Nevro Corp (NVRO) 2020 Q1 法說會逐字稿

Good afternoon, and welcome to Nevro's First Quarter 2020 Conference Call. (Operator Instructions)

And now I'd like to introduce Juliet Cunningham, Nevro's Vice President of Investor Relations. Please go ahead, Ms. Cunningham.

Thank you, Jennifer. Good afternoon, everyone. Thanks for joining us today. With me is Keith Grossman, Chairman, CEO and President; and Andrew Galligan, Chief Financial Officer. The format of our call today will be a discussion of first quarter trends and business results from Keith, followed by detailed financials from Andrew, and then we'll open up for questions.

Earlier today, Nevro released its financial results for the first quarter, which ended March 31, 2020. A copy of our earnings press release and presentation is available on the company's Investor Relations website.

This call is being broadcast live over the Internet to all interested parties on May 5, 2020, and an archived copy of this webcast will be available on our Investor Relations website.

Before we begin, I'd like to remind everyone that comments made on today's call may include forward-looking statements within the meaning of federal securities laws. Our actual results could differ materially from those expressed or implied as a result of certain risks and uncertainties. Please refer to our SEC filings, including our Form 10-Q to be filed today for a detailed presentation of risks.

In addition, we'll refer to adjusted EBITDA, which is a non-GAAP measure. Please refer to the GAAP to non-GAAP reconciliation table included with our earnings release.

With that, I'll turn it over to Keith.

Great. Thanks, Juliet, and good afternoon, everyone. Thanks for joining us today. Our first quarter 2020 results reflect really a combination of both the positive momentum that's been building in our business over the last year, and, of course, the rapid spread and impact of COVID-19 around the globe. I'd like to share our perspective about where our business was trending prior to this pandemic as well as the dramatic impact COVID had on our business, beginning in the month of March, and our general thinking about where our business could go from here in 2020. But finally, and perhaps most importantly, I'd like to describe the actions we've taken over the last 2 months to help ensure the health and safety of our employees, our patients and our customers.

For the first 2.5 months of first quarter, our business was performing well ahead of our expectations. Through February, our year-over-year U.S. trial growth was 20% and permanent implant growth was 29%. Q1 was the first full quarter of Omnia contribution to our results, and we were seeing positive customer response and early market traction. In addition, we received an overwhelmingly positive response from our PDN trial data that was presented at the NANS Conference in January. We also stopped enrollment in our NSRBP trial, following a prescribed interim statistical analysis to determine the study was adequately powered and didn't require additional enrollment. Clearly, our efforts over the past year to focus on the improvement of our commercial execution and also advancing our clinical and R&D pipeline were beginning to yield strong and tangible results.

Beginning in March, the rapidly expanding recommendations and requirements to delay elective procedures in order to focus health care resources on COVID-19 patient care began to have a material impact on our business. In the last few weeks of March alone, we experienced case cancellations, representing approximately $20 million in revenues worldwide, of which approximately $17 million was in the U.S. and around $3 million international. As health care systems around the world now begin to implement or plan for a restoration of elective surgical procedures, it's important to remember that there are multiple tiers of elective surgeries that have been prioritized in terms of timing, necessity and patient needs. In our view, SCS procedure fall into the elective but necessary category because our patients have typically suffered chronic debilitating pain for years. Most have, in fact, undergone prior interventional and surgical procedures before they even get to SCS therapy. The vast majority of our patients are on opioids prior to SCS. So our therapy is often considered among the last stops in the treatment continuum for these chronic pain conditions and patients undergoing SCS procedures do so in a response to a really critical need.

Among elective procedures, it's also important to remember the distinction between those that are done in an inpatient versus an outpatient setting. SCS procedures are done on an outpatient basis. So for the roughly half of our cases that are performed in the hospital setting, those patients don't require bed or consumption of other inpatient resources. We actually think this is a positive fact for us in the hospital setting as they manage their mix of cases during the ramp of back up. For the other roughly half of our cases take place in ambulatory surgery centers or ASCs, we expect them to lead the way in the early recovery of procedure volumes. And we also expect this episode to possibly accelerate the site of care shift from hospitals to ASCs that was already beginning to happen.

We've been working hard to determine how we can best help these patients and the physicians who care for them to navigate the nascent recovery of SCS treatment volumes. As prescribed by the recently published White House guidelines, the restoration of elective procedures fall into Phase 1 of the reopening plan in the U.S. We're analyzing the path forward and supporting our customers according to their priorities, such as the safety of their patients and staff, the prioritization and reactivation of their case backlog and, of course, generally supporting the recovery of their business. Throughout this pandemic, we've stayed in close contact with our customers and their patients. We already had a patient care infrastructure in place with remote patient support teams, and we have maintained our connection with both physicians and patients through a proactive engagement program that includes virtual patient support, a patient nurturing program through our Nevro cloud, our patient management platform and physician education webinars with timely topics and on a regular cadence.

Over the past couple of months and where possible, our field and therapy support teams are focused on remotely helping existing patients to optimize their pain relief and also educating new and prospective patients on SCS therapy. Through the month of April, our patient support teams have conducted more than 50,000 phone calls with our patients. Of note, approximately 9,500 implanted patients have had their therapy optimized remotely during these discussions, and 44% of those patients saw improvements in their pain level. The collaboration we've had with our customers, our patients and our employees during this time has, frankly, been nothing short of inspiring. And I'm really grateful to our entire team for maintaining our unique capabilities during such a trying period for them and for their families.

