Q4 2022 electroCore, Inc. Earnings Call
Speaker 2: marketing spend. Gap net loss in the fourth quarter of 2022 was $5.8 million as compared to a gap net loss of $4.9 million in the fourth quarter of 2021. Gap net loss for the full year 2022 was a loss of $22.2 million as compared to a gap net loss of $17.2 million for the full year 2021. Again, the year-over-year increase was largely driven by our investment in new product development. Adjusted EBITDA net loss in the fourth quarter of 2022 was a loss of $4.7 million as compared to a loss of $4.4 million in the fourth quarter of 2021. Adjusted EBITDA net loss for the full year 2022 was a loss of $19 million as compared to an adjusted EBITDA net loss of $15.8 million for the full year 2021.
Speaker 2: A reconciliation of GAAP net loss to non-GAAP-adjusted EBITDA net loss has been provided in the financial statement tables included in today's press release. Net cash used in operating activities in the quarter ended December 31, 2022, with $4 million as compared to $4.4 million in the fourth quarter of 2021. Net cash used in operating activities for the full year 2022 was $16.6 million as compared to net cash used of $13.6 million reported in 2021.
Speaker 2: This increase is primarily due to the increase in our net loss from operations. Cash, cash equivalents, and restricted cash at December 31, 2022 totaled $18 million as compared to $34.7 million as of December 31, 2021.
Speaker 3: Looking ahead.
Speaker 2: For the full year 2023, we are guiding to $14 million to $15 million of net revenue.
Speaker 2: We believe that our legacy headache channels will grow again by more than 50% to at least $12 million for the full year, and revenue from new products in the Travega and Tax Stim brands could be more than $2 million for the full year.
Speaker 2: We expect net cash usage in the first quarter 2023 to increase as compared to the fourth quarter of 2022, largely due to seasonal factors affecting working capital, increased investment, and product evolution.
Speaker 2: Thank you, Brian . I'm super excited about our year-over-year operating results and the momentum we're carrying into 2023. And I'm even more enthusiastic about the company's long-term prospects.
Speaker 2: Continued investments in our cash pay and covered business models have greatly expanded the NVNS therapy market.
Speaker 4: as reflected by the revenue growth realized in 2022.
Speaker 4: We are also very enthusiastic about the initial results of our new wellness proposition today.
Speaker 4: We believe our metrics are trending in the right direction and will continue to evaluate our investments in all of our cash pay channels.
Speaker 4: as the year progresses.
Speaker 4: The BOOST project, being financed by the Air Force, could accelerate the adoption of NDNS for human performance among our active duty military.
Speaker 4: Interest from different branches of the military continues to build for our tax-nim product, which may result in expanded adoption in future quarters. Orders within the VADOD channel have been strong in January and February , which we believe may bode well for the first quarter.
Speaker 4: Similarly, Truvega sales are outpacing our initial expectations.
Speaker 4: in 2023.
Speaker 4: Our cash pay initiatives are showing positive results. Our physician dispense programs are growing faster than expected as new prescribers make GammaCore available to patients directly through their practices or directly from electric floor.
Speaker 4: The JURNS announcement we discussed earlier is expected to dramatically increase the number of covered lives with access to insurance coverage for NVNS and could generate material revenue later this year.
Speaker 4: Further out, we continue working towards additional indications to treat post-traumatic stress disorder and or opioid use disorder.
Speaker 4: We look for new product launches in 2024 featuring our app-enabled technology that can provide digital health solutions.
Speaker 4: That product platform will be launched in headache, wellness, and human performance as we ramp up our supply chain.
Speaker 4: I see many potential growth drivers in 2023 and beyond, including continued penetration of our VADOD channel in the United States.
Speaker 4: growth in our US commercial channel driven by cash paid business models.
Speaker 4: Further development of the Truvega product for wellness, anxiety, and sleep driven by an increased spend directed to consumer advertising efforts. Further development of the TacStim brand for human performance in the active duty military and beyond by leveraging the B.O.O.S.T. program financed by the Air Force.
Speaker 4: and our app-enabled new product platform that will facilitate consumer-facing digital health solutions and unlock new business models.
Speaker 4: We quietly instituted a reduction in forest strength during the first quarter of 2023 that will reduce operating expenses by about $700,000 for the remainder of 2023.
