Q3 2024 electroCore Inc Earnings Call
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Speaker Change: Greetings and welcome to the ElectroCore 3rd Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. Please make sure to mute yourself. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero from your telephone keypad. As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host, Dan Goldberger. Thank you, sir. You may begin.
Speaker Change: Thank you all for participating in today's ElectriCorps earnings call. My name is Dan Goldberger. I am the Chief Executive Officer of ElectriCorps and I'm also a member of the Board of Directors.
Speaker Change: Joining me today is Joshua Lev, our Chief Financial Officer. Josh was promoted to the CFO position effective October 4, 2024. He's been with us for almost five years and brings a track record of professional integrity and success.
Speaker Change: Earlier today, Electricorps published results for the third quarter ended September 30th, 2024.
Speaker Change: A copy of the press release is available on the company's website.
Speaker Change: Before 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 1995.
Speaker Change: Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements.
Speaker Change: All forward-looking statements, including, without limitation, any guidance, outlook, or future financial expectations, or operational activities and performance, are based upon the company's current estimates and various assumptions.
Speaker Change: 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.
Speaker Change: For a list of the risks and uncertainties associated with the company's business, please see the company's filings with the Securities and Exchange Commission.
Speaker Change: ElectraCore disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise.
Speaker Change: This conference call contains time-sensitive information that is accurate only as of the live broadcast today, November 13, 2024.
Speaker Change: For those of you who may be new to our company, ElectroCore was founded in 2005 to commercialize the use of our proprietary, non-invasive vagus nerve stimulation for medical and general wellness applications.
Speaker Change: Surgically implanted vagus nerve stimulators have been available from other companies for more than 40 years for chronic conditions like epilepsy and depression. So a large and growing database confirms the safety and efficacy of the technique.
Speaker Change: Building on that science, ElectroCore pioneered non-invasive vagus nerve stimulation and our products are now available by prescription for certain headache conditions and without a prescription for general wellness and human performance.
Speaker Change: Our pipeline of potential future indications and products continues to grow as clinicians, researchers, and wellness advocates conduct investigator-initiated trials to advance the benefits of non-invasive vagus nerve stimulation.
We have demonstrated rapid growth for several years now.
In fact, this is our eighth consecutive record revenue quarter.
Speaker Change: Revenue was 6.6 million dollars for the three months ended September 30th, 2024.
Speaker Change: A 45% increase over the prior year. Our five-year compound annual growth rate is 62%. Our gross margins remain steady at 84%. And we narrowed our net loss by 38% compared to the same period in 2023.
Speaker Change: We continue to make progress towards positive cash flow from operations and gap profitability as revenue increases, gross margins hold steady, and we maintain discipline around operating expenses.
We launched our U.S. prescription
Speaker Change: Since then, our prescription headache business has grown worldwide, including sales that are covered by national health systems, such as the VA hospital systems in the United States and the National Health Service in the United Kingdom.
Speaker Change: Cash pay sales through prescriber professional channels and through certain managed care systems in the United States.
Speaker Change: We currently have about 30 million covered lives in the United States and we look forward to creating more access in the future.
Speaker Change: Cash-paid patients can often use their HSA FSA accounts if they do not currently have insurance benefits.
Speaker Change: We launched two new non-prescription general wellness product lines last year. Truvega is a direct-to-consumer health and wellness brand, and TaxSim is our brand for human performance for active-duty military personnel.
Speaker Change: The VA hospital system continues to be our largest customer. You'll recall that our GammaCorp prescription therapy is free to patients covered by Veterans Administration benefits, representing about 9 million covered lives across approximately 1,300 healthcare facilities.
Speaker Change: Sales in the VA channel grew 75% to $4.8 million in the third quarter of 2024, from $2.7 million during the third quarter of 2023.
Speaker Change: 166 VA facilities have purchased prescription GammaCore products through September 30, 2024 as compared to 141 through September 30, 2023.
Speaker Change: The VA Hospital Administration Headache Centers of Excellence estimates approximately 600,000 patients are being treated for a headache in the VA hospital system, including approximately 24,000 cluster headache patients.