We've spent a great deal of time thinking about and modeling various COVID-related business scenarios for the remainder of this year internally as part of our planning process. Since we're not providing second quarter or 2020 guidance at this time, I'm not going to go into a lot of details here, but I do want to provide as much transparency into our business outlook as possible. Our base case expectation is that second quarter will be significantly impacted by COVID restrictions on elective procedures, with April being the hardest hit month. In fact, April -- in April, we saw an approximately 85% reduction in our case volume. Now that decline was even steeper earlier in the month, and the good news is, it was already beginning to improve in the last part of the month. As of the end of April, we also began to see clear evidence of cases being rescheduled over the next 2 or 3 months. About 30% of the permanent procedures that were previously postponed or canceled due to COVID-19 are already being scheduled for the next 60 to 90 days. And our new patient inquiries increased substantially during this period, which suggests that patients are, in fact, reengaging. We expect to see continued sequential improvement this quarter in the month of May, and again in June, as procedures are restored in the U.S., parts of Europe and Australia.

Now in the third quarter, we also expect to see continued and greater progress towards business health, and our current view of the fourth quarter is that it could even approach a more normalized run rate relative to our pre-COVID expectations. So not surprisingly, we've been closely analyzing not only the pace of which procedures are likely to return, but also which care settings are likely to come back online first. We're tracking by country, region and state, as restrictions are lifted to ensure that we can support our customers' needs. When the shutdown in case volumes began to happen in March, we had, at that time, over 3,000 patients who had either canceled their scheduled permanent implant procedures or had responded positively to a completed trial and were likely to move on to a permanent implant. Many more patients than that had either canceled scheduled trial procedures, or they were in our lead management system as prospective final patients.

Getting all of these patients back into the schedules of our customers represents a high priority for us in the near to mid-term and, by the way, also represents a way we can uniquely help our customers get back on their feet as well. This backlog of patients with substantial therapeutic needs, combined with our direct access to these patients, and, of course, our customers very keen desire to return to procedural health, provide strong tailwinds to our outlook for recovery as I've described it.

Now conversely, those potential headwinds to this 2020 case that we can't accurately predict right now include the impact of reduced procedural throughput in both ASCs and hospitals due to new and more restrictive policies that may constrain case capacity as well as the pace of hospital recoveries themselves since we, as I mentioned, expect them to be somewhat slower than ASCs in their recovery profile. In addition, we can't yet estimate the potential impact of macroeconomic conditions in the coming quarters, such as persistent and high unemployment rates, or finally, any new eruptions of COVID-19 infection rates that could impact elective procedures throughout the duration of 2020.

Now throughout this brief but very consequential time, our highest priorities as a company have remained, one, the health and safety of our customers, their patients and our employees. Two, the support and coverage of our customers and their clinical case activity throughout this period. Three, the integrity and readiness of our supply chain. Four, for the prudent stewardship of our balance sheet during this temporary reduction of reduced sales activity. And five, the maintenance of our competitive position and our capabilities in order to exit this crisis the way we came in with really positive momentum.

Guided by these priorities, we implemented effective work-from-home policies in mid-March, and we curtailed nonessential travel for the safety of our employees. In addition, we implemented training and skills retention programs for our field sales organization and have attempted to protect both our primary R&D programs and clinical trials to enable us to make continued progress even during these work-from-home restrictions. We took these actions with the intention of maintaining our highly trained workforce and staying prepared to support our customers return to performing procedures as quickly as possible.

As we discussed last quarter, we were already implementing a number of cost-saving measures before COVID-19 to reduce our overall operating expenses as part of our long-term profitability objectives. In this new COVID-19 environment, we've made a concerted effort to reduce expenses even further. We've deferred a number of discretionary expenses out of second quarter and, in some cases, out of 2020, while keeping our workforce and our highest-priority strategic initiatives intact.

Now Andrew is going to provide a bit more detail on our operating expense management in a few moments.

In terms of future growth drivers, such as our clinical trial to support expanded use in PDN and also our NSRBP trial as well as our key product development initiatives, we continue to move these problems -- these programs forward as close to our initial plans as possible. For PDM, we expect little or no delay due to COVID-19 restrictions. For NSRBP, as of today, all of the remaining patients who were randomized to the treatment arm have either been treated or are currently scheduled for implants during the second quarter. We're working with our investigators to get these last patients treated as soon as possible centers reopen, and we continue to expect that we'll be able to present 3-month NSRBP data at the NANS Conference in early 2021, which is in line with our previously announced guidelines. As part of our strategy, we also moved very quickly to reinforce our balance sheet and liquidity position for near-term stability and longer-term growth and a combined -- with a combined secondary equity and senior convertible notes offering of approximately $350 million before fees and expenses. Following this financing, we have around $560 million in cash on our balance sheet, now of that, we plan to use $172 million to settle our legacy convertible notes when they're due in June of next year. Once we satisfy those notes, we'll have no maturity obligations until 2025.

