Q3 2020 NeuroMetrix Inc Earnings Call

My name is Shannon and I'll be your moderator on the call.

On this call the company May make statements, which are not historical facts and are considered forward looking within the meaning of the private Securities Litigation Reform Act of my team and five.

Statements that are predictive of nature that depend upon or refer to future events or conditions are forward looking statements.

Forward looking statements reflect confusing there are metrics about future results of operations and other forward looking information.

Not rely on forward looking statements because actual results may differ materially as a result of a number of important factors, including those set forth in the earnings release issued earlier today. Please.

Please refer to the risks uncertainties, including the factors described under the heading risk factors in the company's periodic filings with the FCC available on the company's Investor Relations website at <unk> Neurometrix dotcom and on the Fccs website <unk>, if you see that that no.

No that does not intend and undertakes no duty to update the information disclosed on this conference call.

I'd now like to introduce another metric senior Vice President Chief Financial Officer, Mr., Thomas Higgins Mr. Higgins.

Thank you Shannon I'm joined on the call by Dr., Shai Gozani, our president and Chief Executive Officer.

Your metrics develops and Commercializes neuro stimulation based medical devices for the diagnosis and treatment of chronic health conditions or come.

Our commercial products or DPN truck advance quell.

Pn Shack is a point of care test for the detection of Perifosine rocket these advance.

Advanced as a point of care device that provides nerve conduction studies as an aid in diagnosing and evaluating patients suspected of having folklore systemic therapies.

And quell is a wearable mobile app enabled neuro stimulation device indicated for symptomatic relief and management of chronic pain.

It is available over the counter.

Q3 was a good quarter for the company, particularly considering the larger economic environment and the operating constraints imposed by managing the business with employee safety as the top priority.

We experienced a rebound in customer orders from the second quarter 2020.

Production was busy throughout Q3 and facility utilization was necessarily high to address customer needs.

Our operating activities that is R&D sales and marketing and DNA role tightly managed.

The forward outlook remains unclear.

We appreciate the customer demand levels raw material supply and staffing issues all have a high degree of uncertainty. However, the business performance in Q3 leaves us with a sense of optimism as we enter the last quarter of the year.

Turning to our operating results in Q3, which we reported earlier today.

Total revenue was about $2 million.

DPN check orders were strong in the quarter for both devices and biosensors demand.

Demand in the Medicare advantage sector from new accounts as well as long standing customers led the way.

Our Japanese business with Fukuda to entry also contributed meaningfully to the quarter results.

The advanced diagnostic business rebounded from the depressed levels of Q2 and Q.

And quote contributed revenue and product line profitability.

Our gross profit on revenue was 1.5 million. This was a gross margin rate of 73.6%.

The strong margin level wasn't encouraging outcome from our efforts are targeting a sustainable margin of 70% plus going forward.

Lower indirect production costs and higher throughput contributed to the margin.

Opex spending totaled just under $1.8 million the slogan of level of spending has been consistent over the past two quarters is about a third below Q3 of 2019.

The current spending level is sustainable going forward.

R&D spending of 652000 was about flat with the prior quarter and 37% higher than Q3 2019 it.

It reflects that R&D activity with a primary focus on the next generation DPN check technology for release next year or 2021.

Sales and marketing spending of 340000 was down 47% from Q3 of last year.

And she is spending of 762000 was down 48% from Q3 of last year and reflects reduced professional services.

Our net loss for the year was for the quarter was $257000.

This was an improvement of 1.1 million or 82% improvement versus Q3, 2019 net loss of 1.4 million.

On a per share basis. The Q3 2020 loss was seven cents per share.

Versus a loss of one point of $1.44 per share in Q3 last year.

Cash at the end of Q3 was $4.9 million an amount sufficient to fund the companys operations into unlikely through Q4 of 2021.

Our capital structure is debt free there are about 3.8 million common shares outstanding.

With that let me turn this over to Dr. Gozani, who will now address our overall strategy.

Thank you.

As Tom outlined we are pleased with the company's performance in the third quarter.

So I will take this opportunity to review our business strategy, which has been.

Which is built around three principles.

The first is that we have prioritized attainment of profitability. This past quarter was encouraging in this respect as we reported an operating loss of about 250000.

We have established an efficient cost structure throughout the business. This covers headcount manufacturing marketing and distribution.

This led to lower operating expenses and improving gross margins.

I should point out that our ability to realize efficiencies is a testament to the commitment and talent of our employees.

Because of the overall economic uncertainty and the need to get more experience with our business initiatives.

We're not currently positioned to state a specific crossover quarter to profitability at this time.

The second principle and our strategy is innovation, our corporate mission is to bring innovative health care products to our customers that improve their health and quality of life.

Our products are unquestionably the most advanced in their categories, whether that is neuropathy diagnostics.

Tens devices we.

We have and will continue to maintain a historical focus and investment in R&D.

A recent example is our launch of the quell watch up.

First smartwatch after control of wearable pain relief device.

Also as we have previously announced we're updating all elements of the DPN check system, which includes the device itself the consumable biased sensor and the associated reporting software we.

We recently launched the updated biosensor and expect to release, the new software, which includes enterprise and data security features that are large Medicare advantage customers are requesting.

We expect to launch that before the end of the year.

And the last principle in our strategy is maintaining a dynamic market strategy, we believe that achieving profitability in leveraging our industry, leading innovation requires flexible strategy.

