electroCore, Inc. (NASDAQ:ECOR) Q1 2024 Earnings Call Transcript

electroCore, Inc. (NASDAQ:ECOR) Q1 2024 Earnings Call Transcript May 8, 2024

electroCore, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to the electroCore First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I’d like to turn the conference over to your host, Dan Goldberger. Thank you, sir, you may begin.

Dan Goldberger: Thank you all for participating in today’s electroCore earnings call. My name is Dan Goldberger, I’m the Chief Executive Officer of electroCore and I’m also a member of the Board of Directors. Joining me today is Brian Posner, Chief Financial Officer. Earlier today, electroCore published results for the first quarter ended March 31, 2024. A copy of the press release is available on the company’s website. Before we begin, I’d like to remind you that management will make statements during the call that includes 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. 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, or future financial expectations or 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. 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. electroCore 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.

This conference call contains time-sensitive information that is accurately only as of the live broadcast today, May 8, 2024. electroCore was founded in 2005 to commercialize the use of our proprietary non-invasive vagus nerve stimulation for medical and general wellness applications. The vagus nerve is the longest cranial nerve in the body, bringing information from the visceral organs to the brain. Stimulating the vagus nerve affects many important autonomic functions in the brain and in the body, including neurotransmitter levels, inflammation levels, and metabolism. 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.

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. Our pipeline of potential future indications and products continues to grow as clinicians, researchers, and wellness advocates conduct investigator-initiated trials to become more familiar with the benefits of non-invasive vagus nerve stimulation. We are thrilled to report a sixth consecutive record revenue quarter of $5.4 million for the three months ended March 31, 2024, a 96% increase over the prior year. That’s a five-year compound annual growth rate from Q1 2019 through Q1 of 2024 of greater than 67%.

Moreover, this growth has been accomplished with 84% gross margins. Brian will discuss the financials in more detail later on. We launched our U.S. prescription headache business in 2017, selling primarily to specialty pharmacies. Since then, our prescription headache business has grown worldwide, including sales that are covered by national health systems such as the VA Hospital System in the United States and the National Health Service in the United Kingdom, Cash Pay sales, and through certain managed care systems in the United States. We launched two new nonprescription general wellness product lines last year. Truvega is a direct-to-consumer health and wellness brand and TAC-STIM is our brand for human performance for active duty military personnel.

Both new brands exceeded our expectations in their first full year of sales and continue driving excitement about the future. The VA Hospital System continues to be our largest revenue channel, you’ll recall that our gammaCore prescription therapy is free to patients covered by veterans administration benefits, representing about 9 million covered lives across approximately 1,300 healthcare facilities. Sales in the VA channel grew 127% to $3.9 million in the first quarter of 2024 from $1.7 million during the first quarter of 2023. 151 VA facilities have purchased prescription gammaCore products through March 31, 2024 as compared to 124 through March 31st, 2023. The VA Hospital Administration Headaches Centers of Excellence, or HCoE, estimates approximately 600,000 patients are being treated for headache in the VA hospital system.

Since we’ve dispensed approximately 5,300 gammaCore devices to veterans since 2022, we believe that represents less than 1% of the total addressable market within the VA system. We use several contracting mechanisms to support sales to individual VA facilities, including open market access, our FSS or Federal Supply Services contract, and our non-exclusive distribution agreement with Lovell Government Services. Lovell is a service-disabled, veteran-owned small business, or SDVOSB, offering medical and pharmaceutical goods and services to federal healthcare providers. During first quarter of 2024, sales through level accounted for approximately 13% of our VA sales. Truvega is currently positioned as a direct-to-consumer general wellness product for stress, relaxation, sleep, and mental acuity.

For the first quarter of 2024, Truvega net sales were approximately $385,000 as compared to $147,000 during the first quarter of 2023. Our revenue return on advertising spend, what the industry calls a Media Efficiency Ratio, or MER, was approximately 2.49 in the first quarter. In other words, we’re spending $1 to generate $2.49 of revenue. Truvega return rates, which we continue to monitor closely, dropped slightly to approximately 8% of shipments. However, we modeled return rates at a more conservative 10% to 15%. Last month, we launched Truvega Plus, our second Truvega product offering. Truvega Plus is a mobile app-enabled general wellness product. The first few weeks of sales of Truvega Plus have again exceeded expectations and we are enthusiastic about the potential our new app-enabled product provides for future iterations of our technology and engagement with consumers.

