☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~July 26,~~October 25, 2022, there were ~~35,387,839~~35,430,089 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

The accompanying notes are an integral part of these condensed consolidated financial statements.


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
	2022			2021			2022			2021			2022			2021			2022			2021
Revenue	$	104,213		$	102,330		$	192,055		$	190,940		$	100,466		$	93,205		$	292,521		$	284,145
Cost of revenue		31,479			32,344			60,229			58,660			31,164			28,575			91,393			87,235
Gross profit		72,734			69,986			131,826			132,280			69,302			64,630			201,128			196,910
Operating expenses
Research and development		12,552			11,869			25,088			23,403			14,030			11,553			39,118			34,956
Sales, general and administrative		83,973			73,880			163,298			147,152			78,190			79,521			241,488			226,673
Certain litigation charges (credits)														(105,000	)		20,000			(105,000	)		20,000
Total operating expenses		96,525			85,749			188,386			170,555			(12,780	)		111,074			175,606			281,629
Loss from operations		(23,791	)		(15,763	)		(56,560	)		(38,275	)
Income (Loss) from operations														82,082			(46,444	)		25,522			(84,719	)
Interest income		282			163			425			460			1,128			99			1,553			559
Interest expense		(1,608	)		(5,704	)		(3,211	)		(12,251	)		(1,608	)		(3,688	)		(4,819	)		(15,939	)
Other income (expense), net		368			(88	)		453			(545	)		391			30			844			(515	)
Loss before income taxes		(24,749	)		(21,392	)		(58,893	)		(50,611	)
Income (Loss) before income taxes														81,993			(50,003	)		23,100			(100,614	)
Provision for income taxes		241			198			422			540			485			72			907			612
Net loss		(24,990	)		(21,590	)		(59,315	)		(51,151	)
Net income (loss)														81,508			(50,075	)		22,193			(101,226	)
Other comprehensive loss:
Changes in foreign currency translation adjustment		(1,411	)		62			(1,603	)		(250	)		(1,690	)		(401	)		(3,293	)		(651	)
Changes in unrealized gains on short-term investments, net		(261	)		28			(1,282	)		(119	)		(102	)		(8	)		(1,384	)		(127	)
Net change in other comprehensive loss		(1,672	)		90			(2,885	)		(369	)		(1,792	)		(409	)		(4,677	)		(778	)
Comprehensive loss	$	(26,662	)	$	(21,500	)	$	(62,200	)	$	(51,520	)
Net loss per share, basic and diluted	$	(0.71	)	$	(0.62	)	$	(1.69	)	$	(1.47	)
Weighted average number of common shares used to compute basic and diluted net loss per share		35,317,766			34,808,389			35,196,488			34,721,551
Comprehensive income (loss)													$	79,716		$	(50,484	)	$	17,516		$	(102,004	)
Net income (loss) per common share
Basic													$	2.30		$	(1.44	)	$	0.63		$	(2.91	)
Diluted													$	2.22		$	(1.44	)	$	0.63		$	(2.91	)
Weighted average number of shares used to compute net income (loss) per share
Basic														35,402,086			34,878,443			35,265,193			34,774,423
Diluted														37,338,945			34,878,443			35,501,609			34,774,423

The accompanying notes are an integral part of these condensed consolidated financial statements.


						Additional						Accumulated			Total								Additional						Accumulated			Total
	Common Stock					Paid-In			Accumulated			Other Comprehensive			Stockholders'			Common Stock					Paid-In			Accumulated			Other Comprehensive			Stockholders'
	Shares			Amount		Capital			Deficit			Income (Loss)			Equity			Shares			Amount		Capital			Deficit			Income (Loss)			Equity
Balances at December 31, 2021		35,026,654		$	35	$	928,138		$	(624,193	)	$	(364	)	$	303,616			35,026,654		$	35	$	928,138		$	(624,193	)	$	(364	)	$	303,616
Adjustments from adoption of ASU 2020-06		—			—		(48,340	)		13,995			—			(34,345	)		—			—		(48,340	)		13,995			—			(34,345	)
Exercise of common stock options		10,642			—		545			—			—			545			10,642			—		545			—			—			545
Issuance of common stock upon release of restricted stock units		263,412			—		—			—			—			—			263,412			—		—			—			—			—
Shares withheld for tax obligations		(107,257	)		—		(7,298	)		—			—			(7,298	)		(107,257	)		—		(7,298	)		—			—			(7,298	)
Stock based compensation		—			—		13,406			—			—			13,406			—			—		13,406			—			—			13,406
Net loss		—			—		—			(34,325	)		—			(34,325	)		—			—		—			(34,325	)		—			(34,325	)
Change in other comprehensive loss		—			—		—			—			(1,213	)		(1,213	)		—			—		—			—			(1,213	)		(1,213	)
Balances at March 31, 2022		35,193,451			35		886,451			(644,523	)		(1,577	)		240,386			35,193,451			35		886,451			(644,523	)		(1,577	)		240,386
Exercise of common stock options		5,100			—		230			—			—			230			5,100			—		230			—			—			230
Issuance of common stock upon release of restricted stock units		109,742			—		—			—			—			—			109,742			—		—			—			—			—
Shares withheld for tax obligations		(12,323	)		—		(759	)		—			—			(759	)		(12,323	)		—		(759	)		—			—			(759	)
Issuance of common stock under employee stock purchase plan		84,837			—		3,414			—			—			3,414			84,837			—		3,414			—			—			3,414
Stock based compensation		—			—		13,376			—			—			13,376			—			—		13,376			—			—			13,376
Net loss		—			—		—			(24,990	)		—			(24,990	)		—			—		—			(24,990	)		—			(24,990	)
Other comprehensive loss		—			—		—			—			(1,672	)		(1,672	)		—			—		—			—			(1,672	)		(1,672	)
Balances at June 30, 2022		35,380,807		$	35	$	902,712		$	(669,513	)	$	(3,249	)	$	229,985			35,380,807			35		902,712			(669,513	)		(3,249	)		229,985
Exercise of common stock options																			8,749			—		366			—			—			366
Issuance of common stock upon release of restricted stock units																			42,038			—		—			—			—			—
Shares withheld for tax obligations																			(6,995	)		—		(329	)		—			—			(329	)
Stock based compensation																			—			—		15,197			—			—			15,197
Net income																			—			—		—			81,508			—			81,508
Other comprehensive loss																			—			—		—			—			(1,792	)		(1,792	)
Balances at September 30, 2022																			35,424,599		$	35	$	917,946		$	(588,005	)	$	(5,041	)	$	324,935


							Additional						Accumulated			Total									Additional						Accumulated			Total
	Common Stock						Paid-In			Accumulated			Other Comprehensive			Stockholders'			Common Stock						Paid-In			Accumulated			Other Comprehensive			Stockholders'
	Shares			Amount			Capital			Deficit			Income (Loss)			Equity			Shares			Amount			Capital			Deficit			Income (Loss)			Equity
Balances at December 31, 2020		34,583,064		$	35		$	880,660		$	(492,833	)	$	598		$	388,460			34,583,064		$	35		$	880,660		$	(492,833	)	$	598		$	388,460
Exercise of common stock options		28,152			—			1,331			—			—			1,331			28,152			—			1,331			—			—			1,331
Issuance of common stock upon release of restricted stock units		99,389			—			—			—			—			—			99,389			—			—			—			—			—
Shares withheld for tax obligations		(17,886	)		—			(2,801	)		—			—			(2,801	)		(17,886	)		—			(2,801	)		—			—			(2,801	)
Stock based compensation		—			—			9,235			—			—			9,235			—			—			9,235			—			—			9,235
Net loss		—			—			—			(29,561	)		—			(29,561	)		—			—			—			(29,561	)		—			(29,561	)
Change in other comprehensive loss		—			—			—			—			(459	)		(459	)		—			—			—			—			(459	)		(459	)
Balances at March 31, 2021		34,692,719		$	35		$	888,425		$	(522,394	)	$	139		$	366,205			34,692,719			35			888,425			(522,394	)		139			366,205
Exercise of common stock options		5,998			—			305			—			—			305			5,998			—			305			—			—			305
Issuance of common stock upon release of restricted stock units		133,609			—			—			—			—			—			133,609			—			—			—			—			—
Shares withheld for tax obligations		(15,142	)		—			(2,314	)		—			—			(2,314	)		(15,142	)		—			(2,314	)		—			—			(2,314	)
Issuance of common stock under employee stock purchase plan		37,753			—			4,648			—			—			4,648			37,753			—			4,648			—			—			4,648
Issuance of common stock from conversion of convertible senior notes due 2021		682,912			1			(1	)		—			—			—			682,912			1			(1	)		—			—			—
Exercise of bond hedge for convertible senior notes due 2021		(682,916	)		(1	)		1			—			—			—			(682,916	)		(1	)		1			—			—			—
Stock based compensation		—			—			11,032			—			—			11,032			—			—			11,032			—			—			11,032
Net loss		—			—			—			(21,590	)		—			(21,590	)		—			—			—			(21,590	)		—			(21,590	)
Other comprehensive loss		—			—			—			—			90			90			—			—			—			—			90			90
Balances at June 30, 2021		34,854,933		$	35		$	902,096		$	(543,984	)	$	229		$	358,376			34,854,933			35			902,096			(543,984	)		229			358,376
Exercise of common stock options																				1,773			—			51			—			—			51
Issuance of common stock upon release of restricted stock units																				52,611			—			—			—			—			—
Shares withheld for tax obligations																				(10,686	)		—			(1,375	)		—			—			(1,375	)
Stock based compensation																				—			—			12,634			—			—			12,634
Net loss																				—			—			—			(50,075	)		—			(50,075	)
Other comprehensive loss																				—			—			—			—			(409	)		(409	)
Balances at September 30, 2021																				34,898,631		$	35		$	913,406		$	(594,059	)	$	(180	)	$	319,202

The accompanying notes are an integral part of these condensed consolidated financial statements.

As of ~~June~~September 30, 2022 and December 31, 2021, the fair value of the 2.75% convertible senior notes due 2025 was $~~178.8~~179.3 million and $212.0 million, respectively. The fair value was determined on the basis of market prices observable for similar instruments and is considered Level 2 in the fair value hierarchy (See Note 7).

5. Balance Sheet Components

Cash and Cash Equivalents

The Company considers all highly-liquid investments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents include money market funds in the amount of $~~84.2~~109.6 million and $9.6 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively. ~~At June~~As of September 30, 2022 and December 31, 2021, the Company’s cash equivalents were held at institutions in the United States and include deposits in a money market fund which was unrestricted as to withdrawal or use. The Company also held cash in foreign banks of approximately $~~12.4~~16.6 million at ~~June~~September 30, 2022 and $8.6 million at December 31, 2021 that was not insured. The Company has not experienced any losses on its deposits of cash and cash equivalents.

Investments

The fair value of the Company’s cash equivalents and short-term investments approximates their respective carrying amounts due to their short-term maturity. The following is a summary of the gross unrealized gains and unrealized losses on the Company’s investment securities, excluding investments in money market funds (in thousands):


	June 30, 2022									September 30, 2022
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Aggregate Fair Value		Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Aggregate Fair Value
Investment Securities
Agency bonds										$	120,860	$	11	$	(557	)	$	120,314
Commercial paper	$	14,969	$	—	$	(17	)	$	14,952		17,230		—		(55	)		17,175
Corporate notes		1,000		—		—			1,000
Treasury bonds		192,490		—		(1,631	)		190,859		119,717		—		(1,149	)		118,568
Total securities	$	208,459	$	—	$	(1,648	)	$	206,811	$	257,807	$	11	$	(1,761	)	$	256,057


	December 31, 2021
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Aggregate Fair Value
Investment Securities
Agency bonds	$	42,546	$	—	$	(8	)	$	42,538
Commercial paper		61,886		2		(4	)		61,884
Corporate notes		30,371		—		(20	)		30,351
Treasury bonds		197,889		2		(339	)		197,552
Total securities	$	332,692	$	4	$	(371	)	$	332,325

Realized gains or losses and other-than-temporary impairments, if any, on available-for-sale securities are reported in other income (expense), net as incurred. The cost of securities sold is determined based on the specific identification method. The amount of realized gains and realized losses on investments recorded for the periods presented has not been material.