I'd also highlight several positive developments, which underscore both our competitively positioned SCS products with the unique ability to offer HF10 therapy as well as our commitment to vigorously protect our intellectual property. The first was the settlement of our patent infringement lawsuit against Stimwave, which resulted in their agreement to permanently cease commercialization of all high-frequency spinal cord stimulation products worldwide. The second occurred just after the end of the quarter. We prevailed in the long-running appeal on our offensive litigation against Boston Scientific in the northern district of California. In that case, the Federal Circuit reversed the district court's indefiniteness rulings, reinstating Nevro's asserted system patents and also have held our method patents for delivering SCS therapy at high frequencies. Both of these outcomes reinforce the strength of Nevro's intellectual property portfolio.

In addition, Omnia, which is the only SCS platform that can offer high-frequency plus lower frequencies and paired waveforms received earlier-than-expected approval in Australia during the quarter, and we currently await a CE mark approval in Europe, which we hope happens in the near term.

While we can't yet predict the depth or duration of this rapidly changing pandemic, we remain confident in some very important and foundational facts regarding our long-term opportunity. Number one, the very underpenetrated nature of our patient population and the size of our potential market. Number two, the long-term potential for SCS therapy to play a much greater role in the care of those patients. Number three, the differentiation and superior effectiveness of our HF10 therapy. Four, our ability to capture more significant SCS market share over time than we currently possess. And five, the significance of the future growth drivers in our business, such as that PDN opportunity I discussed.

In short, we believe that our underlying business fundamentals remain intact and that insight has guided how we respond to this crisis from the very beginning. And I believe we positioned our business to weather this storm, both organizationally and financially.

And finally, I'd like to one more time thank the entire Nevro team for stepping up and banding together to serve the needs of our patients, our customers, our shareholders value, and even their own families during a time of uncertainty that for most just has no precedent. I've been really inspired by our team's spirit, determination, their creativity and especially their hard work. I also want to thank our customers for their diligence and selfless focus on their patients in the midst of what we know has been both personal and professional chaos. And finally, I want to thank our existing and our new investors for continuing to support and value our path as an enterprise.

And with that, I'll turn the call over to Andrew to go through the Q1 financials.

Thanks, Keith. I'll begin with our worldwide revenue for the 3 months ended March 31, 2020, which was $87.5 million, a 6% increase compared to $82.1 million in the prior year period. This was slightly higher than our preannounced revenue range of $86.4 to $86.9 million. First quarter 2020 revenue was negatively impacted by a rapid deceleration in March 2020 due to COVID-19 shelter-in-place policies and restrictions on elective surgical procedures around the world.

U.S. revenue was $75.3 million, a 14% increase compared to $65.8 million in the prior year period. Year-over-year, U.S. trial growth was 7%, and permanent implant growth was 12% during the first quarter of 2020. U.S. cases totaling approximately 17 million were canceled due to COVID-19 during the first quarter of 2020.

International revenue was $12.2 million, a 26% decrease as reported or a 23% decrease on a constant currency basis, compared to $16.3 million in the prior year period. The decrease in international revenue was primarily due to the impact of COVID-19-related government restrictions on elective procedures implemented in Europe and Australia during the latter half of the first quarter. International cases totaling approximately 3 million were canceled due to COVID-19 during the first quarter of 2020.

Gross profit for the first quarter of 2020 was $60.5 million, a 14% increase compared to $53.2 million in the prior year period. Gross margin was 69.2% in the first quarter compared to 64.8% in the prior year period. This increase was primarily due to the inventory related charge of $3.6 million recorded in the 3 months ended March 31, 2019. Operating expenses for the first quarter of 2020 were $83.6 million, a 12% decrease compared to $95.5 million in the prior year period. The year-over-year decrease in operating expenses was primarily related to higher costs associated with shareholder activism and the management change in the prior year period.

Legal expenses associated with patent litigation were $2.1 million for the first quarter of 2020 compared to $1.3 million in the prior year period.

In this current environment, we are focused on cash preservation. As Keith discussed, we had actively reduced expenses in Q4 of 2019 to start paving the way for achieving operating leverage in 2020. Given the COVID pandemic, we are further reducing our operating expenses, including short-term salary reductions across the organization, restricting travel, postponing hiring and deferring lower-priority strategic projects out of Q2 and in some cases into 2021.

With these reductions, we currently expect to see Q2 operating expenses in the mid- to high $70 million range, which is a significant decrease, both sequentially and year-over-year. Net loss from operations for the first quarter of 2020 was $23.1 million, a 45% improvement compared to a loss of $42.3 million in the prior year period.

Adjusted EBITDA for the first quarter of 2020 was negative $11 million, a 62% improvement as compared to negative $28.7 million in the prior year period. Adjusted EBITDA excludes certain litigation expenses, interest, taxes and noncash items, such as stock-based compensation and depreciation and amortization. Please see the GAAP to non-GAAP reconciliation table in our press release available on our website.

Cash, cash equivalents and short-term investments totaled $247.5 million as of March 31, 2020. Net cash increased during the first quarter of 2020 by $9.7 million.