Speaker 4: While we are primarily focused on revenue growth, we're constantly looking for ways to streamline our operations and the path to profitability. In closing, I would also like to point out that several directors of the company bought common shares in the open market during the fourth quarter of 2022.
Speaker 4: and regained compliance with NASDAQ listing requirements on March 6, 2023.
Speaker 4: At this time, I'll turn the call over to the operator. Operator, please open the line for questions.
Speaker 5: Certainly. When I'll be conducting a question and answer session, if you'd like to be placed in the question queue, please press star 1 at this time. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to move your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1.
Speaker 5: One moment, please while we poll for questions Our first question today is coming from Jeffrey Cohen from Lattenberg and your line is now live. Oh Hey Dan and Brian , how are you?
Speaker 5: please while we poll for questions. Our first question today is coming from Jeffrey Cohen from Lattenberg Farm. Your line is now live. Oh hey Dan and Brian how are you? Good. How you doing? Good.
Speaker 6: Thanks for the robust readout. So a few questions from Aaron. I know you talked about the small OPEX reduction and talk about if that's coming out of R&D or sG&A and then maybe talk about tie that into R&D and all these programs. It's wonderful you've got a lot of programs pushing for it and it sounds like there's some.
Speaker 6: grants and sponsorship out there. So should we anticipate a similar level of R&D for you, but getting more for less if you will as far as programs.
Speaker 4: Yeah, there's first of all, Jeff, I'm going to dodge the question about the RIF. I don't like to talk too much about people's livelihoods.
Speaker 4: the various
Speaker 4: The R&D spending is shifting.
Speaker 4: from clinical work that was ongoing in 2019 and 2020.
Speaker 4: towards product development work for the new platform that we expect we'll be able to launch in 2024. And that new platform is very exciting.
Speaker 4: It will lead to a family of app connected platforms.
Speaker 4: That in turn opens up the opportunity to get into some digital health in addition to our traditional Vegas nurse simulation. It gives us quite a bit of freedom with business models. So look for quite a bit of innovation on the product side.
Speaker 4: as we go into 2024. And as you know, the nature of product development is that it's lumpy. You end up with a large outlay up front.
Speaker 4: And then that engineering work tails off as you get towards product launch.
Speaker 6: Okay, got it.
Speaker 4: As far as the implications though, post-traumatic stress disorder is next up for us. And then working with Dr. Bremer's group on opioid use disorder financed by the National Institute of Drug Abuse would be.
Speaker 4: following that, but those are probably both 2024 opportunities.
Speaker 6: Okay, I got it. Can you talk about the prescribers a bit? It sounds like you had a nice...
Speaker 6: uptick toward the end of the year and it sounds like it's carrying through. Are you seeing any lumpiness there in the first quarter as far as deductibles and payers go or would you expect that kind of the trajectory that you've...
Speaker 6: going upon recently is going to continue at that space.
Speaker 4: Yeah, so for better or worse, most of our commercial business driven by those prescriber numbers, the cash pay.
Speaker 4: And so while folks are using their HSA cards or their FSA cards, we're not really exposed to the deductible cycle on that cash pay portion of our business.
Speaker 4: We do have a small but hopefully growing cohort of insurance covered patients and those do indeed slow down in the first quarter, but it's very small compared to the cash pay component right now.
Speaker 6: Perfect. And then lastly for Brian on the financial side, any commentary on margins? It looks like 2022 overall is very strong and perhaps you got some headwinds from the labor environment or the supply chains out there. But the 23, I think we were previously thinking high 70s, any reason here nor there to think lower or higher on that firm?
Speaker 6: Okay, do you expect the two-vigor portion of that business or the direct-to-consumers to drive that lower or higher from previous levels?
Speaker 2: I think at this point it won't have a significant impact either way. So I'm very comfortable again with the overall 80% or better for this margin going forward.
Speaker 6: Great. Okay. Super. Thanks for the readout and taking our questions.
Speaker 5: Thank you, Jeff. Thank you, Jeff. Thank you. Next question is coming from John VanderMosen from Zacks. The extra line is now live.
Speaker 7: Good afternoon you guys, great to speak with you again. I thought I'd start out with a question on your guidance. It looks like it brackets what we have over here at SACS. And I was wondering if you could break down some of the areas where you think it's coming from. I think you said earlier on the call that there was 2 million coming from TruVega in the tax-stem program.
Speaker 7: But how do you see VA, OUS, and just some of the other more legacy, I guess, areas growing year over year in 2023?