The contractual maturities of the Company’s investment securities as of ~~June~~September 30, 2022 were as follows (in thousands):


	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Amounts maturing within one year	$	208,459	$	206,811	$	228,000	$	226,300
Amounts maturing after one year through five years		—		—		29,807		29,757
Total investment securities	$	208,459	$	206,811	$	257,807	$	256,057

Inventories (in thousands)


	June 30,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
Raw materials	$	45,529	$	50,160	$	47,869	$	50,160
Finished goods		47,991		43,357		50,656		43,357
Total inventories	$	93,520	$	93,517	$	98,525	$	93,517

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the standard cost method which approximates the first-in, first-out basis. Net realizable value is determined as the prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company regularly reviews inventory quantities compared to forecasted sales to record a provision for excess and obsolete inventory when appropriate. Inventory write-downs are recorded for excess and obsolete inventory. The Company estimates forecasted sales by considering product acceptance in the marketplace, customer demand, historical sales, product obsolescence and technological innovations.

The Company’s policy is to write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected lower of cost or net realizable value, and inventory in excess of expected requirements. The estimate of excess quantities is judgmental and primarily dependent on the Company’s estimates of future demand for a particular product. If the estimate of future demand is inaccurate based on actual sales, the Company may increase the write-down for excess inventory for that component and

record a charge to inventory impairment in the accompanying consolidated statements of operations and comprehensive loss. The Company periodically evaluates the carrying value of inventory on hand for potential excess amount over demand using the same lower of cost or net realizable value approach as that has been used to value the inventory. The Company also periodically evaluates inventory quantities in consideration of actual loss experience. As a result of these evaluations, the Company recognized total write-downs of $~~1.2~~1.4 million and $~~1.5~~0.7 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and $~~2.3~~3.6 million and $~~3.0~~3.7 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. The Company’s estimation of the future demand for a particular component of the Company’s products may vary and may result in changes in estimates in any particular period.

Property and Equipment, Net (in thousands)


	June 30,			December 31,			September 30,			December 31,
	2022			2021			2022			2021
Laboratory and manufacturing equipment	$	10,368		$	8,722		$	11,031		$	8,722
Computer equipment and software		17,628			16,349			18,087			16,349
Furniture and fixtures		4,329			4,215			4,357			4,215
Leasehold improvements		10,562			10,316			10,589			10,316
Construction in process		3,614			3,717			4,417			3,717
Total		46,501			43,319			48,481			43,319
Less: Accumulated depreciation and amortization		(25,711	)		(22,655	)		(27,308	)		(22,655	)
Property and equipment, net	$	20,790		$	20,664		$	21,173		$	20,664

The Company recognized depreciation and amortization expense on property and equipment as follows (in thousands):

Three Months Ended

Six Months Ended

June 30,

June 30,

2022

2021

2022

2021

Depreciation and amortization expense

$
1,561

$
1,149

$
3,056

$
2,250


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Depreciation and amortization expense	$	1,602	$	1,220	$	4,658	$	3,470

Accrued Liabilities (in thousands)


	June 30,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
Accrued payroll and related expenses	$	28,187	$	30,957	$	33,396	$	30,957
Accrued professional fees		879		6,547		1,038		6,547
Accrued taxes		1,382		1,074		1,334		1,074
Accrued clinical and research expenses		173		305		195		305
Accrued interest		1,305		1,305		2,609		1,305
Accrued warranty		636		664		751		664
Accrued other		3,859		4,665		4,065		4,665
Total accrued liabilities	$	36,421	$	45,517	$	43,388	$	45,517

On July 15, 2022, the Company filed a lawsuit in the U.S. District Court for the Northern District of California for breach of contract against Flathead Partners, LLC, the Mayo Foundation for Medical Education and Research, and Mayo Clinic Ventures (herein referred to as “Flathead Partners”). The Company’s suit alleged that Flathead Partners breached the 2006 license agreement between the Company and the Mayo Clinic (referred to in the Company’s 10-K filing as the “Mayo License”), when Flathead Partners unilaterally asserted control of pending U.S. Patent Application 16/286,389 (the “’389 Application”), which is subject to the Mayo License. The suit sought to enjoin the Flathead Partners from taking any action at the U.S. Patent Office with respect to the ‘389 Application, and to thereafter engage in an arbitration as called for in the Mayo License. On July 27, 2022, the Flathead Partners agreed to enter into an arbitration to determine which party shall have control of prosecution of the ‘389 Application, and whether there are ongoing royalty obligations under the Mayo License. Therefore, Nevro dismissed the lawsuit in the Northern District of California. The parties have since been engaged in an arbitration, the details of which are subject to the confidentiality provisions outlined in the Mayo License.

T~~he following table summarizes the computation of basic and diluted net loss per share (in thousands, except share and per share data):~~

Three Months Ended

Six Months Ended

June 30,

June 30,

2022

2021

2022

2021

Net loss, basic and diluted

$
(24,990
)

$
(21,590
)

$
(59,315
)

$
(51,151
)
Weighted average shares used to compute
basic and diluted net loss per share

35,317,766

34,808,389

35,196,488

34,721,551

Net loss per share, basic and diluted

$
(0.71
)

$
(0.62
)

$
(1.69
)

$
(1.47
)

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and dilutive common stock equivalents outstanding for the period, if inclusion of these is dilutive. Upon adoption of ASU 2020-06 on January 1, 2022, the Company uses the if-converted method and presumes share settlement for its 2025 Notes when calculating the dilutive effect of these notes. ~~The~~Prior to the adoption, the Company ~~excluded~~applied the treasury stock method when calculating the potential ~~shares issuable upon conversion~~dilutive effect, if any, of the ~~2025 Notes~~convertible senior notes which were intended to settle or have settled in cash the ~~calculation of diluted earnings per share, as their inclusion would have been anti-dilutive due to the net loss position of the Company during this period. In~~principal outstanding. Furthermore, in connection with the ~~issuance~~offerings of the ~~2025 Notes,~~convertible senior notes, the Company entered into convertible ~~bond hedges. The~~note hedges and warrants. However, the convertible ~~bond~~note hedges are not included ~~for purposes of~~when calculating ~~the number of diluted~~potentially dilutive shares ~~outstanding, as~~since their effect ~~would be~~is

always anti-dilutive. Warrants were considered anti-dilutive to the extent that their strike price were above the Company's average share price during the period.

The ~~convertible bond hedges are generally expected, but not guaranteed, to reduce~~following table presents the ~~potential dilution and/or offset~~reconciliation of net income (loss) used in computing basic and diluted net income (loss) per common share (in thousands):


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2022		2021			2022		2021
Net income (loss) used in basic net income (loss) per common share	$	81,508	$	(50,075	)	$	22,193	$	(101,226	)
Plus: Assumed conversions of dilutive convertible notes		1,305		—			—		—
Net income (loss) used in diluted net income (loss) per common share	$	82,813	$	(50,075	)	$	22,193	$	(101,226	)

The following table presents the ~~cash payments~~reconciliation of weighted average shares used in computing basic and diluted net income (loss) per common share:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Weighted average shares used to compute basic net income (loss) per share		35,402,086		34,878,443		35,265,193		34,774,423
Plus effect of dilutive securities:
Stock-based awards from employee equity plans		129,718		—		236,416		—
Convertible senior notes		1,807,141		—		—		—
Weighted average shares used to compute diluted net income (loss) per share		37,338,945		34,878,443		35,501,609		34,774,423

The following table presents the ~~Company is required to make upon conversion of the 2025 Notes.~~ net income (loss) per common share - basic and diluted:


	Three Months Ended					Nine Months Ended September 30,
	September 30,					September 30,
	2022		2021			2022		2021
Net income (loss) per common share:
Basic	$	2.30	$	(1.44	)	$	0.63	$	(2.91	)
Diluted	$	2.22	$	(1.44	)	$	0.63	$	(2.91	)

Because the Company has reported a net loss for ~~all periods presented,~~the three and nine months ended September 30, 2021, the diluted net loss per common share is the same as basic net loss per common share for those periods.

The following potentially dilutive securities outstanding at the end of the periods presented have been excluded from the computation of diluted shares outstanding, as the effect would be anti-dilutive:


	June 30,				Three Months Ended				Nine Months Ended
	2022		2021		September 30,				September 30,
Unreleased restricted stock		1,624,574		1,050,416
Options to purchase common stock		683,662		757,374
					2022		2021		2022		2021
Stock-based awards from employee equity plans						—		843,165		—		995,336
Convertible senior notes		1,807,141		1,807,141		—		49,876		1,807,141		827,553
Warrants related to the issuance of convertible senior notes		1,807,141		3,597,174		—		49,404		—		352,634
Total		5,922,518		7,212,105		—		942,445		1,807,141		2,175,523

9. Employee Benefit Plans

401(k) Plan

In 2007, the Company adopted a 401(k) plan for its employees whereby eligible employees may contribute up to the maximum amount permitted by the Internal Revenue Code. In June 2016, the Company adopted a policy to match a portion of employee contributions for all qualified employees participating in the 401(k) plan. The Company recorded an expense for matching

contributions of $~~0.6~~ ~~million and $2.9~~ ~~million for the three and six months ended June 30, 2022, respectively, and~~ $0.4 million and $~~2.6~~3.3 million for the three ~~months~~ and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, and $0.2 million and $2.8 million for the three and nine months ended September 30, 2021, respectively.

Employee Stock Purchase Plan

The Company’s 2014 Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase shares of the Company’s Class A common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. The ESPP generally provides for six-month offering periods, and at the end of each offering period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s Class A common stock on the first trading day of the offering period or on the last trading day of the offering period.

There were zero and 84,837 shares of common stock issued under the ESPP for each of the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively and zero and 37,753 shares of common stock issued under the ESPP for the three and ~~six~~nine months ended ~~June~~September 30, ~~2021.~~2021, respectively. Shares available for future purchase under the ESPP were 1,482,677 at ~~June~~September 30, 2022.

~~10. Subsequent Event~~

~~On August 1, 2022, the Company announced that is has reached an agreement with Boston Scientific to settle their ongoing intellectual property litigations.~~

~~Pursuant to the parties’ settlement, the Company will receive a payment from Boston Scientific of $85.0~~ ~~million in cash, and Boston Scientific has released the $20.0~~ ~~million verdict it was awarded by a Delaware jury on November 1, 2021. The release allows the Company to reverse the liability related to the $20.0~~ ~~million loss contingency that it accrued in the period ended September 30, 2021.~~

1920

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following management’s discussion and analysis of our financial condition and results of operations in conjunction with our unaudited interim condensed consolidated financial statements (the condensed consolidated financial statements) and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q (Quarterly Report) and with our audited consolidated financial statements and notes thereto for the year ended December 31, 2021, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the Annual Report) filed with the U.S. Securities and Exchange Commission (SEC) on February 23, 2022.

