electroCore, Inc. Q3 FY2024 earnings call

• Revenue: Eighth consecutive record revenue quarter, with Q3 2024 revenue at $6.6 million, a 45% increase year-over-year. Five-year compound annual growth rate is 62%.
• VA Channel: Sales grew 75% to $4.8 million in Q3 2024, with 166 VA facilities having purchased prescription gammaCore products as of September 30, 2024, up from 141 in 2023.
• Truvaga: Net sales were approximately $657,000 in Q3 2024, a 147% increase from Q3 2023. Revenue return on advertising spent was approximately 2.53. Over 8,000 handsets sold, and approximately 189,000 sessions using the mobile app.
• TAC-STIM: Q4 2024 expected to have increased revenue due to a $550,000 Air Force purchase order, but revenue remains variable as active duty units purchase in bulk for pilot deployment.
• Pipeline: Working on a post-traumatic stress disorder label for gammaCore. Exploring additional channels for Truvaga, such as influencers, affiliates, resellers, and Amazon launch in early 2025. TAC-STIM has potential civilian crossover in sectors like first responders, elite athletes, etc.

For electroCore's third quarter 2024, the company reported several key segment performances. The prescription gammaCore medical devices saw growth, with VA channel sales jumping 75% to $4.8 million in Q3 2024 from $2.7 million in Q3 2023. US prescription gammaCore channel revenue was $441,000 in Q3 2024, flat from Q3 2023. The non-prescription general wellness brand Truvaga had net sales of approximately $657,000 in Q3 2024, a 147% increase from Q3 2023. TAC-STIM (human performance) sales were $194,000 in Q3 2024, down from $601,000 in Q3 2023, but Q4 2024 was expected to be up due to a $550,000 Air Force purchase order. Revenue from outside the US (o-US) increased by 4% to $485,000 in Q3 2024.

• Revenue: Anticipates continued growth, especially in the VA channel and Truvaga. TAC-STIM revenue expected to increase in Q4 2024 due to the Air Force purchase order.
• Profitability: Progress towards positive adjusted EBITDA and GAAP profitability as revenue increases and expenses scale with revenue.
• Future Plans: Working towards additional indications for gammaCore (e.g., PTSD, opioid use disorder). Expanding Truvaga channels and managing the variable revenue of TAC-STIM by focusing on long-term civilian crossover opportunities.

• Revenue Variability: TAC-STIM revenue is variable as active duty units evaluate and purchase in bulk for pilot deployment.
• Contract Renewals: Uncertainty around VA FSS contract renewals and potential impacts on pricing, though price is expected to remain constant for the revised contract.
• Market Risks: Risks associated with new product launches, market acceptance, and competition in the wellness and medical device spaces, including potential challenges with international expansion for Truvaga.

Q: Hi, Dan and Josh. Thanks for taking our questions. And, firstly, congrats on the Men's Health Tech Awards 2025 for Truvaga Plus. Any commentary there and perhaps talks about how that may or may not spill over and expand into the 350 domain? I know the link is specifically on Plus. And then also perhaps talk about M&A or other wellness products that are out there or talk about your M&A?

A: Wow, it's a big question, Jeff. So, yes, the Men's Health caught us 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, and they have a huge circulation, so it's a tremendous awareness opportunity for our Truvaga brand. We haven't been reporting on it, but the Truvaga Plus that we launched in April has been outselling the Truvaga 350, even though it's at a higher price point. The Truvaga Plus, as you know, is mobile app enabled, and in the future is going to give us an opportunity to enter into the much larger digital health opportunities, so sky's really the limit. We're just really getting started in that whole category. You asked about M&A. We're focused on vagus nerve stimulation. As you think about the bigger picture of digital health and wellness category, you could imagine a lot of different 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 there's nothing really that we can talk about at this time.

Q: And just to clarify, the Air Force contract that you spoke about closing after the quarter would be for TAC-STIM?

A: Yes, that was for the TAC-STIM black that we commercialized in July of this year.

Q: Okay, and then lastly, first, 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 into other territories?

A: Yes. It’s, Truvaga is US only product for the time being. Sure. We've been looking at what kind of investment would be required to be certified to ship into the EU or into Asian countries, for example, and we're focusing on getting the cash positive and profitability, so I will probably procrastinate on that international investment until we cross over to being cash positive.

Q: Thank you. Good afternoon, Dan and welcome, Josh, to the new role, and I hope you are here for long time.

A: Yes. Thank you for the questions. Yes. Thank you, R.K.

Q: So, jumping into the VA revenue to start off, it was good to see the year-over-year growth. And, you're saying, you're still scratching the surface. And you have been in this market for quite a long time. And, what is it, I'm not complaining about the growth. I'm just trying to figure out how -- are there ways or methods to grow that growth from, like, say, only 1%, to at least, like, 3% to 5%, which can still make a huge difference for you folks, I would think. And what could potentially be those methods?