Speaker 4: Yeah, thank you John . Great question. You know our VA hospital business has two pieces to it. The first is going deeper into our existing customer accounts and and the second is opening up new hospitals.
Speaker 4: And increasingly, we've been able to grow our field sales, I call them sales agents. In the trade, we call them 1099 reps. These are folks who get paid straight commission, so it's all variable expense as we grow the business.
Speaker 4: The VA hospital business grew the pandemic, right? We grew it.
Speaker 4: 60% year on year from 21 to 22 and 60% the year before that. So I'm looking for at least 50%, 60% growth in that channel this year as we continue to recruit 1099 reps.
Speaker 4: and go deeper into our existing accounts.
Speaker 4: The US commercial business, you know, as I was just chatting with Jeff, is largely cash pay at this time, although the announcement about Jaren's giving us access to the Kaiser hospital system, once we get the bureaucracy worked out, that's another 12 million covered lives that could come on in the back.
Speaker 4: that should have a multiplier effect going forward. So it's been growing far more than that 50-60 percent and starting from smaller numbers so I think that can grow very aggressively through the rest of this year.
Speaker 4: the new products tax-stim and
Speaker 4: and Truvega. Very, very exciting starts. We already have some revenue from tax sim that we reported in the fourth quarter. Fast start to our Truvega launch. And by the way, everybody who's listening, please go take a look at our new products at Truvega.com.
Speaker 7: But lots of reason for acceleration in all of our business channels as we go through the year, especially in the back half of the year. Okay, very good. And looking at the gross margin, I remember you had a lot of inventory that was helping keeping up that gross margin. Should we expect that to continue through?
Speaker 7: And Brian , I know you mentioned something to Jeff on that. Just wondering when that might run out and you have to start using newly manufactured inventory. Well, as Dan mentioned, we have some new products coming out scheduled for 2024.
Speaker 2: So we will have some outliers for supply chain down the road, but right now we are still very comfortable with our inventory levels for 2023.
Speaker 7: Okay, so no new manufacturing is probably going to be required to satisfy anticipated demand in that $14 to $15 million range? No, we should be fine. The revenue should more than cover the cost of that. We should be fine.
Speaker 7: Okay, great. Just the last one for me is on all the patents you have granted recently. And Dan, you had also mentioned that we have some new products coming up. Can you associate some of those patents that have been announced? I think there were at least five.
Speaker 7: that may be applicable to next year's launch of new products.
Speaker 4: Yeah, we have two, broadly speaking, we have two families of patents. The first is around extending our non-invasive vagus nerve stimulation technology to other indications. And I'm using the term other indications broadly because the work that
Speaker 4: the Air Force and how the Army is doing around human performance, where they're talking about cognition, where they're talking about attention, is not what you would traditionally think of as a medical indication. And the second group of patents
Speaker 4: are around taking our product platform and moving it into the mobile phone app enabled digital health space. And so Vegas Nerve simulation that communicates with an app broadly speaking is covered by this new family of patents.
Speaker 1: Okay, great.
Speaker 7: Great. Thank you, Dan.
Speaker 5: Thank you. Next question is coming from RK from HC. We invite your line is now live. live.
Speaker 8: Thank you. Good afternoon, Diane and Brian . Thanks for having us.
Speaker 8: It looks like you certainly had a good year and you're looking to an even better year, especially with your guidance that you just provided.
Speaker 8: In terms of the confidence in your guidance going up quite a bit from where you are now, can you just highlight some of the things that gives you that sort of confidence? Yeah, thank you. Thanks for the question, RK.
Speaker 4: Our largest revenue stream for the last two years, and we expect in 2023, is our VA hospital business. You know, the first half of 22 was impacted by COVID, and I'm very excited about sort of...
Speaker 4: On the one hand, the back to normal access that we will have for the full year 2023, multiplied by the increased number of feet on the street we have because we're recruiting 1099 reps. So growing that business 60% in 2022 over 2021.
Speaker 4: We ought to be able to grow at least 50% and probably more like 60 or 70% in 2023 over 2022. Similarly, starting from smaller numbers, but our cash pay GC direct, GC concierge, we rattled off some of the prescriber numbers.
Speaker 4: Prescriber numbers are growing in the first couple of months of 2020 of 2023. So I think that that's going to see accelerating momentum as we go through the year. The JURNS announcement and opening up access to the Kaiser system in the back half of the year.