As Keith mentioned, in April, we issued convertible notes and concurrently completed an underwritten public offering of common stock, resulting in cash proceeds of $313.5 million, net of underwriting fees, hedging costs and offering expenses. We expect to use approximately $172.5 million of these proceeds to repay our legacy convertible notes, which will mature in June 2021. Once we satisfy the 2021 notes, we will have no maturity obligations until 2025.

Our cash, cash equivalents and short-term investments after this financing totaled approximately $560 million. We are confident that our balance sheet positions us well for both the current environment and longer-term growth.

As detailed in our earnings release, we previously withdrew 2020 guidance. We also believe that due to the uncertain scope and duration of the pandemic and the timing of global economic recovery, we cannot reliably estimate the future impact of COVID-19 on our operations and financial results at this time. We expect to provide updates on future earnings calls as the situation evolves.

That concludes our prepared remarks. And now we'd like to open the line for questions.

Your first question comes from the line of Larry Biegelsen.

Can you hear me okay?

Larry, we've got you.

Okay. Good. So could you -- would you be willing to provide some color on what you're seeing in hospitals and ASCs as they restart procedures? Are you willing to disclose what kind of the year-over-year decline was exiting April? It sounds like it got better through the month? And lastly, Keith, do you still expect to be down year-over-year in Q3?

Yes. I think we've probably provided all of the granularity that we really can at this point on April. I think we've given a fair amount of detail there. I think we're actually pretty encouraged by the level of activity and energy we're seeing right now among both ASCs and even hospitals. I can tell you that despite the startling number that you heard about April, as we think about where we are in Q2, we are actually -- we actually find ourselves a little bit ahead at this early point of what we formulated as our base case for this pandemic as it started. So I think we're feeling cautiously optimistic at this really early stage about how things are starting to trend back.

With regarding third quarter, I think the gist of our commentary, Larry, was just to say that we are on our way back to restoring the business to health. So that obviously implies that it's down from where we would have expected to be, but certainly better than Q2. And I think that's probably about as detailed as we can get. Since we don't have guidance in place, maybe we can try to cure that a little bit more detail after the quarter as we think about Q3.

Your next question comes from the line of Joanne Wuensch.

A couple of questions, too specifically, one of the things you've been talking with management teams about is what we call silver linings, which is what are you learning or seeing today that you -- that are positive that you think can benefit your business 12 months from now?

Well, look, I think there have been a number of them. I don't think you go through things like this as an organization or as an individual without seeing and identifying those things, hopefully, learning from them. I think a couple that jump out. One is the presence that we have always had with -- directly with our patients. Our ability to know who the patients are, how they're doing, what programs they're set to, how they've changed and continue -- in order to continue to optimize their care has been a huge help to not only us but to our customers during this time. And I think it's going to prove to be a really meaningful tool in getting things back up to speed because we're not blind to who these patients are. We know who's been treated, we know who was supposed to be treated, who's been trialed, but waiting for implants, who was in the pipeline to be trialed. We have them all in our database. And I think we can be a very, very good resource, and we already are to our customers and helping them to get their business back up to speed with the patients who are going to be receiving our technology.

So that has been a silver lining. We've always thought that was a competitive advantage and something that was helpful to our business and our customers. But I think in this time frame, it's been particularly so.

I also think that silver lining is we've learned an awful lot about how to manage patients, whether they're commercial or in clinical trials remotely. And without having to be in front of them. And once again, I think our information on infrastructure is very helpful there. But I think we've covered a lot of ground in that area that will be helpful for us as we think about efficiencies in the way we interact with customers and even in our operating expenses to do so over future quarters and years. Those are probably 2 that jump to mind.

Your next question comes from the line of Bob Hopkins.

So Keith, just 2 things I'd love to hear your thoughts on. And the first is the notion that you put out there that there may be throughput issues within ambulatory surgery centers. I'm just curious, how likely do you think that is in your mind? What are you seeing?

And then the second question I have is just -- now I appreciate you caveated your comment on fourth quarter and the potential to approach normal with the thought there's a lot of uncertainties. But it is a -- I mean I'd love to hear the comment, but kind of going from a down 80% plus month to potentially approaching normal by the end of the year is, there's a lot of ground to cover there. So I'm just curious, how much of that is your assumption that you're kind of redoing procedures that were canceled earlier versus kind of returning to true underlying normal demand?

Okay. Thanks, Bob. Well, I'll take them in order. So on the throughput issue, I think we probably would expect to see -- if we're going to see capacity or patient throughput restrictions will -- we probably think we'll see them in a hospital setting more so than ASCs, but we could see them, to some extent, in both settings of care. Your question, I think, was about ASCs. I think we're less likely to see them there. But if we do, it will probably be more around facilities and their -- either their inability to get a full staff back on site, their unwillingness to congregate a full staff back in the facility or procedures they put in place, which limits the number of patients that can be in that ASC facility at any given time. Those are maybe a couple of examples, where their cases per day or per week might be, therefore, somewhat restricted. Now I don't expect to see that in every case. And we also expect to see some of these ASCs working longer shifts, multiple shifts, doing cases on weekends, et cetera, to make up for that. So we just, frankly, have no idea what the net impact will be among all these puts and takes on throughput, but that's sort of how we're thinking about it.