Speaker Change: We've dispensed GammaCore devices to approximately 6,700 veterans since 2022, representing a little bit more than 1% of the total addressable headache market within the VA hospital system.
Truvega sales continue to show strong revenue growth.
Speaker Change: Truvega is currently positioned as a direct-to-consumer general wellness product for stress.
Speaker Change: relaxation, quality of sleep, and mental acuity. For the third quarter of 2024 Truvega net sales were approximately $657,000, a 147% increase from $266,000 during the third quarter of 2023.
Speaker Change: Our revenue return on advertising spend was approximately 2.53 in the third quarter.
Speaker Change: In other words, we're spending $1 to generate $2.53 of revenue.
Truvega return rates remain steady at approximately 11% of shipments.
Speaker Change: Since launching Truvega, we have sold more than 8,000 handsets and customers have conducted approximately 189,000 sessions using the mobile app.
Speaker Change: We believe that the Truvega business will continue scaling nicely if we can maintain or improve these metrics.
Speaker Change: Following the successful launch of Truevega+, we began exploring additional channels to reach consumers, including influencers, affiliates, and resellers.
Speaker Change: Last week, we went live on the Perks at Work platform, which claims 30 million users globally across 90,000 companies, representing 70% of the Fortune 1000.
Speaker Change: And just yesterday, Men's Health published that Truvega Plus was chosen as one of their 2025 Tech Awards.
We plan to launch TrudegaPlus on Amazon early next year.
Speaker Change: Tax stream revenues increased somewhat over the second quarter, but still lagged last year.
Speaker Change: HACSTM for Human Performance is being sold to select Air Force and Army Special Forces units for accelerated training, sustained attention, reduced fatigue, and improved mood as defined by the Air Force Research Laboratory or AFRL.
Speaker Change: For the third quarter ended September 30th, 2024, we recorded $194,000 of taxed-in sales as compared to $601,000 during the same period last year.
Speaker Change: We have a growing sales funnel for TaxStim and we continue to believe that revenue from this product line is likely to be variable as active duty units purchase in bulk for pilot deployment.
Speaker Change: On October 1, 2024, subsequent to the end of the quarter, we filled a $550,000 Air Force purchase order. So, fourth quarter sales are off to a fast start.
Speaker Change: Our U.S. prescription GammaCore channel, including GC Direct and GConcierge, recorded revenue of $441,000 during the third quarter of 2024, flat from $439,000 in the third quarter of 2023.
Speaker Change: There were 2,390 cumulative revenue-generating cash pay prescribers as of September 30, 2024, up from 1,662 on September 30, 2023.
Speaker Change: We expect at least some of these customers will migrate to the Truvega brand as awareness grows and we continue modeling flat revenue from this category for the time being.
Speaker Change: 32 new Truvega Plus partners were onboarded in the third quarter, including 14 G Concierge customers that added the Truvega line product line to their accounts.
Speaker Change: Last year we announced a distribution agreement with Jurance Healthcare LLC that gives us access to a certain managed care health system.
Speaker Change: Our field sales team is responsible for building awareness among doctors and nurses within that managed care system Approximately 25 prescribers have written for gamma core in this channel, and we look forward to growing revenue next year
Speaker Change: Revenue from channels outside the United States, or OUS, increased by 4% to $485,000 in the third quarter of 2024, as compared to $465,000 for the third quarter of 2023.
Speaker Change: Most of our OUS revenue continues to be generated in the United Kingdom by prescription gamma pore sales funded by the National Health Service, or NHS.
Now I'm going to turn to our scientific progress.
Speaker Change: In September 2024, the Air Force Research Labs presented results supporting the ability of electric horse TACC, STEM, and BNS to accelerate pilot training.
Speaker Change: presentation titled Accelerating Sensor-Remotor Learning in a Flight Training Simulation Using Transcutaneous Vagus Nerve Stimulation, unquote.
Speaker Change: was presented at the 2024 Medical Health System Research Symposium in Orlando, Florida, and was based on a study conducted at AFRL's facilities at Wright-Patterson Air Force Base in Dayton, Ohio.