But that I mean that we need to be nimble and finding the best opportunities for our products.

This is most clearly manifested in quell where we have defined for core clinical indications. The current application for quell is lower extremity chronic pain, primarily knee, playing knee pain, which affects up to 25% of adults in the U.S.

Well is particularly well suited to this application because if its typical placement near the knee as novel wearable design that enables you stare activity.

We've identified three additional indications that we plan to develop fibromyalgia.

Chemotherapy induced peripheral neuropathy, or CIA pn and restless leg syndrome, or our allies in combination. These conditions represent a market of 10 to 20 million individuals in the U.S.

We have pilot or randomized control trial data on all three without.

With our fiber miles or program the furthest along.

We hope to announce program updates in the second half of next year.

In summary, neuro metrics as novel products, they're targeting large markets. We are committed and operationally efficient organization that is structured to support growth and move towards profitability.

That completes our prepared comments and we'd be happy to take any questions at this point.

Thank you, ladies and gentlemen to ask a question you need to press star one on your telephone to withdraw your question press the pound key.

Please standby, we compiled acuity roster.

Our first question comes from Jared Cohen with JM Cohen and company. Your line is open.

Yeah, just a quick question you know its been I guess, the one five years since you launched it well and I'm just Uh huh.

Curious.

What your opinion is in terms of why haven't you see more.

Recurring revenue from the.

The the gel packs a CMC I think you have what a little over 200000.

You sold a little bit over 200000, it went well devices in the <unk> and the five years since then.

Yeah, that's correct Jerry we have we've shipped around 200000 devices over about five and a half years.

About five and a half years now.

Yeah, I think there is we do have a recurring.

Recurring revenue stream from our from our customers.

As you might expect them to come up in a consumer oriented product you are going to have churn and trail off of customers over time.

Right customers use our product for a period of time.

It helps they move they potentially don't need it anymore or they come back and forth or they go all to alternative.

RP. So it's a fairly dynamic situation, yeah, I would say overall I would agree with you that we are you know were not.

We're a little bit.

Disappointed overall in the consistency of the recurring revenue side.

Stream from the consumables and are in fact, I think are moving forward strategy somewhat reflective of that what were focused on more specific indications on that I think we can build.

Better connections to the consumers and better serve their needs to get a stronger recurring revenue and more consistent recurring recurring revenue stream.

But I think overall to answer. Your question is there are many reasons some of which are expected and some of which I think were somewhat disappointed but we do have a consistent revenue stream from those customers and continue to see that but we'll.

But we need to improve on it.

Okay, because you don't give an exact right.

Do you see from the existing installed base about 25% the them coming back to you or even less than that you don't give an exact number I know that but I'm just curious at this point.

Right.

Yeah, I don't have a.

A good number to give you in that respect I think it's a it's kind of a complicated situation. So I don't want I don't want to quote a number.

Also for competitive reasons, we tend to be fairly soon.

Subdued and what we did what we described but.

Yes, it really depends I mean, there is that theres a wide of wide variation among customers.

I think it needs to be improved clearly and again by being more focused on specific indications that allow us to build.

More specific services and support say into the App and into our customer service for those applications I think will will strength that go on the strength of that going forward.

All right all right. Thank you very much.

Thank you once again, ladies gentlemen, if you wish to ask a question at this time. Please press Star then one are you touched on telephone.

Our next question comes from Bill Church PG Rice your line is open.

Good morning DMP.

How much market share growth.

It's in front of us we see going forward.

[noise] well there.

We have no. So I mean, that's a good question I mean the.

There is no competition, so where they were the only player.

In portfolio.

Peripheral neuropathy diagnostics at the point of care I'm, saying, there is tremendous opportunity in terms of what the overall market I mean, we're at a fairly early stage even in terms of our core effort in Medicare advantage.

So I would say that there is significant growth opportunities.

We're probably at less than I would say, what 5% to 10% of the even the Medicare advantage opportunity, which is our core focus of the U.S. and even at lower percentages in international markets. So tremendous growth now I want to point out that this is an emerging concept for.

There are many plans and insurers to to screen for peripheral neuropathy, so well.

While the opportunity is quite large there is a lot of education.

That has to go along with that but the opportunity is quite impressive.

So how do we.

Realize that or I know, you've got the new software update probably and that sort of thing.

But it's.

It's just getting the word out I guess or being approved.

Trust plans and so forth.

Well our in the U.S. our core focus is on Medicare advantage accounts, we are.

In the two largest Medicare advantage insurers in the country.

So weve over the last four or five years I've had become standard of care within those.

Within those insurers and as they are expanding their footprint I'm as they are implementing programs. We tend to go along with that it's it's not so it's difficult to.

Push the growth at the rate, we like to see because we're dealing with very large organizations and they tend to tend to develop relatively slowly.

So we to it so it's it is getting the word out it's providing the right.

Providing the right kind of software to integrate into their into their enterprise solutions.

And it's growing along with them and grow along with the Medicare advantage business overall.

So to your point I mean, yes, we we try to get the word out we try to provide the right support.

We'd obviously like to see it grow faster, but there is there is a pace to it that we have to appreciate.

Okay. Thank you.

Thank you once again, ladies gentlemen, if you wish to ask a question at this time. Please press Star then one touchstone telephone.

And I'm currently showing no further questions at this time I turn the call back over to Dr. Gozani for closing remarks.

Thank you and.

We appreciate you joining us on this call today and look forward to updating you early next year.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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