Special note regarding forward-looking statements

This report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “would” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, those discussed in Part I, Item 1A. Risk Factors in our most recent Annual Report on Form 10-k as filed on February 23, 2002, and those discussed in the section titled “Risk Factors” included under Part II, Item 1A below. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview

We are a global medical device company focused on delivering comprehensive, life-changing solutions that continue to set the standard for enduring patient outcomes in chronic pain treatment. We have developed and commercialized the Senza® spinal cord stimulation (SCS) system, an evidence-based neuromodulation platform for the treatment of chronic pain, with the Senza® Omnia™ platform being our latest addition to the Senza family of products. Our proprietary, paresthesia-free 10 kHz Therapy, delivered by our Senza system, was demonstrated in our SENZA randomized controlled trial (RCT) to be superior to traditional SCS therapy, with 10 kHz Therapy being nearly twice as successful in treating back pain and 1.5 times as successful in treating leg pain when compared to traditional SCS therapy. In addition to the original approval of our therapy in back and leg pain, we received approval of unilateral or bilateral pain, associated with painful diabetic neuropathy (PDN) in July 2021 and we received expanded labeling in non-surgical back pain (NSBP) in January 2022. Our SENZA-RCT study, along with our SENZA-PDN clinical study, SENZA-NSRBP clinical study and European studies, represents what we believe is the most robust body of clinical evidence for any SCS therapy. We believe the superiority of 10 kHz Therapy over traditional SCS therapies will allow us to capitalize on and expand the approximately $2.3 billion global SCS market by treating patients with debilitating chronic pain, including back and leg pain, NSBP and PDN.

We launched Senza commercially in the United States in May 2015, after receiving a label from the U.S. Food and Drug Administration (FDA) supporting the superiority of our 10 kHz Therapy over traditional SCS. The Senza system has been commercially available in certain European markets since November 2010 and in Australia since August 2011. We have experienced significant revenue growth in the United States since commercial launch. Senza is currently reimbursed by all of the major insurance providers. In early 2017, we commenced a controlled commercial launch of our family of surgical leads, marketed as the Surpass surgical lead, and in April 2020 received FDA approval for our reduced-size Surpass-C surgical lead. In January 2018, we received FDA approval of our next generation Senza II SCS system. In the fourth quarter of 2019, we received FDA approval of our next generation product platform, Senza Omnia, which we launched in the United States in the fourth quarter of 2019. Additionally, we received approval to commercially launch Senza Omnia in Europe during the second quarter of 2020 and in Australia in July 2020. In the first quarter of 2021, we received FDA approval for our first Senza Omnia upgrade, Omnia™ Powered by HFX Connect™, and our next generation trial stimulator. In July 2021, we received FDA approval of our 10 kHz Therapy for the management of chronic intractable pain of the lower limbs, including unilateral or bilateral pain, associated with PDN. This approval is specific to our unique 10 kHz stimulation, and the Senza system was the first spinal cord stimulation system approved by the FDA with a specific indication to treat certain forms of pain associated with PDN. We received expanded labeling in NSBP in January 2022. In October 2022, we received FDA approval of our latest generation SCS system, Senza HFX iQ™. We plan to initiate a limited release of Senza HFX iQ in the United States in the fourth quarter of 2022, with a broad U.S. market launch planned for early 2023. In addition to the U.S. approval for HFX iQ, Nevro has submitted for approval in Europe.

2021

The tables below set forth our revenue from U.S. and international sales the past ten quarters on a quarterly basis and total revenue for each of the past five full fiscal years.


		Q1 2020		Q2 2020		Q3 2020		Q4 2020		Q1 2021		Q2 2021		Q3 2021		Q4 2021		Q1 2022		Q2 2022			Q1 2020		Q2 2020		Q3 2020		Q4 2020		Q1 2021		Q2 2021		Q3 2021		Q4 2021		Q1 2022		Q2 2022		Q3 2022
Revenue from:	(in millions)																					(in millions)
U.S. sales		$	75.3	$	51.0	$	90.9	$	94.6	$	74.7	$	85.0	$	78.1	$	88.4	$	73.2	$	89.0		$	75.3	$	51.0	$	90.9	$	94.6	$	74.7	$	85.0	$	78.1	$	88.4	$	73.2	$	89.0	$	86.1
International sales			12.2		5.4		17.5		15.1		13.9		17.3		15.2		14.3		14.6		15.2			12.2		5.4		17.5		15.1		13.9		17.3		15.2		14.3		14.6		15.2		14.3
Total sales revenue		$	87.5	$	56.4	$	108.5	$	109.7	$	88.6	$	102.3	$	93.2	$	102.8	$	87.8	$	104.2		$	87.5	$	56.4	$	108.5	$	109.7	$	88.6	$	102.3	$	93.2	$	102.8	$	87.8	$	104.2	$	100.5


	2017		2018		2019		2020		2021		Six Months Ended June 30, 2022		2017		2018		2019		2020		2021		Nine Months Ended September 30, 2022
Revenue from:	(in millions)												(in millions)
U.S. sales	$	263.5	$	321.8	$	326.0	$	311.9	$	326.2	$	162.3	$	263.5	$	321.8	$	326.0	$	311.9	$	326.2	$	248.4
International sales		63.2		65.5		64.3		50.2		60.7		29.8		63.2		65.5		64.3		50.2		60.7		44.1
Total sales revenue	$	326.7	$	387.3	$	390.3	$	362.0	$	386.9	$	192.1	$	326.7	$	387.3	$	390.3	$	362.0	$	386.9	$	292.5

Since our inception, we have financed our operations primarily through equity and debt financings and borrowings under a debt facility. Our accumulated deficit as of ~~June~~September 30, 2022 was ~~$669.5~~$588.0 million. A significant amount of our capital resources has been used to support the development of our Senza products and our 10 kHz Therapy, and we have also made a significant investment building our U.S. commercial infrastructure and sales force to support our commercialization efforts in the United States. We intend to continue to make significant investments in our U.S. commercial infrastructure, including a sales organization that targets physician specialties involved in PDN treatment decisions, as well as in research and development (R&D) to develop Senza to treat other chronic pain indications, including conducting clinical trials to support our future regulatory submissions. In order to further enhance our R&D efforts, pursue product expansion opportunities or acquire a new business or products that are complementary to our business, we may choose to raise additional funds, which may include future equity and debt financings.

We rely on third-party suppliers for ~~all~~a significant number of the components of our Senza products, and currently for the assembly of these systems. Several of these suppliers are currently single-source suppliers. We have entered into and/or amended several supply agreements in an effort to reinforce our supply chain. We are also required to maintain high levels of inventory, and, as a result, we are subject to the risk of inventory obsolescence and expiration, which may lead to inventory impairment charges. Additionally, as compared to direct manufacturers, our dependence on third-party manufacturers makes us vulnerable to supply shortage problems and exposes us to greater lead times, increasing our risk of inventory obsolescence. In the third quarter of 2020, we made the strategic decision to vertically integrate the assembly of implantable pulse generators (IPGs), peripherals and various other manufacturing related activities to mitigate our reliance on third-party manufacturers and improve our long-term gross margins. We plan on conducting these manufacturing activities in a facility in Costa Rica, for which our lease began in April 2021. The integration process ~~is expected to be~~was completed in ~~mid-2022.~~mid-2022, and we received approval from the FDA for the manufacture of our Senza system in the Costa Rica facility in October 2022. Even ~~after~~with this integration process is completed, we expect that we will continue to rely on third-party manufacturers as we ramp our factory and in order to provide key components to support the assembly process. We have incurred and may continue to incur significant capital expenditures and implementation costs to initiate the manufacturing activities in our Costa Rica facility.

COVID-19 Pandemic

We are subject to risks related to the public health crises such as the global pandemic associated with COVID-19. The COVID-19 outbreak has negatively impacted, and continues to negatively impact our operations and revenues and overall financial condition as demand for elective procedures remains unpredictable and the number of Senza trials and permanent system implant procedures has not recovered to pre-pandemic levels. The magnitude of the risks and uncertainties related to the pandemic are unpredictable and could be further aggravated by the spread of new variants of the COVID-19 virus such as the Omicron variant, as well as any variants thereof, which may be more contagious and/or virulent. During the initial stages of the pandemic, the number of Senza systems procedures performed, similar to other elective surgical procedures, decreased significantly as health care organizations globally prioritized the treatment of patients with COVID-19. For example, in the United States in the first half of 2020 and more recently in connection with the spread of the Omicron ~~variant,~~variants, governmental authorities recommended, and in certain cases required, that elective, specialty and other procedures and appointments, be suspended or canceled to avoid non-essential patient exposure to medical environments and potential infection with COVID-19 and to focus limited resources and personnel capacity toward the treatment of COVID-19. Additionally, overall patient willingness to pursue elective procedures has decreased due to the pandemic. Throughout 2021, the COVID-19 pandemic negatively impacted the global SCS therapy market, which we estimate decreased by approximately 5% to 10%. These challenges may arise again at any time throughout the duration of the pandemic, which is uncertain, and could reduce our revenue while the pandemic continues.

Notably, the predictability of trial and permanent implant procedures continues to be challenging to forecast in light of the ongoing pandemic and periodic surges in cases caused by the variants of the virus. Even if the severity of the pandemic subsides, we

are unable to predict the timing that demand for Senza system procedures may return to historic levels as prospective patients may decide to delay their procedures. As a result of the spread of more contagious and virulent variants, the COVID-19 pandemic could continue to result in a meaningful delay in patients seeking to have a Senza system trial. Further, we anticipate that the substantial backlog of patients seeking appointments with physicians and surgeries to be performed at hospitals and ambulatory surgery centers relating to a variety of medical conditions will result in patients seeking to have Senza system trials or implant procedures performed having to navigate limited provider capacity, due to, among other reasons, a growing trend of labor shortages with nurses and other healthcare facility staff. We believe these factors may have an adverse effect on the recovery of the global SCS therapy market and, as a result, the amount of time we predict for our sales to recover following the end of the pandemic.

Further, numerous state, local and ~~local~~foreign jurisdictions have imposed, and others in the future may impose, “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19 and its variant strains, which continue to spread and impact the United States and other countries. For example, multiple times in 2020, the governor of California, where our headquarters are located, issued “shelter-in-place” or “stay at home” orders restricting non-essential activities, travel and business operations for an indefinite period of time, subject to certain exceptions for necessary activities. Such orders or restrictions have resulted in our headquarters closing, work stoppages, slowdowns and delays, travel restrictions and cancellation of events, among other effects, thereby negatively impacting our operations. Other disruptions or potential disruptions include restrictions on our personnel and personnel of partners to travel and access customers for training and case support; delays in approvals or certifications by regulatory authorities and notified bodies; delays in product development efforts; and additional government requirements or other incremental mitigation efforts that may further impact our capacity to manufacture, sell and support the use of our Senza systems. For instance, in the EU, notified bodies must be officially designated to certify products and services in accordance with the Medical Devices Regulation (EU) No 2017/745 (the EU Medical Devices Regulation). While several notified bodies have been designated, the COVID-19 pandemic has significantly slowed down their designation process and the current designated notified bodies are facing a large amount of requests with the new regulation as a consequence of which review times have lengthened. This situation could impact our ability to grow our business in the EU and EEA. In addition, even after the lift of “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19, we continue to experience disruptions to our business as a result of patients and customers continuing to be cautious in restarting elective procedures in light of the continued risk posed by the virus.

Global and domestic supply chains and the timely availability of raw materials and products have been and may continue to be materially disrupted by quarantines, factory slowdowns or shutdowns, border closings and travel restrictions resulting from the COVID-19 pandemic. Any manufacturing supply interruption of materials could adversely affect our ability to conduct ongoing and future activities.

