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Nevro Corp (NYSE:NVRO)
Q1 2020 Earnings Call
May 5, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon and welcome to Nevro's First Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] And now, I would like to introduce Julia Cunningham, Nevro's Vice President of Investor Relations. Please go ahead Ms. Cunningham.

Juliet Cunningham -- Vice President of Investor Relations

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 will 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 site. 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 over to Keith.

Keith Grossman -- Chairman, Chief Executive Officer & President

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 the 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.

Finally, and perhaps most importantly, I'd like to describe the actions we've taken over the last two months to help ensure the health and safety of our employees, our patients and our customers. For the first two and a half 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.

And 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 healthcare 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 healthcare systems around the world now begin to implement our 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 procedures fall into the elective, but necessary category, because our patients have typically suffered chronic debilitating pain for years. Most of, 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 response to a really critical need.

Among elective procedures, it's also important to remember the distinction between those that are gone 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 a 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 back up.

For the other roughly half of our cases that take place in ambulatory surgery centers or ASCs, we expect them to lead the way in the early recovery of procedure volumes and -- but we also expect this episode to possibly accelerate the site of care shift from hospitals to ASCs that was already beginning to happen.

We have 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 are 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 those physicians and patients through a proactive engagement program that includes virtual patient support, a patient nurturing program through our NevroCloud 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 of 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 had 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 load. 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 am 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 are not providing second quarter or 2020 guidance at this time, I am not going to go into a lot of those details here, but I do want to provide as much transparency into our business outlook as possible. I wonder if I could ask anyone who's on the line who's not muted to make sure we are hearing some emails etc.

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 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 two or three 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 days to 90 days and our new patient increased substantially during this period would suggest 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 toward 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 at which procedures are likely to return, but also which care settings are likely to come back online first. We are 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 would either cancel their scheduled permanent implant procedures or have 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 trial 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 provides strong tailwinds to our outlook for recovery as I have 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 restricted policies 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. And now throughout this brief, but a 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, 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 non-essential 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 PDN, we expect little or no delay due to COVID 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 are working with our investigators to get these last patients treated as soon as possible as centers reopen and we continue to expect that we'll be able to present three-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 are due in June of next year. Once we satisfy those notes, we'll have no maturity obligations until 2025.

I would 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 a 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 ruling, reinstating Nevro's asserted system patents and also upheld 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 under-penetrated 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. 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 precedence.

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 diligent 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.

Andrew Galligan -- Chief Financial Officer

Thanks, Keith. I'll begin with our worldwide revenue for the three 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 pre-announced revenue range of $86.4 million 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 three 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 have 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 non-cash 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 operating [Phonetic] expenses. We expect to use approximately $172.5 million of these proceeds to repay our legacy convertible notes, which will mature 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 total approximately $560 million. We are confident that our balance sheet positions us well to 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.

Questions and Answers:

Operator

Okay. Your first question comes from the line of Larry Biegelsen.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Hi, good afternoon. Thanks for taking the question. Can you hear me OK?

Keith Grossman -- Chairman, Chief Executive Officer & President

Hi, Larry. We got you.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Okay. Good. Hey Keith. So, could you or would you be willing to provide some color on what you are seeing in hospitals and ASPs 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? Thanks for taking the question.

Keith Grossman -- Chairman, Chief Executive Officer & President

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 are actually pretty encouraged by the level of activity and energy we are seeing right now among both ASCs and even hospitals. I can tell you that, despite this 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 are 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 health, so that obviously implies the risk down from where we would have expect it to be, but certainly better than Q2. I think that's probably about as detail as we can get since we don't have guidance in place. Maybe we can try to cure [Phonetic] that a little bit more detail after the quarter as we think about Q3.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

That's great. [Indecipherable]. Thanks for taking the questions.

Keith Grossman -- Chairman, Chief Executive Officer & President

Okay.

Operator

Your next question comes from the line of Joanne Wuensch. Joanne, your line is open.

Joanne Wuensch -- Citigroup -- Analyst

Good afternoon and thank you very much for all the information you were able to provide. A couple of questions, two specifically. One of the things you've been talking with management team is 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?

Keith Grossman -- Chairman, Chief Executive Officer & President

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 and hopefully learning from them. I think a couple of 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 are doing, what programs they are 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 are not blind to who these patients are.