Speaker Change: The study was funded by the Department of the Air Force through AFRL and suggested that the learning rate was higher in the active NBNS group over a sham.
Speaker Change: In August 2024, AFRL published a paper entitled Transcutaneous Cervical Vagus Nerve Stimulation Enhances Second Language Vocabulary Acquisition While Simultaneously Mitigating Fatigue and Promoting Focus.
in the journal Scientific Reports.
Speaker Change: The paper is based on a study that was conducted at the Defense Language Institute in Monterey, California and was supported by the DARPA Targeted Neuroplasticity Training Program.
Speaker Change: The paper showed a significant positive effect of NVNS on language recall. The paper goes on to document that the recall advantage that emerged during training was sustained after the completion of treatment.
Speaker Change: We continue to work with the FDA on a pathway for a post-traumatic stress disorder label.
But that timeline remains uncertain.
Speaker Change: We'll provide updates about our pipeline and other opportunities as they become available.
Speaker Change: Before I turn the call over to Joshua Lev, our new CFO, I want to extend a heartfelt thank you to Brian Posner.
Speaker Change: As most of you know, Brian decided to retire from his position as our CFO in early October 2024.
Speaker Change: On behalf of the board, employees, shareholders, and myself, I want to thank Brian for his years of dedicated service. Brian played an instrumental role in establishing a solid foundation for growth. Brian, I miss you.
Speaker Change: Now, I'd like to turn the call over to Josh for a review of our financials.
Thank you, Dan.
Josh: Net sales for the three months ended September 30, 2024 were $6.6 million, an increase of 45% as compared to $4.5 million during the three months ended September 30, 2023.
Josh: The increase of $2 million is due to an increase in net sales across our prescription GammaCore medical devices sold in the United States and abroad, and revenue from the sales of our non-prescription General Wellness Truvega brand.
Josh: Gross profit increased by $1.6 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.
Josh: Gross margin was stable at 84% for the three months ended September 30th, 2024, as compared to 85% for the three months ended September 30th, 2023.
Josh: Total operating expenses in the third quarter of 2024 were approximately $8.1 million as compared to $8 million in the third quarter of 2023.
Josh: Research and development expense in the third quarter of 2024 was $521,000 as compared to $1.2 million in the third quarter of 2023. This decrease was primarily due to a significant reduction in investments
Josh: associated with our True Vega Plus product. We expect R&D expense to remain steady for the foreseeable future.
Josh: telling general and administrative expenses of $7.6 million for the three months ended September 30, 2024 increased by $895,000 or 13% as compared to $6.7 million for the comparable period in 2023.
Josh: This increase was primarily due to our greater variable selling and marketing costs, consistent with our increase in sales and recognition of lease expense associated with the expansion of our facility in Rockaway, New Jersey.
Josh: We expect fixed G&A expenses to remain relatively flat and sales and marketing expenses to scale with revenue in the near term. Therefore, we anticipate progress towards positive adjusted EBITDA and GAAP profitability.
Josh: Gap net loss for the third quarter of 2024 was 2.5 million dollars or 31 cents per share as compared to the four million dollar net loss or 68 cents per share for the third quarter of 2023.
Josh: This significant improvement was primarily due to the increase in net sales to $6.6 million for the third quarter of 2024 and our ability to drop incremental revenue to the bottom line.
Josh: Adjusted EBITDA net loss in the third quarter of 2024 was 2.1 million dollars as compared to adjusted EBITDA net loss of 3 million dollars in the third quarter of 2023.
Josh: These improved results are also primarily due to the increase in the third quarter 2024 net sales.
Josh: 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.
Cash, Cash Equivalents
Josh: Marketable Securities and Restricted Cash at September 30, 2024 totaled approximately $13.2 million as compared to approximately $10.6 million as of December 31, 2023.
Josh: Net cash used in operating activities for the nine months ended September 30, 2024 was $5.7 million.
Josh: a 51% reduction from the $11.5 million through nine months ended September 30, 2023.
And now, I'll turn the call back to Dan.
Thank you, Joshua.
Dan Goldberger: I'm very proud of how the team has grown revenue and the leverage we're seeing in the business.