Since launching Truvega Plus, we sold approximately 300 units and customers have conducted approximately 2,400 sessions using the product. Our Media Efficiency Ratio has expanded to 3.21 since launch, driven by higher pricing and early adoption of Truvega Plus. Both Truvega products are available exclusively through our e-commerce platform, www.truvega.com, and we are carefully managing our Truvega advertising spend, return rates, and sessions as we offer two unique Truvega propositions for health and wellness. We believe that the Truvega business can scale nicely if we maintain or improve these metrics. TAC-STIM for human performance is being sold to select Air Force Special Forces 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.

No prescription is required and more information is available at www.tacstim.com. For the first quarter ended March 31, 2024, we recorded $301,000 of TAC-STIM sales as compared to $88,000 during the same period last year. The sales funnel for this product continues to grow as words spreads across active duty military units of the potential human performance benefits provided by TAC-STIM. In parallel, we have developed a second-generation product known internally as TAC-STIM Black in collaboration with AFRL, and we continue to build prototypes for evaluation by our government research partners. Even though we have an impressive sales funnel for TAC-STIM, we have stated before that revenue growth for this product line is likely to be lumpy as active duty units purchased bulk for pilot deployment, and we expect revenues for TAC-STIM in the second quarter of 2024 to be flat to down sequentially due to the timing of such orders.

Our prescription physician dispense Cash Pay channel, including gC Direct and gConcierge recorded revenue of $424,000 during the first quarter of 2024, down slightly from $436,000 in the first quarter of 2023. We expect at least some of these customers to migrate to the Truvega brand as awareness grows, so we are modeling flat revenue from this category for the time being. There were 2023 cumulative revenue generating Cash Pay prescribers as of March 31st, 2024, up from 1,218 on March 31st, 2023. Last year, we announced a distribution agreement with Joerns Healthcare, LLC that we believe will add more than 12.5 million covered lives within a select managed care health system. The business model with Joerns is similar to how we work with the VA Hospital system, Joerns handles adjudications, billing, and collections, while electroCore ships directly to patients and provides in-servicing and patient support.

Our field sales team is responsible for building awareness among clinicians within those managed care systems. We continue to work with Joerns on the implementation, including the expansion into new geographic territories, and we recorded small recurring revenue from this relationship during the first quarter of 2024. Our field sales function is developing champions within the target managed care system and we think Joerns could be a source of revenue growth in the second half of 2024 and beyond. Revenue from channels outside the United States increased by 10% in U.S. dollars to $449,000 in the first quarter of 2024 as compared to $410,000 for the first quarter of 2023. Revenue from channels outside the U.S. increased approximately 14% in local currency for the first quarter of 2024 as compared to the first quarter of 2023.

Most of our OUS revenue continues to be generated in the United Kingdom by prescription gammaCore sales funded by the National Health Service, or NHS. Now, I’d like to turn to our clinical progress. On April 30th, 2024, we announced the results of our most recent Truvega Plus consumer study conducted earlier this year. The 39 subject 30-day in-home use test conducted by an independent third-party research firm demonstrated that Truvega Plus helped its users improve sleep, focus, stress, energy, and mood. Health assessment evaluations were reported after seven and 30 days. Most notably, 82% of participants fell calmer and mentally healthier, 74% of participants felt they slept better, of which 72% reported they received between 30 minutes to two hours more sleep each night.

After the study completed, 87% of users said they will continue to use Truvega Plus for ongoing overall wellness benefits. Two of our investigator-initiated trials, the acute stroke trial, NOVIS in Leiden, Netherlands and Gait and Mobility in Parkinson’s Disease in Newcastle, U.K. have been fully enrolled, and we expect to report top line data later this year. We’ll continue to provide updates about our pipeline and other opportunities as they become available. Now, I’d like to turn the call over to Brian for a review of our financials and other guidance items. Brian?

Brian Posner: Thank you, Dan. Net sales for the three months ended March 31st, 2024 increased 96% as compared to the three months ended March 31st, 2023. The increase of $2.7 million is due to an increase in net sales across major channels, including our prescription gammaCore and medical devices sold in the U.S. and aboard and revenue from the sales of our nonprescription general wellness and human performance Truvega and TAC-STIM brands. Gross profit increased by $2.2 million for the three months ended March 31st, 2024 compared to the three months ended March 31st, 2023. Gross margin was 84% for both periods. Total operating expenses in the first quarter ended March 31st, 2024 were approximately $8.4 million as compared to $8.5 million for the quarter ended March 31st, 2023.