Speaker 4: Not even counting any of that. So lots of reasons why we should exceed that 50% growth in our base headache business and very few reasons why we'll miss on it.
Speaker 8: No, perfect. So just to kind of dig a little bit deeper into some of those things which you just stated. In terms of the VA centers and also, you know, I'm more interested in the BOOST program.
Speaker 8: You stated that you have a contract in hand for the BOOST program. Is there anything more you can say other than just saying that you have a contract in the sense that you have a contract?
Speaker 8: even if you can give us the numbers, how is this being set up in the sense, is it going to be just a quarter at a time or the contract that you have, that revenue would be spread over the full year?
Speaker 4: So the specific boost contract will have some revenue in the current quarter and in the second quarter.
Speaker 4: But over and above the boost contract, we have now been getting
Speaker 9: orders.
Speaker 4: for deployment of small number of product
Speaker 4: And we have about a half a dozen quotations out there for deployment in certain units of Air Force Special Forces and Army Special Forces. We have not gotten anything from Navy Special Forces yet.
Speaker 4: While the Boost program was a specific R&D contract, we are now getting some small deployment orders, and those will be recognized as product revenue when we ship and collect on them. And that could be significant.
Speaker 8: in the second and third quarters of this year. Okay, great. And then on the commercial program, on the cash pay business, I know you're constantly adding more prescribers into that system.
Speaker 8: But I just want to understand how that is working.
Speaker 8: how that is working in relationship to the number of prescribers. Because you have had this going for almost a year plus now. Is there some kind of a correlation between the number of prescribers and the number of prescribers?
Speaker 8: the number of people you're adding in and getting scripts, or is this going to take a little bit longer until you have more prescribers test it, and get their patients to test it.
Speaker 8: So I'm just trying to understand, you know, when would you get to a point where you feel comfortable with the increase in prescriptions in relationship to the prescribers?
Speaker 4: Yeah, so that's a great question and I have to slice it a few more ways. You know, historically we have been a neurology company. Over the course of 2022 we've dramatically increased our call point.
Speaker 4: Roughly one third of our prescriber ads in 2022 come from traditional neurology or pain practices. But another third come from functional medicine, integrative medicine practices which
Speaker 4: already have a cash pay model and clientele. And then the third third of our prescriber base are chiropractors, which again, already have a cash pay business model and clientele. So I'm very enthusiastic about the uptake.
Speaker 4: The traditional neurology paying markets are slower to adopt because their clientele generally have traditional insurance. These other two segments
Speaker 8: have already embraced a cash-paid business model and their demographic is already open-minded in that direction. Very good. And then one last question from me. You know, talking about Jones Healthcare, I would imagine there are multiple organizations in the country that only have multiple
Speaker 8: similar to John's healthcare. So in terms of your growth strategy, are you waiting to see how John's executes before you start trying to look for other organizations or these are all parallel conversations that are ongoing?
Speaker 4: No, you're exactly right. We want to make sure that the Jerns launch goes smoothly. In that DME business model, there is a lot of back office work to adjudicate the prescription, figure out what benefit plan that particular patient is on, collect co-pays or keep in mind that the This program free appliance or President of St. Poison theMust
Speaker 4: deductibles from that patient. And so we want to make sure that that channel is all working smoothly before we try to take it more national.
Speaker 8: Thank you very much, Dan, for being patient with me and taking all my questions.
Speaker 8: Thank you very much, Dan, for being patient with me and taking all my questions. Of course, anytime I can.
Speaker 5: Thank you as a reminder that star one to be placed in the question queue Our next question is coming from Anthony's and Eddie from Axil group. Your line is now live
Speaker 10: Hi this is Thomas on the line for Anthony. I just appreciate you taking time to answer my questions and I'll just jump right into it. So firstly could you guys provide a little bit more color I know you guys spoke on it briefly on the call but could you provide a little more color on the initial sales trends you've seen with the Truvega product?
Speaker 10: and then just maybe a little bit looking forward, when do you expect to have a full commercial launch? And just kind of your strategy or how you're looking at making sure you guys have enough in the way of sales and marketing team to meet demand. Is that gonna be 1099 reps or are you guys going to start to build out an internal team to meet the demand that you're expecting with the TruVega product?