Dan Goldberger: Demand for our prescription gamma core therapy in the VA channel continues to grow based on clinical performance and our increased presence in the field.
Dan Goldberger: Our FSS contract has been extended to December 14, 2024, and we continue working with our VA contract specialists to secure a new follow-on contract.
Dan Goldberger: Our prescription gamma core sales organization is represented by about 80 1099 reps in the field, managed by our small team of territory business managers and supported by our customer experience team.
Dan Goldberger: This hybrid structure has proven to be very scalable as we deploy Prescription GammaCore around the country.
Dan Goldberger: The Trivega Plus launch has been favorably received by the market.
Dan Goldberger: The brand continues to show tons of potential as a direct-to-consumer general wellness offering.
Dan Goldberger: The pipeline of interest from different branches of our active duty military continues to develop for our taxed end products.
Dan Goldberger: Although Q2 2024 sales of Taxton were impacted by the timing of the launch of our new handset, sales in Q3 2024 picked up and we expect to show increased revenue in Q4 2024.
Dan Goldberger: Taxed and revenue will continue to be hard to predict in the short term as active duty units evaluate and purchase in bulk for pilot deployment.
Dan Goldberger: Longer term, we believe that there may be civilian crossover as first responders, elite athletes, transportation workers, traders, and e-gamers become aware of the human performance benefits published so far.
Dan Goldberger: During the third quarter of 2024, our sales and marketing expense increased by approximately $866,000 over the third quarter of 2023, while sales grew by $2 million.
Dan Goldberger: Most of the top line revenue growth of $2 million dropped to the bottom line as our net loss declined during the same period by $1.5 million.
signaling increasing leverage in the P&L.
Dan Goldberger: Further out, we're working towards establishing additional indications for prescription GramiCore to treat post-traumatic stress disorder, opioid use disorder, and other clinical opportunities.
Dan Goldberger: We add $13.2 million of cash and equivalents at September 30, 2024, and we will maintain discipline around fixed operating expenses.
Dan Goldberger: We expect that commissions and media spend will continue to scale with revenues and we model approximately 30% of related sales on a blended basis.
Dan Goldberger: Therefore, we expect that our cash used in operations and adjusted EBITDA loss will continue to decline sequentially as revenue increases.
Dan Goldberger: In summary, I believe the business is demonstrating operating leverage and we will have a variety of strategic levers to pull to continue growing the business.
Dan Goldberger: I remain confident that we can generate positive cash flow from operations early next year with the financial resources on our balance sheet at September 30th, 2024.
Speaker Change: At this time, I'll return the call over to the operator. Operator, please open the line for questions.
Thank you.
Speaker Change: We will now be conducting the question and answer session. To ask a question today, you may press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to withdraw your question from the queue.
Speaker Change: For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment please while we poll for questions. Once again, that's star 1. Thank you.
Speaker Change: Thank you. And our first question is from the line of Jeffrey Cohen with Leidenberg-Thalman. Please receive your questions.
Speaker Change: Hi, Dan and Josh. Thanks for taking our questions. Of course. First, let's get back on the Mental Health Tech Awards 2025 for Truvega Placidi.
Speaker Change: commentary there and perhaps talk about how that may or may not spill over and expand it to the 350 line and the link is specifically on PLOS and then also perhaps talk about M&A or other wellness products that
are out there or talk about you every day. Thanks.
Speaker Change: Wow, it's a big question, Jeff. The men's health, you know, caught us...
Speaker Change: by surprise, so we're thrilled to see it. And it creates a whole new opportunity for us. We're negotiating with them now for an advertising package.
They have a huge circulation, so it's a
for our Trudeau brand.
I've been, we haven't been reporting on it, but.
The Trivega Plus that we launched in April has been
Speaker Change: Truvega 350, even though it's at a higher price point, the Truvega Plus
You asked about M&A, we're focused on vagus nerve stimulation.
Speaker Change: You know, as you think about the bigger picture of digital health and wellness category, there are, you could imagine, a lot of different...
