Q3 2022 electroCore, Inc. Earnings Call
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Greetings and welcome to the Elektra Corps third quarter 2022 earnings conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
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As a reminder, this.
This conference is being recorded.
I would now like to turn the conference over to your host Nicole Jones at CG catheter.
Please go ahead. Thank you all for participating in today's electric core earnings call. Joining me today are Dan Goldberger, Chief Executive Officer, Brian Posner, Chief Financial Officer, and Dr. Peter Staats, Electra <unk> Chief Medical Officer.
Earlier today I would like to report released results for the third quarter ended September 32022.
You have the press release is available on the company's website.
<unk>, we begin I would like to remind you that management will make statements. During the call that include forward looking statements within the meaning of the federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 995.
Any statements contained in this call that are not statements of historical facts should be deemed to be forward looking statements.
All forward looking statements, including without limitation any guidance.
Outlook for statements regarding our future financial expectations for operational activities and performance are based upon the company's current estimates and various assumptions.
These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements.
Accordingly, you should not place undue reliance on these statements are listed there are risks and uncertainties associated with the company's business. Please see the company's filings with the Securities and Exchange Commission.
I need to report that revenue for the three months ended September 30th 2022 was almost $2 million healthy 33 per cent increase over one and a half million dollars in the year ago period.
Revenue declined slightly sequentially and I'll discuss some of the puts and takes on revenue later in this call.
Gross margins expanded nicely to 87% of net cash used in operations was about $4.6 million for the quarter ended September 30th 2022.
Revenue from the U S commercial headache channel was $411000 for the quarter ended September 30th at 160% increase from $158000 in the third quarter of 2021.
Approximately $359000 a R U S commercial revenue in the third quarter came from cash pay programs.
We have several initiatives in the U S commercial channels, which have delivered mixed results.
Cash pay clinician dispense programs D C direct energy concierge have grown from 637 prescribers to 937 prescribers and the last 90 days <unk>.
Revenue from those programs has exceeded our growth expectations and the 50 per cent increase in prescribers should be a leading indicator of future growth.
On the other hand performance of R. E. Commerce platform has not met our expectations were currently restructuring that channel and expect a streamlined more exciting offering to launch in January 2023.
A few days ago, we announced the distribution agreement with yearns healthcare LLC that will add more than 12, and a half million covered lives within a select managed care health system.
The business model with turns will be similar to how we work with a V. A hospital system <unk>.
<unk> will handle adjudications billing and collections, while electric core will ship directly to patients and providing servicing and patient support <unk>.
<unk> will pay electric or for devices dispense.
It turns agreement will take a few months to implement in our field sales team will be responsible for educating clinicians within those managed care systems during that time.
We continue to work towards adding covered lives through negotiations with commercial Payors and the Jersey announcements should support those activities.
Net sales from the department of Veterans Affairs, or the V. A and the department of defense or D. O D $1.1 million, an increase of 21% as compared to $946000 in the third quarter of 2021.
A total of 113 V a and D O D military treatment facilities have purchase Gammacore products through September 30th 2022, as compared to 96 through the third quarter of 2021.
Note that there are approximately 1300 V a health care hospitals and clinics and over 400 military hospitals and medical clinics. So we believe we still have plenty of potential growth ahead of us.
You'll recall that the federal government budget year ends on September 30th.
In 2020, and 2021, you saw V. A hospital business increase in September pulling forward revenue from October .
In 2022 exactly the opposite has happened and we believe the first few weeks of October may bode well for strong performance from our U S government channel in the fourth quarter of 2022.
Revenue from channels outside the United States increased 9% to $417000 in the third quarter of 2022 as compared to $383000 for the third quarter of 2021, and we look forward to steady growth in this channel for the rest of the 2022.
That said currency fluctuations continue to be a headwind to our international revenue free.
For example, our UK business increased more than 11% year on year measured in local currency British pounds, but declined almost 5% as reported in U S dollars.
On April 19th 2022, we announced the Gammacore noninvasive vagus nerve stimulation and VNS has been selected for additional funding by the department of defense biotech optimized for operational solutions and tactics quite a boost program. The boost research program, which will be conducted under the leader.
<unk> of the 711 human performance optimization branch of the United States Air Force seeks to optimize and validate the efficacy of N VNS, an accelerated training sustained attention reduced fatigue and improved mood among air force personnel.
More recently, we signed an agreement with the Prime contractor and received our first purchase commitment under that contract.
We are establishing the text and brand of N VNS for human performance as an extension of the Bush program and we're exploring ways to make our initial product offerings available to all branches of the active duty military and first responders in the United States and abroad.