While the continued potential economic impact brought by and the duration of COVID-19 may be difficult to assess or predict, the widespread pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity, including our ability to repay our 2.75% convertible senior convertible notes due 2025 (the 2025 Notes). We expect any further shelter-in-place policies and restrictions on elective surgical procedures worldwide to have a substantial impact on our revenue. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock. During the COVID-19 pandemic, our customers, including hospitals, ambulatory surgical centers and physician offices, have experienced financial hardship and some of them may not fully recover. This could lead to some of these customers temporarily or permanently shutting down, filing for bankruptcy or being acquired by larger health systems, leading to reduced procedures and/or additional pricing pressure on our products. The COVID-19 pandemic has also resulted in a significant increase in unemployment in the United States, Europe and Australia, which may continue even after the pandemic. The occurrence of any such events may lead to reduced disposable income and access to health insurance which could adversely affect the number of Senza systems sold after the pandemic has ended.

Important Factors Affecting our Results of Operations

In addition to the impact of COVID-19, we believe that the following factors have impacted, and we expect will continue to impact, our results of operations.

Importance of Physician Awareness and Acceptance of Our Products

We continue to invest in programs to educate physicians who treat chronic back and leg pain about the advantages of Senza. This requires significant commitment by our marketing team and sales organization, and can vary depending upon the physician’s practice specialization, personal preferences and geographic location. Further, we are competing with well-established companies in our industry that have strong existing relationships with many of these physicians. Educating physicians about the advantages of our

Senza products, including our latest product, Senza Omnia, and influencing these physicians to use these products to treat chronic pain, is required to grow our revenue.

In July 2021, we received FDA approval of our 10 kHz Therapy for the management of chronic intractable pain of the lower limbs, including unilateral or bilateral pain, associated with PDN, and we have initiated a commercial rollout. In order to successfully commercialize our PDN opportunity, we will need to invest in and incur significant costs for this new indication and patient population, including costs to continue to build our sales force, marketing efforts and continuing clinical activities. Our success in the PDN market will be dependent on, among other factors, the perceived efficacy of our therapy for PDN patients, our ability to educate and generate awareness of our therapy for referring physicians, treating physicians and patients, and our ability to obtain sufficient third-party coverage or reimbursement for use of our therapy in PDN patients.

In January 2022, we received FDA approval for expanded labeling for our Senza® SCS System for the management of NSBP. This approval is specific to our proprietary 10 kHz Therapy and we believe differentiates the Senza System as the only SCS system with specific labeling to treat NSBP patients. Our success in the NSBP market will be dependent on, among other factors, the perceived efficacy of our therapy for NSBP patients, our ability to support continued market penetration and market access initiatives to further expand payer coverage of this procedure.

Reimbursement and Coverage Decisions by Third-Party Payors

Healthcare providers in the United States generally rely on third-party payors, principally federal Medicare, state Medicaid and private health insurance plans, to cover and reimburse all or part of the cost of our products and the related implant procedure for patients. The revenue we are able to generate from sales of our products depends in large part on the availability of reimbursement from such payors. While we currently have a favorable National Coverage Determination (NCD) and reimbursement by Medicare for chronic back and leg pain, we have more limited coverage for PDN and NSBP procedures, and decisions of coverage and reimbursement for Senza and the related implant procedure from private health insurance providers can vary. In general, these decisions require that such payors perform analyses to determine if the procedure is medically necessary and if our technology is covered under their existing coverage policies. These payors may deny reimbursement if they determine that the device or procedure was not medically necessary for the patient and used in accordance with the payor’s coverage policy.

A significant component of our commercial efforts includes working with private payors to ensure positive coverage decisions for our products. For our traditional chronic back and leg pain market, we believe that favorable coverage and reimbursement for procedures using our products from Medicare and certain commercial payors, such as Aetna, Cigna, Humana, Blue Cross Blue Shield (BCBS) and Kaiser, have contributed to our increase in revenue to date. Although the largest commercial payors and Medicare cover procedures using Senza, there can be no assurance that all private health insurance plans will cover the therapy. Effective July 1, 2021, Medicare now requires Prior Authorization for certain hospital outpatient procedures, including SCS procedures. While Medicare, through both national and local coverage policies, currently provides coverage for NSBP, most commercial payors still do not explicitly cover NSBP. In January 2022, we announced that UnitedHealthcare will provide coverage for our 10 kHz Therapy for the treatment of PDN for dates of service on or after March 1, 2022. In March 2022, we announced that Noridian, the Medicare Administrative Contractor (MAC) that oversees the majority of the western United States, released an update to their Local Coverage Billing and Coding article for spinal cord stimulators for chronic pain to include two new ICD-10 codes that cover PDN. This change was posted on March 4, 2022 and is retroactive for procedures performed on or after January 1, 2022.

During the second quarter of 2022, a number of coverage updates among BCBS insurers were made to explicitly cover PDN, including BCBS Idaho (effective April 28, 2022); BCBS Hawaii - Hawaii Medical Service Association (effective May 27, 2022); and BCBS Alabama (effective May 29, 2022).

During the third quarter of 2022, a number of coverage updates were made by insurers to explicitly cover PDN. Combined, these ~~BCBS~~ updates represent ~~nearly 23~~approximately 43.5 million commercially-insured covered lives, with approximately ~~48%~~54% of the addressable US PDN population now covered under a formal policy for PDN:

•

~~Effective April 28, 2022, BCBS Idaho, the largest commercial payer in Idaho representing approximately 559 thousand covered lives, updated its policy to specifically cover PDN.~~

•

~~Effective May 27, 2022, BCBS Hawaii (HMSA), the largest commercial payer in Hawaii representing approximately 786 thousand covered lives, updated its policy to specifically cover PDN.~~

•

Effective May 29, 2022, BCBS Alabama, the largest commercial payer in Alabama representing approximately 2.5 million covered lives, updated its policy to specifically cover diabetic neuropathy and peripheral neuropathy.

•

Effective July 1, 2022, Premera Blue Cross, the largest health plan in the Pacific Northwest (Washington and Alaska) representing approximately 2.5 million covered lives, updated its policy to specifically cover PDN.

•

Effective August 1, 2022, Health Care Services Corporation (HCSC) updated its SCS policy to explicitly cover PDN. HCSC is an independent licensee of Blue Cross Blue Shield and the parent company of BCBS Texas, Illinois, Oklahoma, New Mexico, and Montana, ~~which represents~~representing over 16 million covered lives.

•

Effective August 29, 2022, Aetna updated is SCS policy to explicitly cover PDN. Aetna is one of the largest health plans in the United States covering approximately 22 million commercial lives.

•

Effective October 1, 2022, BCBS Massachusetts has updated their medical policy to explicitly cover PDN. BCBS Massachusetts represents approximately 2.3 million covered lives.

•

Effective October 1, 2022, Capital Blue, a health plan in Pennsylvania, updated their medical policy to explicitly cover PDN. Capital Blue represents approximately 700,000 covered lives.

During the third quarter of 2022, Novitas and First Coast, the Medicare Administrative Contractors (MACs) that represent Arkansas, Colorado, Delaware, Florida, Louisiana, Maryland, Mississippi, New Jersey, New Mexico, Oklahoma, Pennsylvania and Texas, published draft Local Coverage Determinations (LCDs) titled, “Nerve Stimulators for Chronic Intractable Pain”, which propose updated coverage criteria for SCS devices with an explicit FDA approval to treat PDN that would include PDN refractory to conventional medical management. The MACs' review of these proposed LCDs is ongoing, and they remain subject to change. Potential finalization dates have not yet been announced. If finalized as proposed, these LCDs would mean that Medicare patients in all 50 states would be eligible for coverage for PDN and would add approximately 17 million covered Medicare lives.

Effective December 1, 2022, UnitedHealthcare updated to its SCS medical coverage policy and added language to indicate SCS devices are not covered for treating chronic intractable back pain without prior spine surgery (NSBP). All other elements of their SCS coverage policy remained as they were before, including their recent decision in January 2022 to cover the use of SCS for PDN.

With respect to both PDN and NSBP, there are many payors that have not yet updated their policies to expressly cover SCS procedures, including in the case of PDN, ~~Aetna~~Cigna and ~~Cigna.~~Anthem Blue Cross Blue Shield. A significant number of negative coverage and reimbursement decisions by private insurers may impair our ability or delay our ability to grow our revenue.

We are working to expand payor coverage to include the use of our 10 kHz Therapy for the management of PDN and NSBP. This effort could be costly and could take many years to gain broad acceptance, and there can be no guarantee that it will be successful.

Inventory Buildup and Supply Chain Management

Our products are composed of a substantial number of individual components and, in order to market and sell them effectively, we must maintain high levels of inventory. In particular, since our commercial launch of Senza in the United States, we have continued to add suppliers to fortify our supply chain and we have maintained increased levels of inventory. As a result, a significant amount of our cash used in operations has been associated with maintaining these levels of inventory. There may also be times in which we determine that our inventory does not meet our product requirements. Further, the manufacturing process for our products requires lengthy lead times, during which components may become obsolete. We may also over- or underestimate the quantities of required components, in which case we may expend extra resources or be constrained in the amount of end product that we can produce. These factors subject us to the risk of inventory obsolescence and expiration, which may lead to inventory impairment charges. The sum of the charges for the items listed above were ~~$2.3~~$3.6 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and $2.5 million for the year ended December 31, 2021. Additionally, as we release later generations of products that contain advancements or additional features, the earlier generations may become obsolete, as was the case in the year ended December 31, 2021, when we recorded a charge of $1.8 million.

Investment in Research and Clinical Trials

We intend to continue investing in R&D to help our commercialization efforts around and to expand into new indications and chronic pain conditions, as well as develop product enhancements to improve outcomes and enhance the physician and patient experience. For example, we commenced commercial launches of Surpass, our surgical lead product family in early 2017 and Senza II SCS System in late 2017. Most recently, we launched our next generation product platform, Senza Omnia, in the United States in late 2019, in Europe during the second quarter of 2020 and in Australia in July 2020. In the first quarter of 2021, we received FDA approvals for our first Senza Omnia upgrade and a new trial stimulator. In July 2021, we received FDA approval of our 10 kHz Therapy for the management of chronic intractable pain of the lower limbs, including unilateral or bilateral pain, associated with PDN. In January 2022, we received regulatory approval for expanded labeling to include NSBP. In October 2022, we received FDA approval of our latest generation SCS system, HFX iQ™, which we launched on a limited basis in the United States in the fourth quarter of 2022. We are continuing to invest in product improvements to Senza, including enhanced MRI capabilities and next generation IPGs. While R&D and clinical testing are time consuming and costly, we believe expanding into new indications, implementing product improvements and continuing to demonstrate the efficacy, safety and cost effectiveness of the 10 kHz Therapy through clinical data are all critical to increasing the adoption of this therapy. We initiated two randomized controlled trials in 2018, SENZA-PDN and SENZA-NSRBP, which evaluate the 10 kHz Therapy for the treatment of PDN and NSBP, respectively.

With regard to the SENZA-PDN study, we presented the three-month data in 2020 and the six-month and 12-month data, including six-month crossover data, in 2021. The Senza-PDN six-month results, 12-month durability results, and 12-month Quality of Life (QoL) results were published in JAMA Neurology (April 2021), Diabetes Care (November 2021) and Mayo Clinic Proceedings: Innovations, Quality & Outcomes (July 2022), respectively. We presented the 18-month results, including the 12-month crossover patient data, for the SENZA-PDN study at the North American Neuromodulation Society (NANS) conference in January 2022 and at the International Neuromodulation Society (INS) conference in May 2022. Additionally, the SENZA-PDN 24-month results, including the 18-month crossover data were presented at the American Diabetes Association (ADA) conference in June 2022.