In terms of Q4, look, we're trying to provide, I guess, a description of our current base case for the shape of recovery for this business. It's not very precise. It certainly isn't guidance. And it, for sure, could change. I think the underlying sentiment about Q4 reflects our belief that absent some of the headwinds that we can't predict that I went through, absent those tailwinds, it reflects our optimism that given the given the backlog that we have, the backlog that we can identify by patients, that we can work back in that there is a certain amount of catch-up. And I think that really does benefit us over the next 2 to 6 months. But you're right, on top of that, we have to restart the trial to perm a patient flow engine and that will take us a couple of quarters to start back up. So we're going to be doing both of those things concurrently. Again, I don't know exactly what that means for the Q4 specifically. Other than directionally, we think that Q4 should start to feel a bit more normalized, if not completely so.

Your next question comes from the line of David Lewis.

Keith, just a couple of questions on recovery and then a quick follow-up. So I appreciate this commentary in the fourth quarter. Maybe I'll take us back to sort of what you're seeing in April, May on 2 topics. The first one, Keith, is you talked about these 3,000 patients that were sort of in the funnel. I'm kind of curious as you sit here, looking at late April and May, what percent of the activity or just rough qualitative commentary is really coming from sort of those core 3,000 patients you're trying to get rescheduled or getting those trials converted to perm versus sort of new lead generation, de novo patients. I'm kind of curious how that mix is looking to kind of get back to this funnel concept of -- the funnel kind of refilling here in the intermediate term?

And then to that, Keith, and the second question there on recovery is just ASC mix. I kind of think of it as 60% pre-COVID, where do you think that mix goes in kind of a post-COVID world for your business? And then one quick follow-up.

Yes. So again, I'll take them in order. On the percent of activity, we're seeing now that's coming out of that backlog. I don't have a specific number to give you, David. It is a significant share. I will tell you that -- and it's very early, but I was a little surprised by how much of the scheduled activity that we're seeing now is not coming out of the backlog. I realize that doesn't help you a lot without a percentage, but I would have assumed the vast majority of it to be at this early point, patients coming directly out of the backlog, and that hasn't necessarily been the case. So I think that's actually encouraging.

From an ASC mix standpoint, actually, the ASC mix has historically not been quite as high as you just said. I think it's been a little bit closer to 50%, maybe even a little bit under with hospitals making up the balance, at least for permanent implants. We're seeing ASC volume begin to tick up, maybe to approach somewhere between historical rates and the rate that you mentioned at 60%. And I think some of that will be durable. Look, some of it is just they're coming back faster. That's a phenomenon that I think we'll see over the next quarter or 2. I think some of it will be a durable shift in case volume that will move towards ASC. This was a trend that was beginning anyway. And ASCs were gradually growing on hospital volume. And I think this will turbo boost that a bit over the next quarters and years.

Okay. Very helpful. And then Keith, just -- I was sort of impressed with the adjusted EBITDA number, given cyclicality in the sell-off in the back half of March, the adjusted EBITDA number was actually pretty defensible. As you think about discretionary spending and core investment spending, 2 key programs, NSRBP and PDN, any changes that you think happen on a time line perspective, investment perspective, either clinical or commercial related to those 2 investment opportunities would be great to hear. And then anything else that you've had to sort of pare back on that is sort of more core that could impact the growth rate over the next 24 months that's worth discussing would be helpful.

Yes. I think from a clinical trial standpoint, I don't know that there are any of the changes associated with the pandemic environment really much affect the cost of finishing those trials. And in fact, maybe not much at all. And hopefully, as we said in our remarks, they don't really affect pace of finishing those trials and reading out on data as well.

In terms of just spending in general, with regard to Q1, as I think Andrew said in his commentary, we had already begun last year and into early Q1 beginning to rationalize our operating expenses a bit and bring them back in line with our longer-term objectives. We had actually done a little bit of that throughout the year, but we had picked up pace a little bit in Q4 and early Q1. So I think that helped us in the Q1 results.

The operating expense number that Andrew mentioned reflects a number of things. Some of them are passive, frankly, when sales decline that much that quickly and people have to stay home. There are obviously things that decline without management activity or oversight. And some of them are active. Some of them are decisions we made to postpone those things that were less important to do things that we could do later. But none of those things affect 2 priorities. So none of those things affect, for example, the next-generation product platform. None of those changes affect PDN or NSRBP. And they certainly don't affect our commercial engine and our ability for that engine to start-up and wrap back up pretty quickly when we need to. That was our objective. The momentum we carried into the quarter allowed us to do it that way with some confidence. And I think certainly, the beefing up our balance sheet a bit gave us the confidence to be able to approach it that way as well. Maybe not quite as much detail you'd like, David, but I hope that helps.

Your next question comes from the line of Kaila Krum.

It's David Rescott on for Kaila. You guys provide a little color around the high-level shifts toward the outpatient additional setting. I was wondering if you could provide some -- any more color around what you're thinking about the potential for an increased propensity for patients to choose an SCS implant, which was performed in the outpatient or ASC setting for cases otherwise would have potentially done a traditional spinal implant. So essentially, any kind of color around the impacts of COVID accelerating SCS procedures, moving up more than that of traditional spinal procedures.