Now turning to our clinical progress on September 7th 2022, the company announced the publication of a peer reviewed manuscript entitled transfer.
<unk> cervical vagus nerve stimulation reduces behavioral and physiological manifestations of withdrawal impatience with opioid use disorder and.
In the journal brain stimulation.
Which was conducted with the support of Emory University in Georgia Tech University and sponsored by a grant from the National Institute on drug addiction <unk>.
The double blind randomized Sham control study at 21 patients with O U D found that N P. N S reduce both the psychological and physiological symptoms of acute opioid withdrawal.
Statistically significant reductions in opioid withdrawal symptoms distress and pain were observed over the course of a two hour protocol for the M. B in escrow with in comparison to the Sham stimulation group.
We subsequently participated in a pre submission meeting jointly with the F D. A and an idea where we discuss the pivotal trial to support a future regulatory submission for an indication to treat the symptoms of withdrawal.
And I D. A has indicated that they are likely to finance that typically trial in its entirety.
On October 20th 2022, we announced data from an oral presentation and real critical care Society's 20th annual meeting held in San Antonio Texas.
The possible role of Gammacore N D N S Q treatment of traumatic brain injury T V I the.
The presentation was given by Dr. <unk> of the University of New Mexico, who is the primary investigator leading the program and reviewed animal data demonstrating the ability of N. B N S to decrease anxiety and improve motor function post injury.
Additional work on the potential benefits of Indian S.
Traumatic brain injury will be funded by an exploratory development research grant or 21.
The National Institute of neurological disorders and stroke.
We'll continue to provide updates about our pipeline into other opportunities.
Now I'll turn the call over to Brian for view of our financials and other guidance items.
Alright.
Thank you Dan.
Third quarter ended September 30th 2022.
<unk> reported net sales of almost $2 million as compared to $1.5 million. During the same period of 2020 want.
This represents a 33 per cent revenue increase over the same period last year.
Gross profit for the third quarter of 2022 was $1.7 million as compared to 1.1 million for the third quarter of 2021 <unk>.
Gross margin with 87% and 76 per cent for the periods ended September 30th 2022, and 2021, respectively.
Are evolving commercial strategy has resulted in the launch a cash payment models under which we license certain starter devices.
The cost of the license started device is being recognized as cost of goods sold over the estimated useful life the starter device.
The incremental favorable impact on gross margin associated with licensing a portion of our devices was 9% in the three months ended September 30th 2022.
Moreover, in recent quarters, we have sold an increasing amount of longer duration therapy, resulting in a higher average selling price.
These factors and favorable absorption of labor and overhead costs due to an increase in your number of units sold contribute to the increase in gross margin.
Total operating expenses in the third quarter of 2022 or approximately $7.3 million, an increase of approximately $2.2 million from $5.1 million in the third quarter of 2021.
Research and development expenses in the third quarter of 2022 was $1.6 million as compared to $470000 for the same period in 2021.
R&D expense for the quarter, including investment for our next generation product currently under development.
General and administrative expense in the third quarter of 2022 was $5.7 million.
Compared to $4.6 million for the same period in 2021.
Total SG&A expenses for the third quarter of 2022 included in Creek invest and then our sales and marketing efforts to support our cash pay initiatives.
GAAP net loss for the third quarter of 2022 was $5.5 million as.
Compared to a gap net loss of $4 million for the same quarter of 2021.
Adjusted EBITDA net loss in the third quarter of 2022 was $4.8 million as compared to a loss of $3.1 million during the third quarter of 2021.
A reconciliation of GAAP net loss of non-GAAP adjusted EBITDA net losses been provided in the financial statements tables included in today's press release.
Net cash used an operating activity during the quarter ended September 30th 2022 was approximately $4.6 million as compared to $3.4 million in the third quarter of 2021.
Cash cash equivalents and restricted cash at September 30th 2022 totaled approximately $21.9 million as compared to a proxy $34.7 million at December 31st 2021.
Looking ahead.
For the fourth quarter of 2022, we expect net revenue to be between 2.2 million and two coin $3 million in that cast usage to be between $1 million and $4.5 million and now I'll turn the call back over to that.
Thank you Brian .
I'm pleased with our year over year operating results and I continue to be very enthusiastic about the company's long term prospects continued.
Continued investment in our cash pay an insurance covered business models as well as clinical indications beyond primary headache greatly.
Greatly expand the N BNS therapy market.
The Booze project being financed by the Air Force could accelerate the adoption of Indian S for human performance among our active duty military.
We continue to build our intellectual property portfolio and we're developing a very exciting next generation product platform to leverage it.