With regard to the SENZA-NSRBP study, we presented the three-month primary endpoint results and the six-month data in 2021. The SENZA-NSRBP 12-month results, including the six-month crossover patient data were presented at the NANS conference in January 2022 and published online in the Journal of Neurosurgery: Spine (February 2022). Additionally, the SENZA-NSRBP 18-month results, including the 12-month crossover data were presented at the INS conference in May 2022.

Both the SENZA-PDN and SENZA-NSRBP studies are ongoing, and further data will be presented and published in leading journals as the data becomes available.

Significant Investment in U.S. Sales Organization

In 2021, we established a sales organization to support the launch of our PDN indication in the ~~U.S.~~United States. This sales organization targets physician specialties involved in PDN treatment decisions, including primary care physicians, endocrinologists, internal medicine and podiatrists, to create awareness of 10 kHz Therapy to treat PDN patients. We are continuing to make investments in building our U.S. commercial infrastructure and recruiting and training our U.S. sales force. This is a lengthy process that requires recruiting appropriate sales representatives, establishing and, on occasion, refining a commercial infrastructure in the United States and training our sales representatives. Following initial training for Senza, our sales representatives typically require lead time in the field to grow their network of accounts and produce sales results. Successfully recruiting and training a sufficient number of productive sales representatives has been required to achieve growth at the rate we expect.

Access to Hospital Facilities

In the United States, in order for physicians to use our products, the hospital facilities where these physicians treat patients often require us to enter into purchasing contracts directly with the hospital facilities or with the Group Purchasing Organizations of which the hospital facilities are members. This process can be lengthy and time-consuming and requires extensive negotiations and management time. In Europe, we may be required to engage in a contract bidding process in order to sell our products, where the bidding processes are only open at certain periods of time, and we may not be successful in the bidding process.

Critical Accounting Policies, Significant Judgments and Use of Estimates

Our management’s discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Our significant accounting policies are more fully described in Note 1, Summary of Significant Accounting Policies, of Notes to Condensed Consolidated Financial ~~Statements..~~Statements. We adopted ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), on January 1, 2022.

There have been no other significant or material changes in our critical accounting policies during the three months ended ~~June~~September 30, 2022 to the items we disclosed as our critical accounting policies in Management’s Discussion and Analysis of Financial Conditions and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Components of Results of Operations

Revenue

Our revenue is generated primarily from sales to two types of customers: hospitals and outpatient medical facilities, with each being served primarily through a direct sales force. Sales to these entities are billed to, and paid by, the hospitals and outpatient

medical facilities as part of their normal payment processes, with payment received by us in the form of an electronic transfer, check or credit card payment. Product sales to third-party distributors are billed to and paid by the distributors as part of their normal payment processes, with payment received by us in the form of an electronic transfer.

U.S. revenue is generally recognized after our sales representatives deliver our product at the point of implantation and upon the completion and authorization of the implant procedure. In response to competitive practices and pressures, we have offered some volume price discounting for larger orders, where products are ordered in advance of an implantation and revenue is recognized when the transfer of control occurs at the time of shipment.

Revenue from sales of our Senza products fluctuate based on the selling price of the system, as the average sales price of a system varies geographically and by the type of system sold, and based on the mix of sales by geography. Our revenue from international sales can also be significantly impacted by fluctuations in foreign currency exchange rates, as our sales are denominated in the local currency in the countries in which we sell our products.

We expect our revenue to fluctuate from quarter to quarter due to a variety of factors, including seasonality. For example, the industry generally experiences lower revenues in the first and third quarters of the year and higher revenues in the fourth quarter. Our revenue has been impacted by these industry trends. Further, the impact of the buying patterns and implant volumes of hospitals and medical facilities, and third-party distributors may vary, and as a result could have an effect on our revenue from quarter to quarter.

Cost of Revenue

We currently utilize contract manufacturers for the production of Senza products. Cost of revenue consists primarily of acquisition costs of the components of Senza, manufacturing overhead, scrap and inventory excess and obsolescence charges, as well as distribution-related expenses, such as logistics and shipping costs, net of costs charged to customers.

We calculate gross margin as revenue less cost of revenue divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, but primarily by our average sales price and the costs to have our products manufactured. While costs are primarily incurred in U.S. dollars, international revenue may be impacted by the appreciation or depreciation of the U.S.

dollar, which may impact our overall gross margin. Our gross margin is also affected by our ability to reduce manufacturing costs as a percentage of revenue.

Operating Expenses

Our operating expenses consist of R&D expense, sales, general and administrative (SG&A) expense and certain litigation charges. Personnel costs are the most significant component of operating expenses and consist primarily of salaries, bonus incentives, benefits, stock-based compensation and sales commissions.

Research and Development. R&D costs are expensed as incurred. R&D expense consists primarily of personnel costs, including salary, employee benefits and stock-based compensation expenses for our R&D employees. R&D expense also includes costs associated with product design efforts, development prototypes, testing, clinical trial programs and regulatory activities, contractors and consultants, equipment and software to support our development, facilities and information technology. Our R&D expenses may fluctuate from period to period due to the timing and extent of our R&D and clinical trial expenses.

Sales, General and Administrative. SG&A expense consists primarily of personnel costs, including salary, employee benefits and stock-based compensation expenses for our sales and marketing personnel, including sales commissions, and for administrative personnel that support our general operations, such as information technology, executive management, financial accounting, customer service and human resources personnel. We expense commissions at the time of the sale. SG&A expense also includes costs attributable to marketing, as well as travel, intellectual property and other legal fees, financial audit fees, insurance, fees for other consulting services, depreciation and facilities.

Certain litigation charges (credits). We record a liability for loss contingencies related to legal actions when a loss is known or considered probable and the amount may be reasonably estimated. When determining the estimated loss or range of loss, significant judgment is required. Payments received from litigation settlements are recorded as litigation credits. We record litigation charges (credits) that we consider to be significant infrequent transactions as Certain litigation charges (credits) in our consolidated statements of operations. All other legal expenses are recorded within SG&A expense.

In 2021, we established a sales organization to support the launch of our PDN indication in the U.S. This sales organization targets physician specialties involved in PDN treatment decisions, including primary care physicians, endocrinologists, internal medicine and podiatrists, to create awareness of 10 kHz Therapy to treat PDN patients. We have historically increased marketing

spending in order to generate additional sales opportunities. Additionally, we have made substantial investments in our U.S. commercial infrastructure to support our commercialization efforts in the United States.

Since 2019, we have experienced significant legal expenses associated with our intellectual property litigation with Boston Scientific. Additionally, we continue to incur significant expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, including compliance under the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act), director and officer insurance premiums and investor relations costs associated with being a public company. Our SG&A expense may fluctuate from period to period due to the seasonality of our revenue, the timing and extent of our SG&A expense, and the direct impact of the COVID-19 pandemic on certain discretionary spend items such as travel and trade shows.

Interest Income and Interest Expense

Interest income consists primarily of interest income earned on our investments and interest expense consists of interest paid on our outstanding debt and the amortization of debt discount and debt issuance costs.

Other Income (Expense), Net

Other income (expense), net consists primarily of foreign currency transaction gains and losses and the gains and losses from the remeasurement of foreign-denominated balances to the U.S. dollar.

Provision for Income Taxes

The provision for income taxes consists primarily of income taxes in foreign jurisdictions in which we conduct business as well as states where we have determined we have state nexus. We maintain a full valuation allowance for all of our U.S. deferred tax assets including net operating loss (NOL) carryforwards and federal and state tax credits.

Allowance for Doubtful Accounts

We make estimates as to the overall collectability of accounts receivable and provide an allowance for accounts receivable considered uncollectible based on current expected credit losses. We specifically analyze accounts receivable based on historical bad debt experience, customer concentrations, customer credit-worthiness, the age of the receivable, current economic trends, and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. We record the adjustment in sales, general and administrative expense.

Consolidated Results of Operations

Comparison of the three months ended ~~June~~September 30, 2022 and 2021

Revenue, Cost of Revenue, Gross Profit and Gross Margin


	Three Months Ended June 30,							Three Months Ended September 30,
	2022		2021		Change			2022		2021		Change
(in thousands)
Revenue	$	104,213	$	102,330	$	1,883		$	100,466	$	93,205	$	7,261
Cost of revenue		31,479		32,344		(865	)		31,164		28,575		2,589
Gross profit	$	72,734	$	69,986	$	2,748		$	69,302	$	64,630	$	4,672
Gross margin	70%		68%		2%			69%		69%		0%

Revenue. Revenue increased to ~~$104.2~~$100.5 million in the three months ended ~~June~~September 30, 2022 from ~~$102.3~~$93.2 million in the three months ended ~~June~~September 30, 2021, an increase of ~~$1.9~~$7.3 million, or 2%8%. Revenue in the United States was ~~$89.0~~$86.1 million in the three months ended ~~June~~September 30, 2022, a 5%10% increase from ~~$85.0~~$78.1 million in the three months ended ~~June~~September 30, 2021. Our trial and permanent implant volumes in the United States increased from prior ~~year, although they were negatively impacted by COVID related issues, including facility staffing and capacity issues.~~year. International revenue was ~~$15.1~~$14.3 million in the three months ended ~~June~~September 30, 2022, compared to ~~$17.3~~$15.2 million in the three months ended ~~June~~September 30, 2021. International revenue continued to be impacted by COVID-related ~~issues.~~issues and adverse currency exchange conditions. For the three months ended September 30, 2022, PDN represented 13% of worldwide permanent implant procedures, which resulted in approximately $13.4 million in revenue.

Cost of Revenue, Gross Profit and Gross Margin. Cost of revenue ~~decreased~~increased to ~~$31.5~~$31.2 million in the three months ended ~~June~~September 30, 2022 from ~~$32.3~~$28.6 million in the three months ended ~~June~~September 30, 2021, ~~a decrease~~an increase of ~~$0.9~~$2.6 million, or 3%9%. This ~~decrease~~increase was primarily due to ~~a decrease~~an increase of ~~$0.3 million in the write-down of inventory as well as a decrease of $0.2~~$1.5 million in the costs of manufactured ~~components.~~components and $0.8 million related to costs associated with the manufacturing facility in Costa Rica. Gross profit increased to ~~$72.7~~$69.3 million in the three months ended ~~June~~September 30, 2022 from ~~$70.0~~$64.6 million in the three months ended ~~June~~September 30, 2021, an increase of ~~$2.7~~$4.7 million, or 4%7%. Gross profit as a percentage of revenue, or gross margin, was ~~higher~~flat at ~~70%~~69% for each of the three months ended ~~June~~September 30, 2022 ~~compared to 68% for the three months ended June 30, 2021, primarily due to decreased costs of manufactured product component~~ and ~~write-down of inventory, as a percentage of revenue.~~2021.

Operating Expenses


	Three Months Ended June 30,								Three Months Ended September 30,
	2022			2021					2022				2021
	Amount		% of Total Revenue	Amount		% of Total Revenue	Change Amount		Amount			% of Total Revenue	Amount		% of Total Revenue	Change Amount
(in thousands)
Operating expenses:
Research and development	$	12,552	12%	$	11,869	12%	$	683	$	14,030		14%	$	11,553	12%	$	2,477
Sales, general and administrative		83,973	81%		73,880	72%		10,093		78,190		78%		79,521	85%		(1,331	)
Certain litigation charges										(105,000	)	(105)%		20,000	21%		(125,000	)
Total operating expenses	$	96,525	93%	$	85,749	84%	$	10,776	$	(12,780	)	(13)%	$	111,074	119%	$	(123,854	)

Research and Development Expense. R&D expenses increased to ~~$12.6~~$14.0 million in the three months ended ~~June~~September 30, 2022 from ~~$11.9~~$11.6 million in the three months ended ~~June~~September 30, 2021, an increase of ~~$0.7~~$2.5 million, or 6%21%. The increase was primarily due to ana $2.8 million increase in personnel costs, ~~of $1.5 million, which was~~partially offset by a $0.6 million decrease in outside research and development project ~~spend of $0.8 million.~~costs.