Speaker Change: places for us to add to the product line or to perhaps co-market with somebody but for the foreseeable future we are absolutely focused on vagus nerve stimulation and and and there's nothing really that we can talk about at this time.
Speaker Change: Just to clarify, the Air Force contract that you spoke about closing after the quarter,
Speaker Change: would be for Tax Jim? Yes, yes. That was for the Tax Jim black that we commercialized in July of this year.
Speaker Change: Okay, and then lastly for us, congrats on talking about Amazon for next year. Could you tell us, will that be domestic only, or do you expect that to roll out to other territories?
Speaker Change: Pruvega is a U.S. only product for the time being. We've been looking at what the
Speaker Change: What kind of investment would be required to be certified to ship into the EU or into Asian countries for example?
Speaker Change: and we're focusing on getting to cash positive and profitability so I will probably procrastinate on that international investment until we cross over to being cash positive.
Speaker Change: Okay, got it. That does it for us. Thanks for taking the questions. Thank you, Jeff.
Speaker Change: Our next question is from the line of Swayam Pakula with HC Wainwright. Pleased to see you with your questions.
Speaker Change: Thank you. Good afternoon, Dan, and welcome. Josh, you know, into the new. Yeah. How are you? Okay, thanks. Thank you for the questions.
Thank you, R.K.
Speaker Change: to grow that growth from, say, only 1% to at least 3% to 5%, which can still make a huge difference for you folks, I would think. And what could potentially be those methods?
Speaker Change: A great question, R.K. You know, really, our growth in the channels
Speaker Change: started to move as we came out of the pandemic and we were able to get
our Territory Business Managers and our 1099 sales reps.
Speaker Change: back into the facilities. And so, you know, if you just look back
You can see how it accelerated as the pandemic faded.
Speaker Change: and traditional access to hospital facilities and clinics opened up. So, for the foreseeable future, it's scale. Because the vast majority of our field sales force
is straight commission.
We can aggressively add feet on the street.
and get penetration within our existing customers.
Speaker Change: and especially having additional 1099 assets gives us the opportunity to open up.
Speaker Change: the new hospitals that are not yet customers. So it's not glamorous, but it's old-fashioned, finding the right people, getting them trained up, and getting them deployed and successful.
Speaker Change: Beyond that, as you know, we're working towards a PTSD label. All of the pivotal trial data in PTSD came out of the VA hospital system.
Speaker Change: it's an adjacent call point in behavioral health in the VA hospitals and so as as we move through 25 into 26
Speaker Change: that the total addressable market within the VA grows substantially as well, so.
One is volume, the other is price.
Speaker Change: So, in terms of the FSS contracts that you were talking about, which are due to end soon, and I would think that with the benefit that they've been getting, you'll get to extend those contracts. So, while you...
start negotiating the next set of contracts.
Speaker Change: Can price be a play in there, or that is normally set by them and you don't have much of a flexibility in price growth?
Speaker Change: About a third of our VA business now is going through a distribution partner level.
Speaker Change: And the price through the distributor to the hospitals is actually higher than if they purchase directly from us.
Our FSS contract has been
extended now I think three times.
Speaker Change: While we've been going through these extensions, we've moved into a higher revenue category that's, you know, we're a victim of our own success.
Speaker Change: And so the contract has had to go through additional review cycles.
Speaker Change: We are, candidly, we're holding the price constant. We've been advised.
Speaker Change: that we have an opportunity to increase the price, but we don't see any reason to do that. So we expect that ultimately the revised contract will be at the same price that we have today.
Okay.
Speaker Change: And then, I know you said the name, but I'm going to refer to this as Kaiser Permanente. Yeah, I'm not allowed to use that name, but thank you.
Speaker Change: Well, I didn't write it down, so that's on me. Thanks. You said there are 25 subscribers have started writing script on the...
on the device.
in general and on.
because
Speaker Change: Question is, Kaiser Permanente is not just in California, they're in D.C., they're in other areas as well. My question to you is...
Speaker Change: when you say 25 prescribers are there from a specific region and as the product gets used more we should expect that to spread through the entire network of Kaiser Permanente.
Are these the folks that have been kind of...
Thank you. Thank you.