Well, I can only tell you that anecdotally, we've heard a little bit of that feedback from our customer base. And that is that, in general, this environment is likely to increase the move toward less invasive procedures to maybe change the algorithm of treatment options for patients in the way they're presented to the patients. And particularly if it's driven by site of care, as you mentioned, procedures that can be done less invasively on an outpatient basis and maybe in an ASC as opposed to more invasive inpatient alternatives. My sense is that, that input reflects a trend that will probably be real. I don't know, I can't speak to the magnitude or the timing. It makes sense to us. It's obviously been a general trend in device-related therapies for a long time. And I think the speculation that this would increase that is probably has merit. And I think that it's likely that we'll see the result of that, to some extent, in our therapy as well.

All right. That's helpful. And second one for me, just around kind of the visibility you guys have into Q2 and Q3, I guess the rest of the year. I know you guys have some internal metrics such as the number cloud and have done some trialing. So I was just wondering kind of what your visibility is towards the second half of the year? And what your confidence really is on that given the kind of internal metrics and systems that you guys are using?

Yes. Well, if we look at our revenue forecasting models, they're heavily influenced in a normal scenario by the relationship and timing of trials and the conversion of those trials, the percentage of those trials that are favorable or responders and then the pace at which those trials convert to perms. I think in this case, I don't know that we've ever been -- well, I'm sure that we haven't ever been through a scenario where everything just simply shuts off for some period of time when you find yourself starting it back up. So it's a complete interruption to our normal forecasting methodology would have the obvious impact on our precision as a result. But the way we look at this is now kind of twofold for the next couple of quarters. One, what rate and pace can we begin to start that trial engine back up, so that it's an accurate forecasting tool and predictor of our business? And then layered on top of that, what percent and at what pace will these, say, warehouse patients, these patients that are on hold and waiting, will they come back into the treatment flow? We've done a lot of research with our customers over this last 6 to 8 weeks trying to understand how they're thinking about that and what might happen and have factored all of that into some of our modeling. And that's sort of what's leading us to our base-case view of how this might recover over the next few quarters.

Your next question comes from the line of Robbie Marcus.

Keith, I want to circle back to a comment you made that 30% of the patients that had deferred or canceled procedures have scheduled for the next 60 and 90 days. What do you think happened to the other 70%? Do you think they're lost? Do you think they found something else, which is tough to imagine given how severe they are? Or do you think they're still just waiting for the virus to die down before we schedule in? Because it seemed like it's still a lot of patients that were fully committed that still aren't back in the system yet.

Actually, I was pretty encouraged by that number. I thought given the time frame that we're in, to already have 30% of those patients on the -- on surgical calendars was pretty darn good. So maybe just sharing a different perspective from inside is helpful as well. I don't think they're lost. I think that this is really early. And we have, in many cases, doctors' practices and ASCs and even hospitals are either have just been open for these procedures over the last week or 2, or they're just opening over the next week or 2. So I think the outreach to patients, the interaction between Nevro and the patient in the office and trying to get them back on the calendar and understand scheduling capacity and that kind of thing is very, very early, which is why I think we thought the 30% number was actually quite large. I don't think there's any reason to think of the 70% that these patients are lost. This is not a lifestyle procedure. It's not a life priority that might change over time due to the COVID-19 experience. I think we have patients that have been in really severe pain for a long time. That pain is unlikely to have just have gone away. And these are patients that typically have already explored most, if not all of their other alternatives. Now that doesn't mean we get 100% of these patients back. But our expectation is we get the vast majority of them back. And I think we'd be kind of disappointed if we didn't get 3/4 to 80% of these patients may be better over the next few quarters or more.

Great. I guess it's all relative. Maybe just one follow-up. You were right in the thick of the Omnia launch, but some of your peers were also launching products as well. You touched on this a bit in the script, but has this actually, if we try and think of a silver lining, been good for your sales force to help educate doctors, while they've had some downtime versus their busy practices. If you could just help us understand what you've been doing to keep the launch alive during these tough times, it would be appreciated.

Yes. We actually made a -- we made a decision, I think, early on in terms of how we were going to face our customers during this time, and what we were going to try and get done with them or not. And we made an early decision that there were lots of ways that we could add value to our customers through education, through helping to manage their patients, giving them feedback on how their patients are doing, preparing to reschedule, cases, et cetera. Part of that decision, though, was also that we were going to pull back a bit from product-specific detailing. We actually saw, in some cases, competitors continue on with product messaging, product training, product detailing, that kind of thing. And I think in some cases, our view was that it was not being met well by the market. And that sort of validated our priorities. Now we're stepping back into that in course over these next days and weeks. Certainly, May will represent a complete transition month for us in that area. But I think it was the right decision to make. I think in terms of the relationship we have with our customers and what they were going through, I don't think it was a month or 2 period in which they really wanted to sit down and spend a lot of time talking about features and benefits. And so our attempt was to kind of honor that and spend time with them giving them information that was of some value. There's nothing about what's happened in the last month or 2, either from our product standpoint or the competitive positioning standpoint that I think changes the order of competitors while the caution flag was out. I think everybody is going to kind of come out pretty much where we went in from a product standpoint.

Your next question comes from the line of Dave Turkaly.