Sales, General and Administrative Expense. SG&A expenses ~~increased~~decreased to ~~$84.0~~$78.2 million in the three months ended ~~June~~September 30, 2022 from ~~$73.9~~$79.5 million in the three months ended ~~June~~September 30, 2021, ~~an increase~~a decrease of ~~$10.1~~$1.3 million, or ~~14%~~2%. The ~~increase~~decrease was primarily due to ana $5.2 million in general and IP legal expenses, $2.4 million decrease in marketing initiative spend and a $2.0 million decrease in meeting and conference costs. This was partially offset by a $6.6 million increase in personnel costs, ~~of $9.1~~$1.2 million increase in travel and ~~meeting expenses of $2.4~~entertainment and $0.5 million ~~conference spend of $0.9 million, and~~increase in software ~~expenses of $0.7 million, which were partially offset by a decrease in legal expenses of $2.1 million related~~license costs.

Certain Litigation Charges (Credits). On August 1, 2022, we announced that we had reached an agreement with Boston Scientific to settle our ongoing intellectual property litigations. Pursuant to the parties’ settlement, we received a payment from Boston Scientific of $85.0 million, and Boston Scientific released the $20.0 million verdict it was awarded by a Delaware jury on November 1, 2021, which we accrued and expensed in the three months ended September 30, 2021. As a result of the settlement agreement in August 2022, we recorded the $85.0 million and the $20.0 million release of the jury award as a credit to certain litigation ~~efforts and a decrease~~charges (credits) in ~~marketing initiative expenses of $1.1 million.~~the three months ended September 30, 2022.

Interest Income, Interest Expense and Other Income (Expense), Net, and Provision for Income Taxes


	Three Months Ended June 30,								Three Months Ended September 30,
	2022			2021			Change		2022			2021			Change
(in thousands)
Interest income	$	282		$	163		$	119	$	1,128		$	99		$	1,029
Interest expense		(1,608	)		(5,704	)		4,096		(1,608	)		(3,688	)		2,080
Other income (expense), net		368			(88	)		456		391			30			361
Provision for income taxes		241			198			43		485			72			413

Interest Income. Interest income increased to ~~$0.3~~$1.1 million in the three months ended ~~June~~September 30, 2022 from ~~$0.2~~$0.1 million in the three months ended ~~June~~September 30, 2021, primarily due to a ~~slightly~~ higher average investment return rates during the three months ended ~~June~~September 30, 2022.

Interest Expense. Interest expense decreased to $1.6 million in the three months ended ~~June~~September 30, 2022 from ~~$5.7~~$3.7 million in the three months ended ~~June~~September 30, 2021. With the adoption of ASU 2020-06 in January 2022, interest expense due to the amortization of debt discounts is reduced as a result of accounting for the 2025 Notes as a single liability measured at its amortized cost. Additionally, the three months ended June 30, 2021 included interest expense and amortization of debt discount and debt issuance costs related to the issuance of the 1.75% convertible senior notes due 2021 (the 2021 Notes), which were settled in June 2021 and are no longer outstanding in 2022.

Other Income (Expense), Net. Other income (expense), net was primarily comprised of foreign currency transaction gains and losses, as well as gains and losses from the remeasurement of foreign-currency denominated balances, for which we recorded a gain of ~~$0.4~~$0.5 million in the three months ended ~~June~~September 30, 2022 and a ~~loss~~gain of ~~$0.1 million~~$42,000 in the three months ended ~~June~~September 30, 2021.

Provision for Income Taxes. Income tax expense was ~~$0.2~~$0.5 million in ~~each of~~ the three months ended ~~June~~September 30, 2022 and $0.1 million in the three months ended September 30, 2021. The income tax expense for both periods was principally comprised of foreign income tax and state income tax. We continued to ~~generate tax losses for U.S. federal and state tax purposes and~~ have NOL carryforwards creating a deferred tax asset. We have a full valuation allowance for all of our U.S. deferred tax assets.

Comparison of the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021

Revenue, Cost of Revenue, Gross Profit and Gross Margin


	Six Months Ended June 30,							Nine Months Ended September 30,
	2022		2021		Change			2022		2021		Change
(in thousands)
Revenue	$	192,055	$	190,940	$	1,115		$	292,521	$	284,145	$	8,376
Cost of revenue		60,229		58,660		1,569			91,393		87,235		4,158
Gross profit	$	131,826	$	132,280	$	(454	)	$	201,128	$	196,910	$	4,218
Gross margin	69%		69%		0%			69%		69%		0%

Revenue. Revenue increased to ~~$192.1~~$292.5 million in the ~~six~~nine months ended ~~June~~September 30, 2022 from ~~$190.9~~$284.1 million in the ~~six~~nine months ended ~~June~~September 30, 2021, an increase of ~~$1.1~~$8.4 million, or 1%3%. Revenue in the United States was ~~$162.3~~$248.4 million in the ~~six~~nine months ended ~~June~~September 30, 2022, a 2%4% increase from ~~$159.8~~$237.8 million in the ~~six~~nine months ended ~~June~~September 30, 2021. International revenue was ~~$29.8~~$44.1 million in the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~$31.2~~$46.3 million in the ~~six~~nine months ended ~~June~~September 30, 2021. Overall, our trial and permanent implant volumes in the United States increased from prior year, although they continue to be negatively impacted by lingering COVID-related issues such as facility staffing and capacity issues. For the nine months ended September 30, 2022, PDN represented 11% of worldwide permanent implant procedures, which resulted in approximately $30.4 million in revenue.

Cost of Revenue, Gross Profit and Gross Margin. Cost of revenue increased to ~~$60.2~~$91.4 million in the ~~six~~nine months ended ~~June~~September 30, 2022 from ~~$58.7~~$87.2 million in the ~~six~~nine months ended ~~June~~September 30, 2021, an increase of ~~$1.6~~$4.2 million, or 3%5%. This increase was primarily due to an increase of ~~$1.4~~$2.8 million in the costs of manufactured product components and ~~$0.9~~$2.5 million related to costs associated with initiating the manufacturing facility in Costa Rica, which were offset by a ~~decrease~~change in overhead credits of ~~$0.8~~$1.4 million. Gross profit increased to $201.1 million in the ~~write-down of inventory. Gross profit decreased to $131.8~~nine months ended September 30, 2022 from $196.9 million in the ~~six~~nine months ended ~~June 30, 2022 from $132.3 million in the six months ended June~~September 30, 2021, ~~a decrease~~an increase of ~~$0.5~~$4.2 million. Gross profit as a percentage of revenue, or gross margin, was ~~steady~~flat at 69% for each of the ~~six~~nine months ended ~~June~~September 30, 2022 and ~~June 30,~~ 2021.

Operating Expenses


	Six Months Ended June 30,								Nine Months Ended September 30,
	2022			2021					2022				2021
	Amount		% of Total Revenue	Amount		% of Total Revenue	Change Amount		Amount			% of Total Revenue	Amount		% of Total Revenue	Change Amount
(in thousands)
Operating expenses:
Research and development	$	25,088	13%	$	23,403	12%	$	1,685	$	39,118		13%	$	34,956	12%	$	4,162
Sales, general and administrative		163,298	85%		147,152	77%		16,146		241,488		83%		226,673	80%		14,815
Certain litigation charges		—	0%		—	0%		—		(105,000	)	(36)%		20,000	7%		(125,000	)
Total operating expenses	$	188,386	98%	$	170,555	89%	$	17,831	$	175,606		60%	$	281,629	99%	$	(106,023	)

Research and Development Expense. R&D expenses increased to ~~$25.1~~$39.1 million in the ~~six~~nine months ended ~~June~~September 30, 2022 from ~~$23.4~~$35.0 million in the ~~six~~nine months ended ~~June~~September 30, 2021, an increase of ~~$1.7~~$4.2 million, or 7%12%. The increase was primarily due to ~~an increase~~$6.2 million in personnel costs ~~of $3.1~~and $0.6 million in shared service allocations. These increases were partially offset ~~partially~~ by a decrease of $2.0 million in research and development project ~~spend of $1.3~~costs, and $1.1 million ~~and a~~ decrease in clinical trial and regulatory ~~expenses of $0.9 million.~~costs.

Sales, General and Administrative Expense. SG&A expenses increased to ~~$163.3~~$241.5 million in the ~~six~~nine months ended ~~June~~September 30, 2022 from ~~$147.2~~$226.7 million in the nine months ended September 30, 2021, an increase of ~~$16.1~~$14.8 million, or ~~11%~~7%. The increase was

primarily due to ~~an increase~~$22.0 million in personnel related costs, ~~of $13.8~~$4.1 million in travel and ~~meeting expenses~~entertainment spend, $1.1 million conferences and meetings and $1.8 million in software licenses. These increases were partially offset by decreases of $9.5 million in legal spend primarily related to IP litigation excluding the certain litigation charges noted below, $4.3 million ~~conference spend of $1.7~~in marketing initiatives and $1.2 million ~~consulting and contract labor costs of $1.4 million, and software expenses of $1.3 million, which were offset partially by a decrease~~ in ~~legal expenses of $4.4 million related~~shared service allocations.

Certain Litigation Charges (Credits). On August 1, 2022, we announced that we had reached an agreement with Boston Scientific to settle our ongoing intellectual property litigations. Pursuant to the parties’ settlement, we received a payment from Boston Scientific of $85.0 million, and Boston Scientific released the $20.0 million verdict it was awarded by a Delaware jury on November 1, 2021, which we accrued and expensed in the three months ended September 30, 2021. As a result of the settlement agreement in August 2022, we recorded the $85.0 million and the $20.0 million release of the jury award as a credit to certain litigation ~~efforts and a decrease~~charges in ~~marketing initiative expenses of $2.0 million.~~the three months ended September 30, 2022.

Interest Income, Interest Expense and Other Income (Expense), Net, and Provision for Income Taxes


	Six Months Ended June 30,									Nine Months Ended September 30,
	2022			2021			Change			2022			2021			Change
(in thousands)
Interest income	$	425		$	460		$	(35	)	$	1,553		$	559		$	994
Interest expense		(3,211	)		(12,251	)		9,040			(4,819	)		(15,939	)		11,120
Other income (expense), net		453			(545	)		998			844			(515	)		1,359
Provision for income taxes		422			540			(118	)		907			612			295

Interest Income. Interest income ~~decreased slightly~~increased to ~~$0.4~~$1.6 million in the ~~six~~nine months ended ~~June~~September 30, 2022 from ~~$0.5~~$0.6 million in the ~~six~~nine months ended ~~June~~September 30, 2021 primarily due to ~~an overall decrease in cash and investment balance after the cash settlement of the principal related to the 2021 Notes in June 2021, offset by~~ a ~~slightly~~ higher average investment return rates during the ~~six~~nine months ended ~~June~~September 30, 2022.

Interest Expense. Interest expense decreased to ~~$3.2~~$4.8 million in the ~~six~~nine months ended ~~June~~September 30, 2022 from ~~$12.3~~$15.9 million in the ~~six~~nine months ended ~~June~~September 30, 2021, a decrease of ~~$9.0~~$11.1 million. The ~~six~~nine months ended ~~June~~September 30, 2021 included $5.0 million of interest expense and amortization of debt discount and debt issuance costs related to the issuance of the 2021 Notes, which were settled in June 2021, and are no longer outstanding in 2022. Additionally, with the adoption of ASU 2020-06, interest expense due to the amortization of debt discount is reduced by ~~$4.0~~$6.1 million as a result of accounting for the 2025 Notes as a single liability measured at its amortized cost.