Sorry, that was a long question.
Well, yeah, excellent question. So, as I
Speaker Change: is organized around Southern California, Northern California, the Pacific Northwest, so Washington, Oregon are a region. Not sure where Hawaii fits, but Kaiser has a good footprint in Hawaii. Colorado is a separate region.
Speaker Change: and Georgia. I'm not sure what they're doing with Geisinger which they acquired and how that's organized just yet.
GammaCore is...
Speaker Change: on formulary in the Southern California and in the Northern California regions explicitly.
You know, so they're still
a lot of work to be done. Kaiser forbids...
samples.
Speaker Change: So, when we talk about prescribers, those are revenue prescribers. Okay, that's very good. Very good to hear that. And then, you probably answered this question, I apologize. In terms of the $550,000 order that you received,
Speaker Change: from the military after the close of the quarter. You know, is this for the version 2 product or is this for the initial version? And also...
you know, how should we think about...
Speaker Change: You know, is there a mix between the old product and the new product?
Speaker Change: or will it ever get into a cadence at some point?
Speaker Change: It was actually specifically $548,000 for what we call taxed in black. It was it's booked.
Shipped and booked as October 1st
Speaker Change: because that's the beginning of the financial year for the Air Force and that was their request as much as we would have liked to have pulled it into the third quarter.
We have had additional revenue from
Speaker Change: I've been coached not to use the word lumpy, so now I use the word variable for 2025.
But there are various activities as we roll into 2026.
Where we are optimistic that we will be getting on
on to a more of a
Speaker Change: master contract that different units can order against and will have a little bit more visibility. But I don't see that happening until the 2026-2027 revenue cycle.
Okay, okay good.
And then, um, um, I mean, um,
Speaker Change: I'm sorry for so many questions, but on TruEga Plus, so how...
Speaker Change: to grow this, you know, higher and also at a steady pace.
Speaker Change: on various advertisements, social media or other modes of spreading the message on the wellness side of the therapy.
Speaker Change: So, great question. We think we understand our own e-commerce platform and the levers around search.
Speaker Change: and social media spend. You know, as you've seen with social media.
getting some creative content to go viral.
Speaker Change: is much more art, and so there's always that possibility that...
Speaker Change: that one of our influencers will hit a nerve if you let me use that concept and go viral and drive accelerated revenue and better metrics.
The affiliate sales.
Speaker Change: and getting onto the Perks at Work platform, for example, is a whole new channel for us.
Speaker Change: getting on to Amazon next year is a whole new channel now it's a it's a more expensive channel and so
Speaker Change: where I think we're a long way from being able to hire a...
celebrity spokesperson and take out a Super Bowl ad, but
Speaker Change: what the big companies do and what we can do with guerrilla marketing tactics and see if we can't get some of that creative content to go big.
I'm
At what point, Josh, do you think
Both you and Dan will be comfortable to start.
Speaker Change: on the top line and from time to time we have heard about expense lines and some commentary on expense lines but I'm just trying to find out at what point we can start expecting top line guidance as well.
Speaker Change: Yeah, it's a great question. You know, it's something that we considered doing in the past.
Speaker Change: And you'll either see it or you won't. All right. Thank you very much, gentlemen. Thanks for taking all my questions.
Thanks, R.K.
Thank you.
Speaker Change: As a reminder, you may press star 1 to ask a question.
Gentlemen, it appears we've lost Mr. McGovern's line.
Thank you.
Speaker Change: Mr. Goldberger, there are no additional questions at this time. I'll turn the floor to you for any further comments.
All right. Thank you, operator.
Speaker Change: I appreciate everybody joining the call today. As I mentioned, I'm very proud with continued improvement in all of our operating metrics, revenue growth.
Speaker Change: increasing cash consumption, decreasing. Our employees are working tirelessly to deliver these products and therapies. Patients, customers, we really appreciate everybody's support.
Speaker Change: We're getting into the holiday season, so I also want to wish everybody the very best for Thanksgiving and the holidays after that. Thanks, everybody.
Speaker Change: This will conclude today's conference. We disconnect your lines at this time. Thank you for your participation.