We know who has been treated. We know who is supposed to be treated, who has been trialed but waiting for implants, who is 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 beget 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 it's 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 the silver lining is we've learned an awful lot about how to manage patients, whether they are commercial or in clinical trials remotely and without having to be in front of them, and once again I think our information -- 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 two that jump to mind.

Joanne Wuensch -- Citigroup -- Analyst

Thank you. I'll leave it there.

Keith Grossman -- Chairman, Chief Executive Officer & President

Okay.

Operator

Your next question comes from the line of Bob Hopkins. Sir, your line is open.

Robert Hopkins -- Bank of America Merrill Lynch -- Analyst

Thank you very much and good afternoon. So, Keith, just two 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 was just curious how likely do you think that is in your mind, what are you seeing.

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

Keith Grossman -- Chairman, Chief Executive Officer & President

Okay. Thanks, Bob. Well I'll take them in order. So, on the throughput, as you -- I think we probably would expect to see -- if we are going to see capacity or patients throughput restrictions, 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 are 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 or 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, etc. 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 are thinking about it.

In terms of Q4, look, we are 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 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 two to six months.

But you are 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 are 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.

Robert Hopkins -- Bank of America Merrill Lynch -- Analyst

Great. Very fair. Thank you.

Keith Grossman -- Chairman, Chief Executive Officer & President

Okay.

Operator

Your next question comes from the line of David Lewis. Sir, your line is open.

David Lewis -- Morgan Stanley -- Analyst

Great. Thank you. Good afternoon everyone. 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 this back to sort of what you are seeing in April, May on two topics. The first, Keith is, you talked about these 3,000 patients that were sort of in the funnel. I am kind of curious as you sit here and looking at late April and May, what percent of the activity or just rough qualitative commentary, is really coming from sort of these core 3,000 patients you are 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, with that, Keith, the second question there on recovery is just, ASC mix, I kind of think 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.

Keith Grossman -- Chairman, Chief Executive Officer & President

Yes. So, again, I'll take them in order. On the percent of activity we are seeing now that's coming out of 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 are 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 have 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 are 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 are coming back faster. That's a phenomenon that I think we'll see over the next quarter or two. I think some of it will be a durable shift in case volume that will move toward ASC. This is 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.

David Lewis -- Morgan Stanley -- Analyst

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. Adjusted EBITDA number was actually pretty defensible. As you think about discretionary spending and core investment spending, two key programs, NSRBP and PDN, any changes that you think happen on a timeline perspective, investment perspective, either clinical or commercial related to those two investment opportunities will be great to hear.

And then anything else that you've had to sort of pair 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? Thanks so much.

Keith Grossman -- Chairman, Chief Executive Officer & President

Yes. I think from a clinical trial standpoint, I don't know that there are any of the -- 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 have 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 a management activity or oversight. And some of them are active, and some of them are decisions we made to postpone those things that were less important to do things that we could later. But none of those things affect key 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 or 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 as you'd like David, but I hope that helps.

David Lewis -- Morgan Stanley -- Analyst

Yes, very helpful. Thank you.

Operator

Your next question comes from the line of Kaila Krum. Sir, your line is open.

David Rescott -- SunTrust Robinson Humphrey -- Analyst

Hey this is David Rescott on for Kaila. Thanks for taking our questions. You guys provided a little color on the high level shifts toward the outpatient additional setting. I was wondering if you could provide some -- anymore color on what you are thinking about the potential for increased propensity for patients to choose a SCS implant, which is performed in the outpatient or ASC setting; for cases otherwise would have potentially done a traditional spinal implant. So essentially any type of color around the impacts of COVID accelerating SCS procedures, moving up most of them ahead of traditional spinal procedures?

Keith Grossman -- Chairman, Chief Executive Officer & President

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 and the way they are 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 in-patient alternatives.

My sense is, 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.

David Rescott -- SunTrust Robinson Humphrey -- Analyst

All right. Thanks. That's helpful. Second one for me just around kind of the visibility you guys have in the Q2, Q3, I guess, the rest of the year, I know you guys have some internal metrics such as the NevroCloud and have done some trialing. So, I was just wondering kind of what your [Technical Issues] toward the second half of the year and what your comments really from that given the kind of internal metrics and systems that you guys are using?

