort of thrown out the window. I'd love to explore this a little bit more and exactly what you're suggesting here because all of the companies in this space are public and they give us their numbers. And -- I mean, those who have just reported in this third quarter, I mean, Abbott only grew 5% in the U.S. but Boston grew over 20%. You guys are growing 20%. I can't imagine that Medtronic grows less than 20%. So are you saying that all price increases in the third quarter is only 5% to 8%? I'm just having a hard time reconciling where this 5% to 8% number is coming from? Because it doesn't look remotely like the numbers that I'm seeing reported from the public companies.

Right. We're not surprised by your reaction, Bob, because I think when you look at that data, I'm sure that's the reaction some folks are likely to have. But again, the data set is -- it seems to be very robust. And again, it represents 15% of all U.S. procedures. It has the same share of allocations that are not different from your model and others, and it's stating underlying unit growth in that range. So I think that it's important to separate that unit growth from other factors that may be driving larger reporting of revenue. And I think that's -- it's one factor to keep in mind, but it's certainly something that, when we looked at it and were monitoring this trend, that it was worth noting and certainly we factor into our perspective on a go-forward basis. I also think it's important to state that a mid- to high-single-digit organic growth rate is perhaps healthy and more sustainable than we've seen. And I think part of the underlying potential reason for that slow down, if you think about it, you've had 3 years of -- obviously, in large part due to us, but across manufacturers, physicians, perhaps going back and finding patients that were previous failures or weren't successful on older platforms. And perhaps some of those factors were driving a greater than sort of average utilization. We're seeing that utilization definitely -- the trend as least of it move down as time goes on.

So what do you think the U.S. unit market growth rate has been, if you look backwards over the last couple of quarters? Just want to get a sense for what you guys think the trend has been. And then as you look forward, obviously, price increases can't last forever. I'm just curious what you think the outlook is for the market? And then lastly, could you just give us an update on rep turnover? And is that stabilizing or is that still up in that high teens to 20% level?

Sure. When we look backwards, again, I think Andrew mentioned it in his prepared remarks. I mean, the data tracked pretty well with last year's growth rate, so it was in the 20s last year. I mentioned already in the second quarter it was in the low teens. So that's kind of the data for what it is. In terms of rep turnover, it's fairly stable. It hasn't changed as a percentage, so we're continuing to make progress on that front, but it's -- the short answer is it's fairly stable.

Your next question comes from Danielle Antalffy with Leerink Partners.

Sorry to harp on this 5% to 8% volume comment. But Rami, I was wondering if you could give a little bit more color on what's going on there? Because it felt like, when you guys launched, there was an influx of patients, predominant back pain patients that previously weren't getting treated. And it doesn't, I mean, while I acknowledge that probably drove a lot of the market growth for the first 2 years that you guys were on the market, it doesn't feel like we're even close to fully penetrated of those patients. So is the 5% to 8% volume growth trajectory that we're currently in driven by the fact that -- is it a capacity issue? Is it that these patients just aren't getting to spinal cords -- the docs to do the procedure? Because it just feels like, if you look at it very high level, you think about the opioid epidemic. This should be a double-digit growth market from a volume perspective. I'm having a hard time understanding like what the dynamics are that have caused the step down over time?

Yes, I mean, again, I can't provide any more color on the data than we've already provided. I think that's as much as we have to provide. I mean, we can certainly speculate more about why that is happening. I and we tend to agree with you that over time, the pressure on opiates sponsors [re] and other factors are likely going to drive more and more patients into our specialty, which should drive a healthy growth rate over a sustainable period of time. And so those are positive tailwinds. I think as to why this is happening now, we're not sure that it's a capacity issue. I think particularly, at least on our end, whereby I think the procedure is more predictable and efficient, it could be that there are simply others modalities of treatment for these patients as well. I don't know if that really is a factor. I tend -- we tend to think that it's been a big one over the last 3 years of utilization. And we don't have particular -- any particular additional insight from this data other than it does appear to be decelerating and that could just be because of that. If you will, the kind of broader influx of patients who previously failed treatment or failed SCS that were treated over the last couple of years have slowed.

Okay. No, that was helpful color. And then just my follow-up is on the attrition rates, sounds like that stabilized. What have you guys been doing differently to stabilize sales force attrition? Have you changed how you're compensating? What have you done to stabilize that and what gives you confidence that you'll -- it will stay stable?

Sure. I think we've made a lot of changes. I'm obviously not going to be able to detail a number of those for competitive reasons on this call. But they range across the board, I think certainly expanding our sales management. I talked a little bit about kind of how we allocate territories, how we -- I think a lot of our scaling of our commercial programs to support our sales organization and so on. So I think we have made a lot of positive changes. It's hard in a competitive market to go through those in any sort of detail on a call like this. But we do feel about -- good about the positive trend we're making and the momentum we're building within our sales team.

Your next question comes from Dave Turkaly with JMP Securities.

Just wondered if you might give some of the color on that sales management expansion, if you could. Sort of number of people we're talking about there, how big is that team? And then are you sort of building yourself to look like some of the peers in SCS? Or is this sort of -- maybe a plan to look like some of the other growth names across Medtech? And just curious where you're building that strategy from?