A: A great question, R.K. really, our growth in the channels 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 back into the facilities. And so, if you just look back, you can see how it accelerated as the pandemic faded and access, traditional access to hospital facilities and clinics opened up. So, for the foreseeable future, it's scaled. Because the vast majority of our field salesforce is straight commission, we can aggressively add feet on the street and get penetration within our existing customers, and especially having additional 1099 assets give us the opportunity to open up 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. 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. It's an adjacent call point in behavioral health in the VA hospitals and so as we move through ‘25 into ‘26 that the total addressable market within the VA grows substantially as well. So lots of reasons to believe that we can maintain or even accelerate the penetration and the associated revenue growth rate.

Q: Thank you. And then talking about the revenue growth rate. So there is, one is volume, the other is price. 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, 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?

A: Yes, so the price is a contract element. About a third of our VA business now is going through a distribution partner level 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. While we've been going through these extensions, we've moved into a higher revenue category that's, we're a victim of our own success. And so the contract had to go through additional review cycles. We are, candidly, we're holding the price constant. We've been advised 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.

Q: Okay. And then I know you said the name, but I'm going to refer to this as Kaiser Permanente.

A: Yes, I'm not allowed to use that name, but thank you.

Q: Well, I didn't write it down, so that's on me. You said there were 25 prescribers have started writing script on the device. So in general, because Kaiser Permanente is not just in California, they're in DC, there are other areas as well. My question to you is, when you say 25 prescribers, are they from a specific region and as the product gets used more, we should expect that to spread through the entire network of Kaiser Permanente. And also, when you say 25 prescribers, are these the folks that have been kind of given sample vouchers to check it out, or are they the folks that are really wanted to write this after, a conversation with, I guess, through your distributor. Sorry for the long question.

A: Well, yes, excellent question. So as I understand it, the managed care system is organized around Southern California, Northern California, the Pacific Northwest, so Washington, Oregon, or a region. I'm not sure where Hawaii fits, but Kaiser has a good footprint in Hawaii. gammaCore is on formulary in the Southern California and in the Northern California regions explicitly. That's where most of our prescribers are in California at this point. We do have, I believe, three prescribers out of the Washington, Oregon region, and so there's still a lot of work to be done. Kaiser forbids samples, so when we talk about prescribers, those are revenue prescribers.

Q: Okay. That's very good. Very good to hear that. And then you probably answered this question, I apologize. In terms of the final and $50,000 order that you received from the military after the close of the quarter, is this for the version two product or is this for the initial version and also, how should we think about, is there a mix between the old product and the new product and beyond the $550, should we expect any additional revenue for the fourth quarter. I'm just trying to get an idea of, is this going to be basically lumpy and you and I can never, figure out this until it happens? Or will it ever get into a cadence at some point?

A: So, specifically around the $500, it was actually specifically $548,000 for what we call tax in black. It's shipped and booked as October 1st 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 the tax and product line in the current quarter but much smaller amounts. I've been coached not to use the word lumpy so now I use the word variable for 2025. We have a lot of interest but it feels like for 2025 it's going to be, again, back end loaded in sort of the second half, the third and fourth quarters of 2025. But there are various activities as we roll into 2026 where we are optimistic that we will be getting on onto a more of a predictable master contract that different units can order against and we'll have a little bit more visibility. But I don't see that happening until the 2026, 2027 revenue cycle.

Q: Okay. And then, I mean, I'm sorry for so many questions, but on Truvaga Plus, obviously it looks like the product is being adopted really well in the market. Are there any additional levers that you can use to grow this, higher and also at a steady pace? Or is this just going to be dependent on various, advertisements/ social media or other modes of spreading the message on the wellness side of the therapy?

A: So a great question. We think we understand our own e-commerce platform and lever is around search and social media spend. As you've seen with social media, getting some creative content to go viral is much more art, and so there's always that possibility 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 and getting onto the Perks at Work platform, for example, is a whole new channel for us. Getting onto Amazon next year is a whole new channel. Now, it's a more expensive channel, and so while the gross margin stays healthy, the contribution margin, Amazon takes their vig, so we have to keep an eye on revenue growth versus contribution margin from different channels. I think we're a long way from being able to hire a celebrity spokesperson and take out a Super Bowl ad, but there's a lot in between what the big companies do and what we can do with guerrilla marketing tactics and see if we can get some of that creative content to go big.

Q: One last question, and that's for Josh. At what point, Josh, do you think both you and Dan will be comfortable to start talking about guidance and the ability to talk through the top line? 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 just start expecting top-line guidance as well?

A: Yes, it's a great question, it's something that we consider doing in the past. At the moment, it's not necessarily something that's on the docket for the future, but that being said, we're getting into a new year. And we're going to reevaluate sort of everything when we do that so I would say, it's something that we'll discuss internally. And you'll either see it or you won't.