Other Income (Expense), Net. Other income (expense), net was primarily comprised of foreign currency transaction gains and losses, as well as gains and losses from the remeasurement of foreign-currency denominated balances, for which we recorded a gain of ~~$0.5~~$0.9 million in the ~~six~~nine months ended ~~June~~September 30, 2022 and a loss of $0.5 million in the ~~six~~nine months ended ~~June~~September 30, 2021.

Provision for Income Taxes. Income tax expense was ~~$0.4~~$0.9 million in the ~~six~~nine months ended ~~June~~September 30, 2022 and ~~$0.5~~$0.6 million in the ~~six~~nine months ended ~~June~~September 30, 2021. The income tax expense for both periods was principally comprised of foreign income tax and state income tax. We continued to ~~generate tax losses for U.S. federal and state tax purposes and~~ have NOL carryforwards creating a deferred tax asset. We have a full valuation allowance for all of our U.S. deferred tax assets.

Liquidity, Capital Resources and Plan of Operations

Since our inception, we have financed our operations through private placements of preferred stock, the issuance of common stock in our IPO in November 2014 and our underwritten public offering in June 2015, borrowings under our credit facility, which we

have subsequently repaid, and the June 2016 issuance of the 2021 Notes. In April 2020, we completed a concurrent underwritten public offering of common stock and the 2025 Notes. Our total net proceeds from the April 2020 offerings, after giving effect to the note hedge transactions and warrant transactions and associated offering expense was $313.3 million. On June 1, 2021, our outstanding 2021 Notes matured and we paid $172.5 million to settle the outstanding principal and issued 682,912 shares of common stock to holders who elected to convert the 2021 Notes. ~~At June~~As of September 30, 2022, we had cash, cash equivalents and short-term investments of ~~$310.8~~$386.9 million. Based on our current operating plan, we expect that our cash and cash equivalents on hand, together with the anticipated funds from the collection of our receivables, will be sufficient to fund our operations through at least the next 12 months

We expect to incur continued expenditures in the future in support of our commercial infrastructure and sales force. In addition, we intend to continue to make investments in the further development of our Senza product platform and 10 kHz Therapy for the treatment of other chronic pain conditions, including ongoing R&D programs and conducting clinical ~~trials.~~studies. Further, we expect to

expend significant cash resources pursuing and defending our ongoing intellectual property lawsuits. In order to further enhance our R&D efforts, pursue product expansion opportunities or acquire a new business or products that are complementary to our business, we may choose to raise additional funds.

We may continue to seek funds through equity or debt financings, or through other sources of financing. Adequate additional funding may not be available to us on acceptable terms or at all. Our failure to raise capital in the future could have a negative impact on our financial condition and our ability to pursue our business strategies. Should we choose to raise additional capital, the requirements will depend on many factors, including:

•

the impact and duration of the ongoing COVID-19 pandemic and any recession or other market correction resulting from the pandemic;

•

unfavorable global economic conditions, such as a recession or economic downturn, and adverse capital market conditions, in either case, due to macroeconomic factors including, but not limited to, the COVID-19 pandemic, increased inflation and interest rates, lower consumer confidence or availability of disposable income, and the impact of political instability, including the war between Ukraine and Russia or any political instability in the United States;

•

the costs related to the continued commercialization of our products in the United States and elsewhere, including product sales, marketing, manufacturing and distribution;

•

the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

•

the R&D activities we intend to undertake in order to expand the chronic pain indications and product enhancements that we intend to pursue;

•

whether or not we pursue acquisitions or investments in businesses, products or technologies that are complementary to our current business;

•

the degree and rate of market acceptance of our products in the United States and elsewhere;

•

changes or fluctuations in our inventory supply needs and forecasts of our supply needs;

•

costs related to the development of our internal manufacturing capabilities;

•

our need to implement additional infrastructure and internal systems;

•

our ability to hire additional personnel to support our operations as a public company; and

•

the emergence of competing technologies or other adverse market developments.

Our success depends, in part, upon our ability to establish a competitive position in the neuromodulation market by securing broad market acceptance of our 10 kHz Therapy and our Senza product platform for the treatment of chronic pain conditions. Any product we develop that achieves regulatory clearance or approval will have to compete for market acceptance and market share. We face significant competition in the United States and internationally, which we believe will intensify as we continue to commercialize in the United States. For example, our major competitors, Medtronic, Boston Scientific and Abbott Laboratories, each have approved and certified neuromodulation systems in at least the United States, Europe and Australia and have been established for several ~~years.~~more years than us. In addition to these major competitors, we may also face competition from other emerging competitors and smaller companies with active neuromodulation system development programs that may emerge in the future.

If we are unable to raise, or have access, to sufficient funds when needed, we may be required to delay, reduce, or terminate some or all of our commercial development plans.

The following table sets forth the primary sources and uses of cash for each of the periods presented below:


	Nine Months Ended September 30,
	2022			2021
(in thousands)
Net cash provided by (used in)
Operating activities	$	38,098		$	(26,722	)
Investing activities		63,832			235,947
Financing activities		(3,831	)		(172,657	)
Effect of exchange rate on cash flows		(1,970	)		(280	)
Net decrease in cash, cash equivalents and restricted cash	$	96,129		$	36,288

Six Months Ended June 30,

2022

2021

(in thousands)

Net cash provided by (used in)

Operating activities

$
(41,252
)

$
(11,360
)
Investing activities

120,336

284,132

Financing activities

(3,868
)

(171,332
)
Effect of exchange rate on cash flows

(916
)

(20
)
Net decrease in cash, cash equivalents and restricted cash

$
74,300

$
101,420

Cash ~~Used in~~Provided by (Used in) Operating Activities. Net cash ~~used in~~provided by operating activities was ~~$41.4~~$38.1 million in the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~$11.4~~net cash used in operations of $26.7 million in the ~~six~~nine months ended ~~June~~September 30, 2021. In the ~~six~~nine months ended ~~June~~September 30, 2022, net cash ~~used in~~provided by operating activities was primarily a result of the net ~~losses~~income recorded during the period of ~~$59.3~~$22.2 million, as well as decreases in accounts payable and accrued liabilities of $9.4 million, decreases in other long term liabilities of $2.4 million, increases in prepaids and other assets of $6.1 million and increases in inventory of $1.5 million. These changes were partially offset byadjusted for the recording of non-cash stock-based compensation expense of ~~$26.8~~$42.0 million, ~~and~~ depreciation and amortization of ~~$3.1~~$4.7 million, inventory impairment of ~~$2.3~~$3.6 million and amortization of operating lease assets of ~~$2.0~~$3.1 million. These changes were partially offset by decreases in long-term liabilities of $23.7 million as well as ~~decreases~~increases in ~~accounts receivable~~inventory of ~~$2.4~~$7.2 million and prepaid and other current assets of $5.9 million. In the ~~six~~nine months ended ~~June~~September 30, 2021, net cash used in operating activities was primarily a result of the net losses recorded during the period of ~~$51.2~~$101.2 million, as well as increases in inventory of ~~$14.7~~$23.2 million and increases in prepaids and other assets of ~~$4.2 million and decreases in other long term liabilities of $2.1~~$3.3 million. These changes were partially offset by the recording of non-cash stock-based compensation expense of ~~$20.3~~$32.9 million, non-cash interest expense of ~~$8.4~~$10.8 million, inventory write-down of ~~$3.0~~$3.7 million, ~~and~~ depreciation and amortization of ~~$2.3~~$3.5 million and amortization of operating lease assets of $2.8 million. The changes were also offset by increases in other long term liabilities of $16.7 million, decreases in accounts receivable of ~~$13.1~~$15.0 million and increases in accounts payable and accrued liabilities of ~~$10.1~~$13.2 million.

Cash Provided by (Used in) Investing Activities. Investing activities consisted primarily of changes in investment balances, including purchases and maturities of short-term investments. We had net proceeds from the maturity of short-term investments of ~~$123.4~~$69.0 million and ~~$291.1~~$246.6 million in the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. We also had purchases of property and equipment of ~~$3.0~~$5.2 million and ~~$6.9~~$10.6 million in the ~~three~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

Cash Provided by (Used in) Financing Activities. Cash ~~provided by (used in)~~used in financing activities consisted primarily of tax withholdings for net share settlement, net of cash received from the issuance of common stock to employees pursuant to the exercise of employee stock options and our employee stock purchase ~~plan, net of tax withholdings for net share settlement.~~plan. In the ~~six~~nine months ended ~~June~~September 30, 2022, we had tax withholdings of ~~$8.1~~$8.4 million, offset by proceeds from issuance of common stock of ~~$4.2~~$4.6 million. In the ~~six~~nine months ended ~~June~~September 30, 2021, ~~the net cash received~~we had tax withholdings of $6.5 million, offset by proceeds from ~~these activities was $1.2~~issuance of common stock of $6.3 million. Additionally, we paid $172.5 million to settle the principal for our 2021 Notes during that period.

Contractual Obligations and Commitments

We have lease obligations primarily consisting of operating leases for our principal offices, our warehouse space and our manufacturing facility, with expiration dates as set forth below.

In March 2015, we entered into a lease agreement for approximately 50,740 square feet of office space located in Redwood City, California for a period beginning in June 2015 and ending in May 2022, with initial annual payments of approximately $2.0 million, increasing to $2.4 million annually in the final year of the lease term. In December 2016, we entered into a first amendment to the lease for an additional approximately 49,980 square feet of office space adjacent to the premises under the original lease (the Expansion Premises) with initial annual payments of $1.2 million, increasing to $2.9 million in the final year of the amended lease term. The lease for the Expansion Premises commenced on June 1, 2018. The first amendment also extends the lease term for the original premises to terminate on the same date as the amended lease, which is May 31, 2025. In April 2017, we entered into a second amendment to the lease for a temporary space of approximately 8,171 square feet for a period beginning in May 2017, and which ended on June 1, 2018, the Commencement Date of the Expansion Premises. See Note 6, Commitments and Contingencies, of Notes to Condensed Consolidated Financial Statements for additional information.

In February 2017, we entered into a separate non-cancellable facility lease for warehouse space beginning March 1, 2017 through February 28, 2022, under which we are obligated to pay approximately $0.4 million in lease payments over the term of the lease. In October 2021, we extended our warehouse lease through May 2025, under which we are obligated to pay approximately $0.4 million over the extended term.

In August 2020, we entered into a lease for approximately 35,411 square feet of manufacturing space to begin in April 2021 and to last through June 2031 at a facility in Costa Rica, under which we are obligated to pay approximately $3.9 million in lease payments over the term of the lease. We plan to use this facility to build-out certain manufacturing capabilities so that we can vertically integrate the assembly of IPGs, peripherals and various other manufacturing related activities.

We have entered into supply agreements with certain of our suppliers that required certain minimum annual purchase agreements. As of ~~June~~September 30, 2022, we had minimum annual purchase commitments of ~~$0.7 million due in the remainder of 2022 and~~ $17.6 million due each year from 2023 to 2025.

We have also entered into a service agreement for which we are committed to pay $2.5 million in each of the next two years over the remaining term of the service agreement, as well as a license agreement for which we are committed to pay $0.1 million over the remaining term of license agreement.

As of ~~June~~September 30, 2022, our contractual obligations related to the 2025 Notes are payments of interest of $2.6 million due for the remainder of 2022, payments of interest of $5.2 million due each year from 2023 through 2024, and payments of interest and principal totaling $192.4 million due in 2025.