Research and development expense in the first quarter of 2024 was $399,000 as compared to $1.8 million in the first quarter of 2023. This decrease was primarily due to a significant reduction in investments associated with Truvega Plus. Selling, general, and administrative expense of $8 million for the three months ended March 31st, 2024 increased by $1.3 million or 19% as compared to $6.7 million for the comparable period in 2023. This increase was primarily due to our greater variable selling and marketing costs consistent with our increase in sales. GAAP net loss for the first quarter of 2024 was $3.5 million or $0.53 per share as compared to the $5.9 million net loss of $1.24 per share for the first quarter of 2023. This significant improvement was primarily due to the increase in net sales to $5.4 million for the first quarter of 2024 compared to $2.8 million during the same period of 2023.

Adjusted EBITDA net loss in the first quarter of 2024 was $3.1 million as compared to adjusted EBITDA net loss of $5.1 million in the first quarter of 2023. These improved results are primarily due to the 96% increase in first quarter 2024 net sales over the first quarter of 2023. 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, and restricted cash at March 31st, 2024 totaled approximately $8.1 million as compared to approximately $10.6 million as of December 31st, 2023. And now I’ll turn the call back over to Dan.

Dan Goldberger: Thank you, Brian. I’m very pleased with the continued momentum in our prescription headache and general wellness businesses. Our operating metrics, especially revenue and gross margin continue to beat internal expectations, and I’m very enthusiastic about the company’s long-term prospects across all brands and product lines. The launch of Truvega Plus was received favorably by the market. The brand continues to show tons of potential as a direct-to-consumer general wellness offering, and we will continue selling Truvega products through our e-commerce site, www.truvega.com. We’ll explore additional channels and product offerings to increase the lifetime value of each customer as we go forward. The pipeline of interest from different branches of our active duty military continues to develop for our TAC-STIM products.

Sales of the TAC-STIM brand continue to be irregular as active duty units purchasing bulk for pilot deployment longer term. We also 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. Demand for our prescription gammaCore therapy in the VA channel continues to grow based on clinical performance and our increased presence in the field. We have approximately 35 straight commission sales agents, representing about 1,099 reps in the field, managed by our small team territory business managers and supported by our customer experience team. This hybrid structure is very scalable as we deploy prescription gammaCore around the country.

During the first quarter of 2024, our sales and marketing expense increased by approximately $1.4 million over the first quarter of 2023, while sales grew by $2.7 million, signaling real leverage opportunities in the P&L. Further out, we are working towards establishing additional indications for prescription gammaCore to treat posttraumatic stress disorder, opioid use disorder, and other clinical opportunities. We had $8.1 million of cash at March 31st, 2024. We have dramatically reduced our R&D expense and we intend to maintain discipline around fixed operating expenses. We expect that commissions and media spend will scale with revenues and will remain at approximately 30% of related sales on a blended basis. Therefore, we expect that our cash used in operations will continue to decline sequentially as revenue increases.

In summary, I believe the business is demonstrating operating leverage and that we will have a variety of strategic levers to pull to continue growing and/or operating the business until we can generate positive cash flow from operations. As we continue through 2024 and beyond, we will focus on strategic initiatives, including; number one, continued growth in our U.S. prescription headache business in both the VA and commercial channels. Number two, growth of our direct-to-consumer wellness business through sales of both our Truvega 350 and Truvega Plus products for general wellness stress, mental acuity, and sleep, driven by ongoing consumer marketing investments. Three, further development of the TAC-STIM brand and launch of TAC-STIM Black later this year for human performance in the active duty military and potential civilian crossover.

Number four, revenue through our distribution agreement with Joerns Healthcare for the sale of prescription gammaCore within a select managed care health system. And number five, prescription gammaCore label extensions for a variety of indications over time. At this time, I’ll turn the call over to the operator. Operator, please open the line for questions.

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Q&A Session

Operator: Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

Jeffrey Cohen: Hi, Dan and Brian, how are you?

Dan Goldberger: Good. Hi Jeff.

Jeffrey Cohen: So, I guess, firstly, could you talk about — you talked about the channels and the mix that you anticipate on Truvega. I know that you placed a couple of hundred units thus far. How do you expect that to fold out as far as one versus the other?

Dan Goldberger: That’s a great question. The Truvega 350 is offered at a significantly lower price than the Truvega Plus. And the mix, it’s early, right? It’s — we’ve only been offering the new product Truvega Plus for three full weeks now. And it’s been a surprisingly successful. It’s roughly a 50-50 product mix for that three weeks, but I wouldn’t — we’re not — I wouldn’t try to draw any conclusions from the first three weeks.