October has been very strong an R V. A D O D channel, which we believe may bode well for the fourth quarter.
Our cash pay commercial initiatives are showing positive results.
Our physician dispense programs are growing faster than expected as the prescribers <unk> available to patients directly through their practices or directly from electric Corp.
They turned announcement, we discussed earlier dramatically increases the number of covered lives with access to insurance coverage for N VNS and could generate material revenue next year.
Our UK business has recovered from a slow start in Q1 2022, the currency exchange continues to be a headwind to all of our international efforts.
I see many potential growth drivers and the remainder of 2022 and 2023, including.
Continued penetration of the V. A D O D channel in the United States continued penetration of the UK market.
Growth in our U S commercial channel driven by cash pay business models and direct to consumer advertising why we continue our efforts to gain commercial insurance coverage.
And expansion of our international business through our distributor network and add attraction within the U K E Commerce store.
Longer term, we believe there are real opportunities for label extensions in to.
Post traumatic stress disorder, or PTSD opioid use disorder, and mild traumatic brain injury <unk>.
The airforce boost program could lead to incremental product sales to the active duty military as soon as next year.
At this time I'll turn the call over to the operator.
Operator, please open the line quick questions.
Thank you.
At this time, we will be conducting a question and answer session.
If you would like to ask a question for you stress star one on your telephone keypad.
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<unk> two if you would like to remove your question from the queue.
Four participants using speaker equipment, it may be necessary to pick up your handset before pressing to talk to you.
One moment, please while <unk> full questions to ask questions listen gentlemen, please <unk>.
We have a first question from the line of Jeff coin with <unk> Feldman. Please go ahead.
Hi, everyone. This is Jesse on jazz. Thank you for taking our questions I think perhaps I'll start.
With it some of the same questions around the cash pay model as well as the E. Commerce channel that's it really incredible growth and prescribers. So congratulations on that I'm wondering if you can speak to any any drivers of that growth or is that something that just coming about based on awareness or are there any campaigns, you're currently doing to really <unk>.
These prescribers could you just talk a bit about that and then I'll circle back to my ecommerce question.
Sure and and Destiny. Thank you for thank you for the question.
Variety of things you know, we do have a small.
But aggressive field sales presence.
And then that's our direct employees are.
<unk> multiplied by.
Group of what we call to 99 ranch spoke to work for straight Commission and.
And we also add in sale inside sales function and in our marketing function has been getting progressively stronger so.
Yo variety of activities as well as we move beyond.
Detailing traditional headache specialists in neurology.
And you know roughly at third of the new.
G. Concierge accounts are come from functional medicine, integrative medicine tend to be cash pay.
Concierge style medicine.
And we also opened it up to chiropractors, and especially functional chiropractors.
Seem to really.
Have prior knowledge and experience.
Working with the vagus nerve and looking for ways to stimulate the vagus nerve.
Mechanically and so they're early adopters are quick adopters of our technology for stimulated the vagus nerve noninvasively.
Okay got it that's very interesting. Thank you and then quickly back to your E. Commerce platform, you mentioned that it hadn't necessarily met your expectations I'm curious what happened there is it a function of your marketing messaging or is it just an issue with the final or if you can just provide a.
Little detail that would be super helpful.
Yeah, Yeah look we're not proud of it but the the idea <unk> to partner with a telehealth provider to facilitate prescriptions.
Ah for consumers, who who.
Would find it more convenient than than going to.
To the local doctor as a practical matter.
The requirement for a prescription.
Creates friction in that that e-commerce.
Patient journey.
And the platform that we chose in partnership with vital.
Had some plain old fashioned bugs and it was it was clunky to use so.
We're going to take a deep red.
And refresh and restart with what I believe is going to be a much more streamlined consumer experience in the near future.
Okay got it that's very helpful. I should emphasize though that are are awareness campaign, which was primarily in.
In paid search and and social media was remarkably successful at bringing interested parties you know unique visitors to our platform.
It was moving through the final and turning them into transactions, where where the disappointment came from.
I see okay got it so that I guess that would mean that you have several interested individuals. If you will that might be interested I might be able to convert at a later date, which could potentially help support hotline I understand okay. Okay. Okay. Yeah, Yeah, we have a we.
Will we will launch an abandoned cart campaign.
Once we are comfortable with the the new improved.
E Commerce platform.
Okay got it and then I'm just gonna quickly transition to the V. A N D O D channel and then I'll get back to you, but I'm wondering has a strategy there changed at all are you at.
Several additional hospitals this quarter, which is excellent to see uhm. So any change in strategy have you added any additional <unk> to target. These uhm clinics or anything that you can point out there.