Speaker 4: Yeah, great question. Appreciate it. So Truvega.com went live in late December of last year, so January and February were the first the two first full months of sales through that channel and it is exclusively an e-commerce
Speaker 4: e-commerce business model for a product that treats anxiety and sleep and stress.
Speaker 4: in healthy people. It is not a medical device. It's a wellness.
Speaker 4: product and so does not need a prescription. And for 2023, we're going to stick primarily to that e-commerce model. We've been spending some money on Google search.
Speaker 4: It turns out that vagus nerve stimulation, vagus nerve...
Speaker 4: therapy is somewhat topical in the wellness community right now. So we're pretty excited about how that can grow as an e-commerce business model as opposed to a traditional medtech sales rep business model.
Speaker 10: Great, and do you have any insight on when you expect to do a full commercial launch for the TruVeg product? I will leave the video below that would like to cut Senate Bill
Speaker 4: We're not going to comment on that right now.
Speaker 10: Okay, all right, understandable. Yeah, and then just kind of going back to the topic of e-commerce, I was kind of curious to see where you guys were at. I know you guys were trying to launch or relaunch your e-commerce platform. And I know that a couple of calls ago you spoke about, and you just mentioned that you were spending on Google because you were going to launch your e-commerce platform.
Speaker 10: the number of hits had gone down, or just like the order in which you guys were listed had decreased. So I was just kind of wondering where you were at with that. Has that gotten back to historical levels? And then again, just where you're at with relaunching the entirety of the platform.
Speaker 4: Yeah, so in 2021, we launched with a telehealth partner for our prescription headache therapy, and that was frankly disappointing for a variety of reasons. So we shut down that relationship, took a deep breath.
Speaker 4: and chose instead to launch this completely new directed consumer wellness product that does not require a prescription.
Speaker 10: All right, great. Those are all the questions I have for right now and I appreciate you taking the time. I'll jump back in the queue. Yes. Thank you, sir. Thank you. Next question is coming from Kemp Feller from Brookline Capital Market. Your line is now live. Thank you, sir.
Speaker 2: Great, thank you. First, with regard to Kaiser, what level of effort?
Speaker 2: In terms of additional 1099 reps, do you think you'll need to pursue that opportunity?
Speaker 4: So we're going to be very systematic about it. We already have a small number of vocal clinical champions in the neurology department of Kaiser. The challenge has been the supply chain bureaucracy for lack of a better term.
Speaker 4: And as you know, Kaiser is a big animal. And once we demonstrate that we're reliably getting prescriptions through the Kaiser bureaucracy, then we're gonna be much more expressive about scaling up the number of...
Speaker 4: sales assets that we apply in California. So it is event based not calendar based. Right, well you mentioned California which is their largest footprint but they do have some density in some other markets.
Speaker 4: So it sounds like you'll focus on California initially and then go to the other markets or California exclusively. Okay. No, we're going to make sure that things work in California before we go to Colorado and Georgia and the other states where they do have a significant footprint.
Speaker 2: Got it. Second question relates to NHS and currency. So it's in a way two questions. Sounds like NHS is still going to be.
Speaker 2: you know, say, as a stable contributor in 2023, and how does currency look for you at this point? You know, neutral, negative, or...?
Speaker 4: Any help? That's a good question. My crystal ball on that. Let's assume steady state and go from there. Yeah. So currency, I'm not going to try to hedge on. But our NHS business...
Speaker 4: is driven by the number of headache specialists that are authorized within the National Health Service.
Speaker 4: And, you know, the good news is we've got robust coverage through NHS.
Speaker 4: The bad news is that it is effectively rationed by the relatively small number of headache specialists.
Speaker 4: and the waiting time under that NHS system to get to see a headache specialist. So those logistics sort of keep a throttle on how quickly our business can grow. Our team in the United Kingdom is lobbying NHS to open up a prescription to a larger cohort of neurologists, not just the headache specialists.
Speaker 4: until or unless we can convince NHS to open up the number of prescribers that are available to us.
Speaker 11: Great, thank you.
Speaker 4: Thank you. We reach the end of our question and answer session. I'd like to turn the floor back over to management for any further closing comments. Yeah. Thank you, everybody. We greatly appreciate your making time today. I want to give special thanks to all of our employees.
Speaker 4: go take a look at our new consumer product offerings at Truvega.com. Of course I also want to thank the healthcare professionals and their patients for their loyal support of our Vegas NURF simulation technology.