Off-Balance Sheet Arrangements

Through ~~June~~September 30, 2022, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. For information regarding indemnification obligations, refer to Note 6, Commitments and Contingencies, of Notes to Condensed Consolidated Financial Statements within this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposures to other market risks related to fluctuation in interest rates, market prices and foreign currency exchange have not changed materially since December 31, 2021. For quantitative and qualitative disclosures about market risk, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our Annual ~~Report on Form 10-K for the year ended December 31, 2021.~~Report.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of ~~June~~September 30, 2022, the end of the period covered by this Quarterly Report. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of such date.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

The legal proceedings information set forth in Note 6 Commitments and Contingencies, of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report is incorporated herein by reference.

Item 1A. Risk Factors

In addition to other information contained elsewhere in this Quarterly Report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report as filed on February 23, 2022, which could materially affect our business, financial condition or future results. There have been no material changes to our risk factors since our Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

3335

Item 6. Exhibits


Exhibit		Incorporated by Reference
Number	Description of Document	Form	Date	Number		Filed Herewith

3.1	Amended and Restated Certificate of Incorporation.	8-K	11/12/2014	3.1

3.2	Certificate of Amendment of Amended and Restated Certificate of Incorporation.	8-K	5/24/2019	3.1

3.3	Amended and Restated Bylaws.	8-K	11/12/2014	3.2

3.4	Amendment to Amended and Restated Bylaws.	8-K	5/24/2019	3.2

4.1	Reference is made to Exhibits 3.1 to 3.3.

4.2	Form of Common Stock Certificate.	S-1/A	10/27/2014	4.2

4.3	Indenture, dated as of June 13, 2016, by and between the Company and Wilmington Trust, National Association.	8-K	6/13/2016	4.1

4.5	Second Supplemental Indenture, dated April 6, 2020, by and between Nevro Corp. and Wilmington Trust, National Association, as Trustee.	8-K	4/7/2020	4.2

4.6	Form of 2.75% Senior Convertible Note Due 2025 (included in Exhibit 4.6).	8-K	4/7/2020	4.3

4.7	Description of Nevro Corp.’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.	10-K	2/25/2020	4.6

31.1	Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).				X

31.2	Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).				X

32.1**	Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).				X

3436


101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	X

101.SCH	Inline XBRL Taxonomy Extension Schema Document	X

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document	X

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document	X

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document	X

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document	X

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

# Indicates management contract or compensatory plan.

** The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the SEC and is not to be incorporated by reference into any filing of Nevro Corp. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

3537

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		NEVRO CORP.
		(Registrant)

Date: ~~August 3,~~November 2, 2022		/s/ D. KEITH GROSSMAN
		D. Keith Grossman
		Chief Executive Officer (Principal Executive Officer)

Date: ~~August 3,~~November 2, 2022		/s/ RODERICK H. MACLEOD
		Roderick H. MacLeod
		Chief Financial Officer (Principal Financial and Accounting Officer)

3638


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value per share	NVRO	The New York Stock Exchange


	June 30,			December 31,			September 30,			December 31,
	2022			2021			2022			2021
Assets
Current assets
Cash and cash equivalents	$	109,010		$	34,710		$	130,839		$	34,710
Short-term investments		201,813			327,317			256,057			327,317
Accounts receivable, net of allowance for doubtful accounts of $1,139 and $1,385 at June 30, 2022 and December 31, 2021, respectively		66,903			70,475
Accounts receivable, net of allowance for doubtful accounts of $1,222 and $1,385 at September 30, 2022 and December 31, 2021, respectively								69,572			70,475
Inventories		93,520			93,517			98,525			93,517
Prepaid expenses and other current assets		12,056			5,185			11,080			5,185
Total current assets		483,302			531,204			566,073			531,204
Property and equipment, net		20,790			20,664			21,173			20,664
Operating lease assets		15,543			17,577			14,497			17,577
Other assets		3,675			4,493			3,163			4,493
Restricted cash		606			606			606			606
Total assets	$	523,916		$	574,544		$	605,512		$	574,544
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	31,298		$	31,999		$	31,839		$	31,999
Accrued liabilities		36,421			45,517			43,388			45,517
Other current liabilities		4,947			4,687			5,071			4,687
Total current liabilities		72,666			82,203			80,298			82,203
Long-term debt		186,256			151,310			186,559			151,310
Long-term operating lease liabilities		12,930			15,402			11,624			15,402
Other long-term liabilities		22,079			22,013			2,096			22,013
Total liabilities		293,931			270,928			280,577			270,928
Commitments and contingencies (Note 6)
Stockholders’ equity
Preferred stock, $0.001 par value, 10,000,000 shares authorized at June 30, 2022 and December 31, 2021; 0 shares issued and outstanding at June 30, 2022 and December 31, 2021		—			—
Common stock, $0.001 par value, 290,000,000 shares authorized at June 30, 2022 and December 31, 2021; 36,063,723 and 35,709,570 shares issued at June 30, 2022 and December 31, 2021, respectively; 35,380,807 and 35,026,654 shares outstanding at June 30, 2022 and December 31, 2021, respectively		35			35
Preferred stock, $0.001 par value, 10,000,000 shares authorized at September 30, 2022 and December 31, 2021; zero shares issued and outstanding at September 30, 2022 and December 31, 2021								—			—
Common stock, $0.001 par value, 290,000,000 shares authorized at September 30, 2022 and December 31, 2021; 36,107,515 and 35,709,570 shares issued at September 30, 2022 and December 31, 2021, respectively; 35,424,599 and 35,026,654 shares outstanding at September 30, 2022 and December 31, 2021, respectively								35			35
Additional paid-in capital		902,712			928,138			917,946			928,138
Accumulated other comprehensive income (loss)		(3,249	)		(364	)		(5,041	)		(364	)
Accumulated deficit		(669,513	)		(624,193	)		(588,005	)		(624,193	)
Total stockholders’ equity		229,985			303,616			324,935			303,616
Total liabilities and stockholders’ equity	$	523,916		$	574,544		$	605,512		$	574,544


	Six Months Ended						Nine Months Ended
	June 30,						September 30,
	2022			2021			2022			2021
Cash flows from operating activities
Net loss	$	(59,315	)	$	(51,151	)
Net income (loss)							$	22,193		$	(101,226	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		3,056			2,250			4,658			3,470
Amortization of operating lease assets		2,034			1,838			3,080			2,806
Stock-based compensation expense		26,785			20,271			41,992			32,908
Amortization of premium (accretion of discount) on short-term investments		844			703			888			1,008
Provision for doubtful accounts		175			(970	)		280			(1,222	)
Write-down of inventory		2,255			3,037			3,638			3,707
Amortization of debt discount and issuance costs		602			8,376			905			10,759
Unrealized (gains) losses on foreign currency transactions		(714	)		2,006			(1,737	)		2,753
Changes in operating assets and liabilities
Accounts receivable		2,404			13,111			(964	)		14,983
Inventories		(1,492	)		(14,712	)		(7,207	)		(23,236	)
Prepaid expenses and other current assets		(6,902	)		(3,930	)		(5,949	)		(2,878	)
Other assets		815			(237	)		1,325			(416	)
Accounts payable		(1,079	)		14,193			(310	)		17,896
Accrued liabilities		(8,313	)		(4,070	)		(1,000	)		(4,718	)
Other long-term liabilities		(2,407	)		(2,075	)		(23,694	)		16,684
Net cash used in operating activities		(41,252	)		(11,360	)
Net cash provided by (used in) operating activities								38,098			(26,722	)
Cash flows from investing activities
Purchases of short-term investments		(50,172	)		(197,784	)		(188,063	)		(354,614	)
Proceeds from maturity of short-term investments		173,550			488,851			257,050			601,171
Purchases of property and equipment		(3,042	)		(6,935	)		(5,155	)		(10,610	)
Net cash provided by investing activities		120,336			284,132			63,832			235,947
Cash flows from financing activities
Repayment of convertible notes		—			(172,500	)		—			(172,500	)
Minimum tax withholding paid on behalf of employees for net share settlement		(8,057	)		(5,115	)		(8,386	)		(6,491	)
Proceeds from issuance of common stock to employees		4,189			6,283			4,555			6,334
Net cash used in financing activities		(3,868	)		(171,332	)		(3,831	)		(172,657	)
Effect of exchange rate changes on cash and cash equivalents		(916	)		(20	)		(1,970	)		(280	)
Net increase (decrease) in cash, cash equivalents and restricted cash		74,300			101,420			96,129			36,288
Cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period		35,316			45,203			35,316			45,203
Cash, cash equivalents and restricted cash at end of period	$	109,616		$	146,623		$	131,445		$	81,491
Significant non-cash transactions
Purchases of property and equipment in accounts payable	$	664		$	1,446		$	533		$	482


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
	2022			2021			2022			2021			2022			2021			2022			2021
Net unrealized foreign currency gain (loss)	$	1,057		$	(664	)	$	1,223		$	(2,116	)	$	1,026		$	(745	)	$	2,249		$	(2,861	)
Net realized foreign currency gain (loss)		(636	)		596			(711	)		1,598			(585	)		787			(1,296	)		2,385


	Balance at			Adjustments Due			Balance at
	December 31, 2021			to ASU 2020-06			January 1, 2022
Long term debt	$	151,310		$	34,345		$	185,655
Additional paid-in capital	$	928,138		$	(48,340	)	$	879,798
Accumulated deficit	$	(624,193	)	$	13,995		$	(610,198	)


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐


		Page

PART I—FINANCIAL INFORMATION		3

Item 1. Condensed Consolidated Financial Statements (unaudited)		3

Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2022 and December 31, 2021		3

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021		4

Condensed Consolidated Statements of Stockholders’ Equity for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021		5

Condensed Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021		6

Notes to Condensed Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2021

Item 3. Quantitative and Qualitative Disclosures About Market Risk		3234

Item 4. Controls and Procedures		3234

PART II—OTHER INFORMATION		3334

Item 1. Legal Proceedings		3334

Item 1A. Risk Factors		3334

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3334

Item 3. Defaults Upon Senior Securities		3335

Item 4. Mine Safety Disclosures		3335

Item 5. Other Information		3335

Item 6. Exhibits		3436

SIGNATURES		3638


	Operating Leases			Operating Leases
2022, remaining months	$	2,956		$	1,478
2023		6,019			6,019
2024		6,201			6,201
2025		2,849			2,849
2026		405			405
Thereafter		1,978			1,978
Total lease payments		20,408			18,930
Less: Interest		(2,532	)		(2,236	)
Present value of lease liabilities	$	17,876		$	16,694


Balance as of June 30, 2022	Level 1		Level 2		Level 3		Total
Balance as of September 30, 2022									Level 1		Level 2		Level 3		Total
Assets:
Money market funds (i)	$	84,174	$	—	$	—	$	84,174	$	109,642	$	—	$	—	$	109,642
Agency bonds (ii)		—		—		—		—		—		120,314		—		120,314
Commercial paper (iii)		—		14,952		—		14,952
Corporate notes (ii)		—		1,000		—		1,000
Commercial paper (ii)										—		17,175		—		17,175
Treasury bonds (ii)		190,859		—		—		190,859		118,568		—		—		118,568
Total assets	$	275,033	$	15,952	$	—	$	290,985	$	228,210	$	137,489	$	—	$	365,699


Balance as of December 31, 2021	Level 1		Level 2		Level 3		Total
Assets:
Money market funds (i)	$	9,562	$	—	$	—	$	9,562
Agency bonds (ii)		—		42,538		—		42,538
Commercial paper (ii)		—		61,884		—		61,884
Corporate notes (iii)		—		30,351		—		30,351
Treasury bonds (ii)		197,552		—		—		197,552
Total assets	$	207,114	$	134,773	$	—	$	341,887