Sure, thanks for the question, Dave. Again, for competitive reasons, we're not going to go through the specific numbers per se. But there were meaningful expansion in terms of sales management both at the regional and area level. I don't think we look too dissimilar from what you would expect. We obviously anticipate -- we're in a sort of different place relative to our competitors in a sense that we're trying to grow and take share versus a lot of it is maintaining and growing from a larger base as they are. So our sort of makeup might be a little different, but not dramatically different. And I think I can't understate what we believe is the value of the addition and the expansion of our sales management to our ability to execute on a go-forward basis. So we feel really good about where we've landed.

And I guess my quick follow up on that would be like, I know you and Andrew both have been pretty hands-on in terms of recruitment. And I'm curious, I think you mentioned that some of these folks may be involved on that front. So just sort of is there a plan for further delegation of sort of adding these reps given how important they are to these new area and regional folks, will they have the responsibility of bringing on new folks?

Yes, for sure. They've always had the responsibility. I think that's one of the things that we're excited about with the addition of these new folks and reducing their span of control, they can better manage that hiring process as well as really be available and engaged in helping our sales teams scale their territories and be more engaged from a customer engagement perspective as well. So there is a lot of benefits to scaling that we've done from a sales-management perspective. And again, I mentioned that this is a lot of what we hope to have done in the first half of the year where, as I mentioned earlier, we fell behind on, but we're able to catch up in a meaningful way in the third quarter.

Your next question comes from Joanne Wuensch with BMO.

This is Matt Henriksson in for Joanne. Going back to the 5-day percent unit growth rate. Was this something that just popped up in the third quarter? Or was this a more linear trend that you've been seeing over the past 3 or 4 quarters?

Again, we've been seeing a trend over the last couple of quarters, and certainly trended to where it was a meaningful level that we felt that we should mention it on -- at this juncture.

Okay. And then to follow up, for the clinical data that's coming out over the 12 to 18 months. I know you highlighted 5 or 6 of them. What are kind of the more near-term catalysts that we might see at NANS in January?

Sure. So in terms of NANS, from a podium-presentation perspective, you should expect our 12-month upper limb and neck data, 12-month upper limb and -- sorry, that was a 12-month SENZA-ULN, which is our U.S. upper limb and neck data. Our Australian upper limb and neck data, our chronic abdominal pain and 12-month results as well, peripheral polyneuropathy 24-month results and our 6-month migraine results. [But] also predominantly the data sets that will be presented at the podium, we also have a number of data sets that will be either at our one symposium or in poster format at NANS.

Your next question comes from Larry Biegelsen with Wells Fargo.

It's Adam on for Larry. I guess I wanted to start with a question on marketing message. I think in the prepared remarks, you mentioned some changes to that message. So maybe can talk about what it is today and how the messages evolved over time?

Sure, Adam. I think naturally, as we scale and grow, we need to evolve our -- both our marketing message and our marketing programs. I think we have been consistently -- and that doesn't mean that the core is going to change. I think we have been consistently the outcomes and the evidence company. I think that marketing and positioning has served us very well. You shouldn't expect those things to change, but I think just naturally, as our product portfolio and our clinical evidence comes to fruition, there's going to be a natural evolution of our -- both of our marketing message and our marketing programs. We're not going to get into that today. Again, it doesn't behoove us or you for us to preview our evolving marketing message for our competitors months before it's made available. But think of it as more of a natural evolution of where we are headed than a necessary -- necessarily a change.

Okay, understood. And then just for my follow-up question on the pipeline. Any color on the new product you plan to bring to market? And is that a 2019 or 2020 launch?

Similar answer to the previous question. No further color at this time, and obviously we'll be excited to bring it to market when it's right.

Your next question comes from Margaret Kaczor with William Blair.

So first of all, just to kind of follow up on the clinical data sets you've talked through on the front end of the call. How should we think about next steps with those clinical data sets? So do you guys need to go to the insurers and petition for reimbursement at least for some of them? And which ones, if so, relative to others where maybe they could be a more immediate growth driver?

Sure, Margaret. Obviously, we talked about this in the past, there's kind of a mix depending on the indication. As an example, we've talked about previously that neck pain is off label and that's something that would require regulatory approval to pursue. Whereas things like peripheral neuropathy is -- we consider it to be largely -- or on label and doesn't require further regulatory clearance. And then there are things -- clearly something like migraine requires both. And so there is definitely a mix. We're excited about the progress we're making, and in the background we're building the appropriate processes and activities in order to bring these to fruition irrespective of what's needed to ultimately allow us to utilize them to have an impact on patients. So that's something again we'll talk about as these things come to market, but we're working on a number of fronts from a regulatory market access and market development perspective I should say, certainly in some of these indications because that will be a required muscle that we're building as some of these indications get closer to market.

Okay. But as you look at 2019, it sounds like maybe there isn't that much of an impact and it's more 2020 and beyond from most of the indications. Is that fair?

I think that's fair. I think it largely depends on kind of regulatory timelines. I think it's hard to always -- it's hard to determine how long some of those are going to take. But that's why I was -- kind of gave a lighter window of 12 to 18 months. But there are some things depending on how things play out that could have an impact sooner or later.