I know it's early in the Omnia launch. I was just curious, you made the comment on the paired waveforms. And I guess I'd love to know anything anecdotally or how popular they are? And what you expect from that as that launch continues?

Thanks. I think there -- so I think they're proving to be popular. I think on -- first of all, let me split that into 2 categories. I think there -- the paired waveform capability of Omnia is proving to be a very interesting and attractive capability and message to our existing and to new customers. And so I think it's already been really important. It has played a very large role in the early traction Omnia has gotten and some of the results we were seeing in late Q4 and the first couple of months of Q1.

In terms of how patients are actually being treated, we expected this to take a little bit of time. Given the certainty we had that the early adoption of Omnia would be among our existing customers and our existing customers skew to those customers who have a heavy belief in high frequency as a stand-alone therapy. So we knew that over time, the use of paired waveforms, the use of lower frequencies stand-alone or combined would increase over time. But I think as we sit here today, we look at over our very early patient population, I think it's something in the range of 10% to 15% of our patients are already using, particularly paired waveforms with high frequency and other lower frequencies. And I think that's probably right about where we thought it would be at this point in time.

Great. Just one other point of clarification. The destocking -- the net destocking that you had -- that's over now, correct?

Turkaly, this is Andrew. Over for the current year, you've got to remember when you're comparing to the prior year, you're comparing for instance, in first quarter '19, we had destocking. So from a comparable basis, it still has an impact on the numbers. But in the current period, there's no stocking or destocking, so that's correct.

Your next question comes from the line of Matt Taylor.

This is actually Young in for Matt. Maybe for the first one, I was wondering if you can provide some just general high-level thoughts on the macro impact from unemployment. Just kind of wondering how economically sensitive the typical Nevro or SCS patients are? Maybe you can help us understand patient age dynamics or insurance mix.

Okay. There's a little I think we can do to really give guidance yet on macroeconomic impact, unemployment impact, et cetera. We don't really know what that's going to be like as we recover here if what we're seeing throughout the immediate response to COVID is going to be a durable kind of unemployment picture. That's one very downside case or whether or not it's going to rebound and whether rebound sharply or something other than that. So it's hard to tell. I'll also tell you that as a commercial company, we weren't -- we didn't live through the last recession as a commercial company, so we don't really have a comparison to refer back to from the last recession.

In general, though, I will tell you that a lot of our patients are Medicare. And most of those patients have secondary insurance to cover their copay exposure. Certainly, some good portion of our patients are private pay as well. And that's one of the reasons we oftentimes see a very strong Q4 when people have exhausted their copay and their economic share of a procedure is reduced during that quarter. So what does all that mean if people generally feel they have less disposable income or if they don't have insurance? I would think that the disposable income portion would affect us, but affect us less than some, given the nature of these patients, the quality of life that they have and the number of things they've already tried and their desire to do something about this pain. So would it have an impact? Probably. Would it be as much as some? Maybe even most procedures, I would say, from an elective standpoint, probably not.

I think where we understand less, well, is just unemployment or lack of access to adequate coverage. If it was really broad and deep, I would expect that to have some impact, of course. But I -- there's just no way to know and try and speculate on what it would be in different scenarios. So I'm afraid that answer is terribly unhelpful to you in terms of detail, but there's not much else we can do to model that out just yet.

No, I thought it was pretty helpful. Definitely, I'm interested here in how you're thinking about it and understanding it's a really fluid situation, no real now. But I guess, maybe for my follow-up, just wondering on international geographies. I think you mentioned some of the other areas have started to show signs of recovery in certain countries in Europe, Australia, so maybe if you can talk about where you're staying there and if those are good read-throughs to the U.S. in terms of the pace of recovery?

Well, I think it really depends on the country. And so I think we're going to see a very different shape and pace of recovery in each market. I think in general, it's our suspicion that our international markets may be a little bit slower to come back than the U.S. market, given just some of the differences in the structure of delivery of health care and delivery of this procedure, economic incentives, et cetera. But certainly, we do believe they'll come back, albeit maybe at a little different pace. Within the international markets, we think they'll come back at very different rates. We think that the German market and the U.K. market are likely to look different and the pace in which they come back due to policy decisions, due to the level to which they were affected by the pandemic to begin with. And obviously, we don't give country by country detail or guidance, but hopefully, that helps a little bit.

Your next question comes from the line of Suraj Kalia.

Keith, can you hear me all right?

I can, Suraj. Thank you.

Perfect. So Keith, forgive me, just jumping in between calls in case you've already talked about this. The 30% of the cases postponed and now rescheduled for the next 60 to 90 days, Keith. The 30%, how do those juxtapose with -- are they in anticipation of areas that are opening within the next 60 to 90 days? Or are they already scheduled, per se, in areas that are open? Just love to get some additional color in terms of the confidence level, in terms of these actually being materialized? And also, if you could just tie it into the 3,000 patients you have said, were you referring to 30% of the 3,000? Or forgive me, I couldn't connect the dots on those 2.