Keith Grossman -- Chairman, Chief Executive Officer & President

Yes. Well, if we look at our revenue forecasting models, they are 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 -- I'm sure that we haven't ever been through a scenario where everything just simply shuts off for some period of time and you find yourselves starting a backup. So, it's a complete interruption to our normal forecasting methodology, would have the obvious impact on our position as a result. But the way we look at this is now kind of two-fold 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 layer 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 six to eight weeks trying to understand how they are 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.

Operator

Your next question comes from the line of Robbie Marcus. Robbie, your line is open.

Robert Marcus -- JPMorgan Chase & Co. -- Analyst

Oh, great. And thanks for all the helpful color. 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 [Phonetic] days and 90 days. What do you think happened to the other 70%? Do you think they are lost? Do you think they found something else, which is tough to imagine given how severe they are? Or do you think they are still just waiting for the virus to die down before we schedule in? Because it seems like, it's still a lot of patients that were fully committed that still aren't back in the system yet.

Keith Grossman -- Chairman, Chief Executive Officer & President

Actually, I was pretty encouraged by that number. I thought, given the time frame that we are in, to already have 30% of those patients 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 are 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 two or they are just opening over the next week or two. So, I think the outreach to patients, the interaction between Nevro and the patients 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 is 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 these are patients that have been in really severe pain for a long time. That pain is unlikely to have just 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 a 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 three-fourth to 80% of these patients, maybe better, over the next few quarters or more.

Robert Marcus -- JPMorgan Chase & Co. -- Analyst

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 kind of think of a silver lining been good for your sales force to help educate doctors as well; they've had some downtime versus their busy practices. Maybe you could just help us understand what you've been doing to keep the launch alive during these tough times, would be appreciated? Thanks a lot.

Keith Grossman -- Chairman, Chief Executive Officer & President

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, helping to manage their patients, giving them feedback on how their patients were doing, preparing to reschedule cases, etc. Part of that decision that 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 is that it was not being met well by the market. And that sort of validated our priorities. Now, we are 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 a 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 two 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 is nothing about what's happened in the last month or two, 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 try to come out pretty much where we went in from a product standpoint.

Operator

Your next question comes from the line of David Turkaly. Sir your line is open.

David Turkaly -- JMP Securities -- Analyst

Great. Thanks. I know it's early in the Omnia launch. I just care if 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.

Keith Grossman -- Chairman, Chief Executive Officer & President

Thanks. I think they are -- so I think they are proving to be popular. I think one -- first of all, let me split that into two categories. I think 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 and 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 out 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.

David Turkaly -- JMP Securities -- Analyst

Great. Thanks. And then, just one point of clarification that destocking, the net destocking that you had, that's over now, correct?

Andrew Galligan -- Chief Financial Officer

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

David Turkaly -- JMP Securities -- Analyst

Great. Thanks.

Operator

Your next question comes from the line of Matt Taylor. Matt, your line is open.

Xuyang Li -- UBS Investment -- Analyst

Hi, this is actually Xuyang in for Matt. Thanks for taking our questions. Maybe just 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.

Keith Grossman -- Chairman, Chief Executive Officer & President

Okay. There is little I think we can do to really give guidance yet on macroeconomic impact, unemployment impact, etc. We don't really know what that's going to be like as we recover here if what we are 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 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 co-pay 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 co-pay 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 what we have 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 is just no way to know and try and speculate on what it would be in different scenarios. So, I am afraid that answer is terribly unhelpful to you in terms of detail. But there is not much else we can do to model that out just yet.

Xuyang Li -- UBS Investment -- Analyst

No, that was pretty helpful. Definitely interesting to hear how you are thinking about it and understanding it's a really fluid situation, no one really knows. But I guess, maybe for my follow-up, I was wondering on international geographies. I think you mentioned some of the other areas have started to show signs of recovery in countries in Europe, Australia. So, maybe if you can talk about what you're seeing there and if those are good read-throughs to the U.S. in terms of the pace of recovery?

Keith Grossman -- Chairman, Chief Executive Officer & President

Well, I think it really depends on the country. And so, I think we are 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 maybe a little bit slower to come back than the U.S. market, given just some of the differences in the structure of delivery of healthcare and delivery of this procedure, economic incentives, etc. But certainly we do believe they will come back, albeit may be at a little different pace.

Within the international markets, we think they will come back at very different rates. We think that the German market and the UK 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.

Xuyang Li -- UBS Investment -- Analyst

Great. Thank you.

Operator

Your next question comes from the line of Suraj Kalia. Sir, your line is open.