Okay. And then just in terms of market growth. I know everyone else has picked at it. But I think in the past, you guys have talked about driving your own market growth with back-pain patients, and that's more determinant of reps rather than the market. So I think Abbott has talked about having some difficulties with rep adds as well. So do you think those 2 reasons could be factors as to why the market has slowed? And as you guys both get some more heads out in the field, driving growth, driving awareness, that, that could in fact reaccelerate the market?

Yes, that's some really good insight. I think it's clear that, due to our growth rate and average growth rate last year, that certainly contributed to the high growth rate overall for 2017. And so I think there is no question that if we are able to, I think, manage through some of our sales turnover challenges and -- from these past 12, 18 months and get into better stead, there is no question. We feel like we would be performing at a higher level and that would intrinsically have an impact on the overall growth rate. But nevertheless, again, the unit growth rates are as we reported them and it's something that was important for folks to get a sense of.

Your next question comes from Jason Mills with Canaccord Genuity.

It's David Rescott on for Jason. First one, from a reimbursement perspective, could you provide any color around to what extent reimbursement levels at least in the past or future direction of that in the overall SCS market has had an effect on kind of growth rates and what's happening in the U.S. and how you see that kind of trending going forward?

Yes, reimbursements been, I think, overall positive. It's been steady or rising at the very least minimally over the last couple of years. So I would say that, I think, in light of the challenges of opioids and some of the other factors we talked about, SCS is a positive treatment for many patients that is minimally invasive, reversible, helps a number of patients get off of opiates and really get their lives back, particularly I think as we've shared with the notable benefits of our particular therapy. So I think that's been reflected in the reimbursement rates. And we hope -- we certainly hope that remains stable on a go-forward basis.

All right. And then maybe second, at least if we're thinking about kind of the supply of physicians in the U.S. overall. Are you seeing kind of any changes in the number of physicians that are doing SCS implants or are doing different types of -- or using different types of devices out there that are more open to using yours at least in the types of changes in the past years? And I guess how would we think about that going forward?

No, we haven't seen any changes in the actual physician population. Nothing notable at least that would have any sort of macro knock-on effects.

Your next question comes from Isaac Ro with Goldman Sachs.

Rami, I just wanted to ask a couple on the sales force. I know you guys are working hard to restaff there, you mentioned some of the highlights. Could you talk a little bit about prospective timeline from when you think the new adds will be relatively productive? Any reason to think that might be faster than in past hires? And then part of that, just any update on the timeline for the appointment of new VP of Sales?

So I'll take the second part first and then I'll pass it over to Andrew to color your -- the first part your question. In terms of the VP of Sales, as I mentioned, we feel good about the process that we're running and the candidates that we're evaluating. I think you can all agree that the most important thing here is to get the hire right. So we're taking I think the appropriate time to make sure that we do that. And we'll certainly keep you posted as we make progress towards filling that role.

Great. And with regard to rep hires and productivity, one of the things I did want to point out is that when we talked about having hired net 17 reps in the third quarter, those people will go into training and won't actually hit the field until the fourth quarter. And then there is a productivity cadence that they have and in this industry it takes quite a while for those reps to actually get to productivity. And then there is an interaction between how long it takes those reps to get to productivity and really how fast the market is growing and how fast we are growing at the same time. So -- but the point is, it has -- our slowdown in rep hiring has an impact on '19. And really our efforts in the latter part of 2018 to solve that has much more of an impact on revenue late in '19 and into '20.

Your next question comes from Suraj Kalia with Northland Securities.

So Rami, everyone has picked on the 5% to 8% unit growth, so I won't go there. Maybe if I could ask a different flavor of the same question. When I look at all U.S., can you give us what the unit [codes] are OUS when I strip out SENZA II pricing delta? And the second question I have is, you mentioned new products FY '20 and you don't want to give more information. Is it possible to give us some color whether these products are going to be incremental? Or they're going to be a major step change? I guess what I'm trying to understand is what is going to be the messaging. Is the waveform going to change or is there other minor or incremental attribute to the current sets of platform? Any color would be great.

I'll quick cover the international. Internationally, prices in general are stable to maybe down a little and how that down exhibits itself is more primary sales being sold in the market, which carry a lower average unit price in the International market. But in general, because those are centrally priced systems, the pricing tends to be very stable. So we haven't seen much in the way of movement there at all. And over to you, Rami, on the others.

Just to build on that last point from Andrew, the data that we referenced with respect to U.S. is only U.S. data. So we don't have similar data on the International markets. With respect to the product innovations, I think we have a mix. As I alluded to in our opening remarks, we are aiming to continue to improve on the efficacy and the therapy that we deliver to patients. So I think we have a number of programs aimed from that angle and that's what we're most excited to bring to market on a go-forward basis.

And there are no further questions at this time. I'll turn the call back over to Rami Elghandour, President and Chief Executive Officer, for closing remarks.

Great. Thank you so much. I appreciate you joining today, and I appreciate your continued interest in Nevro.

Have a great day.

This concludes today's conference call.

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