Okay. So no, it's a good question, Suraj. So these patients are being rescheduled primarily in states that are already open for elective surgery business. Although in some cases, they're being rescheduled in states that have announced an opening date for electric procedures that hasn't yet happened because most of those states that have been announced are coming up here very soon. Among the 50 states, there are about 38 that were nominally open for elective procedures at the end of April. As we sit here today, that number has gone to about 43. And there remains about 6 or 7 states that haven't commented at all on when they're going to reopen for elective procedures. Now announcement and activity are 2 different things. So -- but the point is most of our states do have the green light. And so they're beginning to reschedule patients. They're rescheduling those patients over a long period of time based on when they think they're really going to be up and running, uncertainty about getting their staff on board, rescheduling other kinds of cases, et cetera. So we would normally think that a group of patients this size would take months, not weeks to work back into the pipeline. So I don't think that's very surprising to us. And yes, these patients that are being rescheduled. I would say the vast majority of them probably come out of those 3,000 patients that were waiting for their perm, but a lot of these cases that are being scheduled are trials as well. And some of those are patients that were waiting -- that were already scheduled for a trial before we were shut down in early March or who were just on the lead list and hadn't yet even scheduled the trial. So it's a mix of those patients coming back off that 3,000 list for perms and those coming off of the larger list for trials.

Got it. And my final question, one of the things that we ask companies, and we are hearing at least it's toggling to the surface is pricing power moving forward. A number of companies are telling us, Suraj, look, we were putting in 2%, 3%, 4% ASP increases, the dynamics are changing. I'd love to get your thoughts on what you see pricing power over the next 12 to 18 months? And more specifically, given the financial devastation, this is case to hospitals is P&L, do you think bundling in the -- within the context of SCS that some of your competitors might are going to employ, how do you see the dynamics changing, especially in the hospital setting?

Yes. Again, good question. I -- so I don't know that we anticipate a meaningful change in pricing. Now we've certainly got our eyes on the horizon here and our ears to the ground. So we're watching that situation carefully. We haven't yet seen any signs of pricing pressure from the marketplace or irrational pricing decisions among our competitors. In general, I don't know that we think that price is a very effective tool for moving market share around in this particular market. Keep in mind that this is a pretty well reimbursed procedure, reimbursement doesn't go down because of COVID. And if anything, I would say, procedures that are well reimbursed that provide reasonable financial outcomes for centers are those that they would love to see back on the surgical calendar. So I don't think any of that translates to some uniquely different pricing environment for us. And that is kind of our suspicion going yet.

Now certainly, there could be some impact on payment terms. During a recovery period, we certainly factored that into our modeling and something that we think we could see or hear over time, but not on a broad basis, it will be more on customer-to-customer basis.

There is a little bit of a pricing differential between ASCs and hospitals as shift -- as procedure volume shifts to ASCs, we expect that to have a very small but probably discernible impact on average selling prices over time, I would say, over the next couple of years. But Suraj, we don't see anything obvious other than that right now that would emerge from this from a price pressure standpoint.

Finally on bundling. Bundling is one of those things that everybody always worries about. We certainly do worry about it. It not -- it has not been terribly effective in most sites. This is a product area where there are definite preferences. Doctors and centers have preferences on the product and the companies they like to work with. And the power of the bundle and the available bundle for that matter to include these products and just haven't been that compelling so far. So we'll have our eyes open for that. I don't know that we think that's a tactic that has compelled much in a way of market share up to this point.

Your next question comes from the line of Danielle Antalffy.

Just hoping a little bit more color on how to think about the refill of the referral funnel? Or I guess, just in general, if pain patients are sort of sidelined right now, they're likely being managed medically, sad to say probably, on opioids in a lot of cases. Are you hearing at all chatter among physicians about a concern that patients might want their own medication be like, oh, we're doing okay. And just (inaudible) to not come back to the doctor and get a procedure or -- I guess, at a high level, my question is, how is, in fact, your referral channels, but more specifically, the backlog of patients if they're being managed medically by -- for now waiting for procedure, what's the chance of that patient is lost?

Yes. Look, I think there's -- you can't disrupt the market this deeply and this quickly without there being some leakage in demand. So there may be a rational reason why a patient who was in line and demanding this kind of therapy to not be back in line when we reemerge. And yet, I do expect it to happen here and there. I think that's -- it would be surprising if that didn't happen. I don't know that I think it's a broad trend. Again, I keep referring back to this, but just the nature of the patients who find themselves at this point in their therapy continuum are a pretty needy patients who have exhausted other options. So I think most of them who would have been referred will be referred. Now it may take some time. It takes some time to get this whole engine really back up and running again. I do think it takes us at least a couple of quarters to really be back to the point where we're seeing the kind of -- and it could take longer, Danielle. But I think to get back to the point where we're seeing the kind of referral pattern, the kind of trialing volume, et cetera, I think that -- I think it will take a little bit of time. But I don't know that I see certainly any permit change in referral activity. And I don't know that I see a meaningful amount of leakage out of those patients, who might have otherwise been at that point and waiting.

That concludes the question-and-answer session. I'll now turn the call back over to Keith Grossman for closing remarks.

Okay. Thank you again, everyone, for joining us. I know that it's been an uncertain tumultuous time to say the least. So we really appreciate your interest and your continued interest in what we're doing. And as we all want to say these days, I wish you all good health and stay well. And if we can answer any questions privately, please let us know. Thank you.

This does conclude today's conference call. Thank you for your participation. You may now disconnect.