Yeah, you're you're as usual decimate, you're right on top of it today. The V. A hospital system you know the good news is that it is very sticky business and the challenges that it's a high touch business and so.
Combination of our field sales personnel and the associated 10, 99, rich working in concert with our inside sales and our customer experience team, we're getting better and better at that high touch stay in contact with the supply chain folks at the V. A horse.
<unk> as well as just are increased ability to open up new hospitals.
Partly because of the team that we put together and let's face it the pandemic is still receding and so.
The V. A hospital system is slowly, but surely adjusting to the new normal and letting us in.
Okay got it. Thank you for taking my question.
Thank you.
Thank you.
Okay I have to ask a question, ladies and gentlemen, please press start and one on there that stone telephone now.
We have an X question for the line of John vendor Marston with Zack's. Please god.
Hello, and good evening, Dan, Brian and Peter.
Glad to have you on the call again, John How're you doing.
Hello, George that's a that's a great a great addition to the portfolio of partners and I wanted to see if there were any characteristics of the of the George lives that you know is it that stands.
Stands out you know maybe in terms of geography or or anything like that I noticed that they didn't have a pretty broad set up their own partnerships on their website and wondered how the ones that you will be exposed to are made up.
[laughter] yeah. She John Thanks for noticing in in the business model looked at this is giving us access to a managed care provider.
And.
Broad strokes.
The.
The Germans agreement is going to work very similar to how we work with a V. A hospital system in.
And freeing them from a very high level of the V. A hospital system is ultimately a managed care organization where.
The doctors and the clinical staff for all employees of of the hospital right.
So journey is gonna handle the back office stuff of adjudicating prescriptions.
Making sure that the individual is on the right benefit plan and looking at the deductible status and co pay status and managing all of those collections, whether it's the deductible collection or getting reimbursement from the health care system.
And then just like we do with the V. A hospitals, we will be shipping directly to the patience.
Our staff will handle patient education and in servicing and we will get paid buy churns as as they go through their collections process. So it's a very exciting breakthrough for us it's a large primarily west coast.
Managed care outfit that is under contract and it's gonna take us awhile to.
To get the plumbing to get to the back office stuff to be working smoothly, but once we're sure that it's working smoothly our field sales staff.
We'll start a campaign to to call on those facilities much like we call on the V. A hospital facilities.
Okay great.
What was your pipeline of prospects from the manager or commercial space. You know I I know we have maybe you can also tell me how many we have so far I know where it joins is adding to some others that you've closed earlier, but what is the pipeline look like.
The pipeline is very large but it is moving very very slowly.
We continue to have conversations around.
Around getting added to benefit plans from commercial insurers and and then based on that entering into fee schedule conversations, but I can't say that anything is is imminent at this time.
Okay and last one for me is just on the trend throughout the quarter for sales I I had heard from some other companies out there that they saw a week July and August it picked up in September I know you said V. A actually didn't follow that pattern, but I was wondering you know in the broader sense, maybe and.
Some of the other segments.
What you saw it as a trend throughout the quarter month to month, Yeah, I, you know I I.
I think I think.
We saw that same kind of.
I'm Gonna call it back to normal seasonality, where July and August are slower because people are taking vacations people in the clinical staff catching up on vacations.
September was was stronger.
And October has been especially strong.
<unk> very excited about the momentum we have for October and the first couple of days in November .
One of the seasonality things that we saw in 20 and 21.
Was in the federal government system pulling forward some orders from October in September and I think I mentioned in my remarks, but we saw the opposite and the V. A hospital system of we did not get that bumped. The borders at the end of September but it looks like we got that bump of orders.
The first couple of weeks of October So I have no idea.
It will be in coming months, maybe we'll get some color on whether the budget year has something to do with that or not.
Okay, Yeah, Yeah, I know that a lot of the government entities try to spend it.
Their budget at the end of the year right. So they get it re reinstate it at the same level and you know on October is there any anything in particular that you can point to why do you think the strength of their I mean, you know the stock market's been all over the place right and not that that's necessarily barometer. They would drive sales of Gammacore, but anything you can point to out there that might.
You know.
Explain.
Strong October .
Yeah, I think you'll look I think we we are getting better and better at it running our sales and marketing functions and the V. A hospitals are slowly but surely going through.
Sort of return to normal and we've got.
Gradually improving access in the V a hospitals.
And and for our our cash pay.
Commercial activities Yo success breeds success right, we have one or two prescribers in particular city or town that are starting to have success and then and then their their colleagues in their competitors notice so.
Right now.