Jeffrey Cohen: Got it. Okay. And then could you talk about the OpEx and the components? I know that R&D was down tremendously, which you identify distros development concluding. But what kind of follow-up on R&D? And where should we see that for second quarter and beyond full year? And then SG&A as well? Is that flattish from that increase from last year, it will continue to increase sequentially from that $8 million in the first quarter?

Dan Goldberger: So, for R&D internally, we’re going to keep a lid on it for this year. We’ve got lots and lots of great product ideas and label extensions, but we want to drive to getting to cash positive and profitability. So, we’re modeling R&D at sort of $8.5 million for — I’m sorry, no, I misspoke, $2.5 million for the full year, right, less than half of last year. G&A, we expect it to be somewhat down from last year. We’re continuing to look for opportunities to reduce expenses. But our marketing spend either commissions, in our prescription business or advertising spend in our consumer business are going to be scaling. And in our prepared remarks, we internally remodel our variable sales and marketing expense at about 30% on a blended basis.

Brian Posner: Add to what Dan said is the G&A part is seasonally high in the first quarter because of audit related costs, the auditors, the layers, and Sarbanes-Oxley, all the requirements of a public company. So, the G&A part should be down in the remaining quarters.

Dan Goldberger: So, to be clear, I misspoke. I want to be clear that we’re modeling R&D at roughly $2.5 million this year, not that higher number. I don’t know why that popped in my head. I apologize.

Jeffrey Cohen: Not a problem. Thanks Dan. And then I guess, lastly, maybe talk about inventories currently and how they’ve been and how you expect that to play out over this year. I’m sure you’re building up some Truvega Plus and perhaps TAC-STIM Black and reducing inventory on U.S. commercial?

Brian Posner: Yes. So, I’ll start. And bottom-line is we’ve worked down a lot of inventory over the years for the first quarter since I think Dan and I have been with the company, we don’t have the caption long-term inventory anymore, which is a function of revenue, right, and forecasted revenue. So, we’re very optimistic about the future. Dan, I don’t know if you want to add anything about the supply chain for the new products or?

Dan Goldberger: The inventories, we’re still running heavy on inventory as a multiple of daily sales because we’re not very good at predicting product mix, for example, like you touched on, Jeff, with how many of the 350s are we going to sell versus the pluses. So, we’re keeping more inventory, more days of inventory. But as we gain more understanding of the business and specifically the product mix, I think we’re going to be able to steadily reduce inventory as a multiple of days sales. In other words continue to generate cash from inventory.

Jeffrey Cohen: Got it. Okay, that was nice. Thanks for taking our questions.

Dan Goldberger: Thank you.

Brian Posner: Thank you.

Operator: Our next question comes from Bruce Jackson with The Benchmark Company. Please proceed with your question.

Bruce Jackson: Hi, good afternoon and thanks for taking my questions. I wanted to start with the VA. How much of your VA revenue comes from these centers of excellence, the headache centers of excellence?

Dan Goldberger: That’s a good question. We don’t break that out in our public discourse. Dr. David [Indiscernible], who runs the Headache Centers of Excellence, I believe there are 20 of them around the country right now. The newest guidelines best practices for managing complex headache, have gammaCore as first-line therapy, but we have not been breaking out by facility, the revenue contributions.

Bruce Jackson: Okay. So gammaCore, the first mile alternative for these centers. What do you think needs to happen or to get greater uptake from the VA system?

Dan Goldberger: So great question. We think we’re still less than 1% penetrated within the VA hospital system. Every facility is different and has to be treated as a different customer. But in general, we start off in neurology, which is where the complex headaches are treated, and our goal is to work through the facility to women’s health to pain management to health and wellness and ultimately, to primary care. And so within each facility, we have a lot of opportunities to go deeper. Headache is treated in the emergency room and is treated in primary care in greater numbers than by the specialist departments.

Bruce Jackson: Okay. And then last question is on the study that’s being conducted in Newcastle. Is that for Parkinson’s and the release date for the data seems to have like moved out a bit. Is that just because of the standard data analysis and you’re working with physicians are very busy. There’s some other factor involved there?

Dan Goldberger: So we really don’t know. I wish I knew more. This is an investigator-initiated trial of finance by the UK Ministry of Health and the European Union. The investigators are full-time clinicians. They had the last patient last visit in December, late December of 2023. And we’re anxious to see the data, and they will share the data with us when they share the data with us. It’s completely out of our control.

Bruce Jackson: Okay. Got it. Thank you very much for taking the question.

Dan Goldberger: Absolutely. Thanks for your interest.

Operator: Our next question comes from Swayampakula Ramakanth with H.C. Wainwright. Please proceed with your question.