Suraj Kalia -- Oppenheimer -- Analyst

Good afternoon, Keith. Can you hear me alright?

Keith Grossman -- Chairman, Chief Executive Officer & President

I can, Suraj. Thank you.

Suraj Kalia -- Oppenheimer -- Analyst

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 days to 90 days, Keith. The 30%, how do those juxtapose with -- are they in anticipation of areas that are opening within the next 60 days to 90 days or are they already scheduled per se [Phonetic] 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 patients or, forgive me, I couldn't connect the dots on those two?

Keith Grossman -- Chairman, Chief Executive Officer & President

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 are being rescheduled in states that have announced an opening date for elective procedures that hadn't yet happened because most of those states that haven't announced are coming up here very soon.

Among the 50 states, there are about 38 states 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 six or seven states that haven't commented at all on when they are going to reopen for elective procedures.

Now, announcement and activity are two different things. So -- but the point is, most of our states do have the green light. And so, they are beginning to reschedule patients. They are rescheduling those patients over a long period of time based on when they think they are really going to be up and running, uncertainty about getting their staff on board, rescheduling other kinds of cases, etc. So, we would normally think that a group of patients of 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 going to be -- 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 shutdown in early March or who were just on the lead list, and hadn't yet even scheduled a trial. So, it's a mix of those patients coming back of that 3,000 list for perms and those coming off the larger list for trials.

Suraj Kalia -- Oppenheimer -- Analyst

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% as the increases. The dynamics are changing. I would love to get your thoughts on what you see pricing power over the next 12 months to 18 months.

And more specifically, given the financial devastation this has caused to hospitals' P&L, do you think bundling 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? Thank you for taking my questions.

Keith Grossman -- Chairman, Chief Executive Officer & President

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 are 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 said [Phonetic] price is a very effective tool for moving market share around in this particular market. You 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 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 factor 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 shifts -- 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 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 will have our eyes open for that. I don't know that we think that's a tactic that has compelled much in the way of market share up to this point.

Suraj Kalia -- Oppenheimer -- Analyst

Thank you.

Operator

Your next question comes from the line of Danielle Antalffy. Danielle, your line is open.

Danielle Antalffy -- SVB Leerink -- Analyst

Thank you so much. Thank you guys for taking the question. Thanks so much for the level of detail you were able to provide. I was hoping [Technical Issues] little bit more color on how to think about the retail of the referral funnel where, I guess, just in general, as pain patients are sort of sidelined right now, they are 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 are doing OK and just [Technical Issues] to not come back to the doctor and get a procedure or I guess, at a high level, my question is, how [Technical Issues] referral channel, but more specifically, the backlog of patients if they are being managed medically by -- for now waiting for a procedure? What's the chance of that patient is lost?

Keith Grossman -- Chairman, Chief Executive Officer & President

Yes. Look, I think there is -- you can't disrupt a 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 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 all 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 are seeing the kind of -- and it could take longer, Danielle, but I think, to get back to the point where we are seeing the kind of referral pattern, the kind of trialing volume, etc., I think that -- I think it will take a little bit of time. But I don't know that I see certainly any permanent 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.

Danielle Antalffy -- SVB Leerink -- Analyst

Okay. That's perfect. That's it for me. Thanks so much.

Keith Grossman -- Chairman, Chief Executive Officer & President

Okay.

Operator

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

Keith Grossman -- Chairman, Chief Executive Officer & President

Okay. Thank you again everyone for joining us. I know that it's been an uncertain and tumultuous time to say the least. So we really appreciate your interest and your continued interest in what we are 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.

Operator

[Operator Closing Remarks]

Duration: 67 minutes

Call participants:

Juliet Cunningham -- Vice President of Investor Relations

Keith Grossman -- Chairman, Chief Executive Officer & President

Andrew Galligan -- Chief Financial Officer

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Joanne Wuensch -- Citigroup -- Analyst

Robert Hopkins -- Bank of America Merrill Lynch -- Analyst

David Lewis -- Morgan Stanley -- Analyst

David Rescott -- SunTrust Robinson Humphrey -- Analyst

Robert Marcus -- JPMorgan Chase & Co. -- Analyst

David Turkaly -- JMP Securities -- Analyst

Xuyang Li -- UBS Investment -- Analyst

Suraj Kalia -- Oppenheimer -- Analyst

Danielle Antalffy -- SVB Leerink -- Analyst

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