It seems to be a very virtuous cycling we're enjoying it.
Alright, Thank you Dan.
I appreciate your time.
Thank you.
Anyone who wishes to ask a question at this time of <unk> and one on your Touchtone phone now.
We have a next question from the line of Anthony Vendetta with Maxim Group. Please go ahead.
This is Thomas moved over and speaking for Anthony So I just have a couple a couple.
A couple of questions regarding the tension in limited licensing agreement.
So I don't know if it's too early for you guys to speak on this but have there been any developments and did you have any more insight on when the Ministry of health is when you expect administrative help to give you guys some regulatory approval in Japan.
So <unk>.
We've had.
Frequent ongoing.
Conversations and data transfers to our colleagues adaptation in Japan.
But we do not yet have that first determination so that the first step in the process for Japanese Ministry of Health <unk>.
Is to determine if the pivotal data that was collected in the U S and Europe will be adequate to support.
A regulatory filing.
Or.
And unfortunately, it's more likely that the Japanese Ministry of Health is gonna say that they like all of the typical data, but they want to see some number of patients trials in Japan.
So that's gonna be an important factor in in figuring out the timeline, whether we have adequate data or whether a small travel a pivotal trial has to be executed.
Gotcha that makes a lotta sense.
So all I got for you to suggest that it may be.
Alright, I appreciate it so so in your preliminary and I know, it's not a huge chunk, but you said that of your revenue from outside of the U S. About 45000 of that came from that from licensing fees associated with that agreement is that something that we should expect as a revenue stream quarter over quarter or is that you know.
And if so is it going to be kind of staying at that 45000 level or will it fluctuated quarterly.
So we got an initial payment in March which is being amortized over four quarters.
So you'll see that that number.
For the next two quarters right Brian .
Yeah, that's correct that's correct yeah.
And then there is an annual license fee mmm to maintain exclusivity that's smaller.
And but then the the license fee start to kick up again based on clinical and regulatory milestones. So we know what the number will be for the next two quarters and beyond that it's gonna fluctuate.
Okay, Great I appreciate that insight. So this is my last question is about your consumer awareness campaigns and I know you've touched on this a few times throughout the call, but I remember last time on the call you you mentioned that.
You were trying to be cautious.
Confidence in these approaches to gaming.
Additionally, clients, but you were also kind of cautious of one of one of the response, we're getting from you know the social media influence or approach as well as the paid search and it sounds like both of them are going fairly well as you said earlier.
Provide a little bit more insight on that and how we can expect this kind of spending in that area to progress throughout the rest of the year and then you know as you guys kind of three launch with your with your revised platform for payment.
In the beginning of 2023.
Yeah. So you know just elaborating on on destinies question.
We're very pleased with our ability to drive.
Consumers to the top of the final and that to you that that's one measure of the success of the paid search <unk>.
And Influencers in social media and and we've got pretty good tracings on which channel drove how many unique visitors.
We had a stand.
And in October , but now that we've made the decision to to relaunch.
Platform, we're turning down the spending in November and December .
And then assuming things go.
Smoothly with the relaunch, we'll start to ramp up that spending again in the beginning of next year. So it a lot depends on how smoothly. The relaunch goes in and do we solve for some of those friction points. The clunkiness that I mentioned earlier.
Okay, great. Thank you very much those are all my questions. They should be taking the time to answer.
Absolutely thanks for your time and attention.
Thank you we have next question from the lineup John offended Marston with.
<unk>. Please go ahead.
I thought I'd ask a follow up on on gross margin since it was so impressive and I guess I'll I'll kind of frame. It like this if if the growth areas that you anticipate growing at a greater degree continue the trajectory do do you anticipate gross margin staying in that range, where it is now you know cause the as I understand it be you know the.
Higher margin comes from just a change in the way you are.
[noise] way, you're selling selling the service.
Hi, John It's Bryan Yeah, we've been over 80 per cent for four quarters in a row.
Part of it the way, we're selling and part of it is the product mix and part of it shifts greater revenue so as long as the top line.
Strong, we we think will.
You should be able to stay over that 80% gross margin again, we've done over the past several quarters.
Okay, great. Thank you.
[noise]. Thank you.
That's the gentleman that we have reached the end of the question and answer session and I'd like to turn to call back over to Dan Goldberger C. U for closing remarks over to you Sir.
Thank you operator, and thank you all for joining today's call.
I Wanna give a special thanks to all of our employees.
To the health care professionals and their patients who've been loyally supporting Gammacore therapy.
And we look forward to telling you about our December quarter next year stay well everybody.
Thank you ladies and gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
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