Greetings and welcome to the electroCore Third Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Nicole Jones at CG Capital. Please go ahead.

Thank you all for participating in today’s electroCore earnings call. Joining me today are Dan Goldberger, Chief Executive Officer; Brian Posner, Chief Financial Officer; and Dr. Peter Staats, electroCore’s Chief Medical Officer. Earlier today, electroCore released results for the third quarter ended September 30, 2022. 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 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. 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 statements regarding our future financial expectations for operational activities and performance are based upon the company’s current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, we 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 accurate only as of the live broadcast today, November 3, 2022. And with that, I will turn the call over to Dan.

Thank you, Nicole. Hello, everybody, and thank you for joining us on today’s call. I’m pleased to report that revenue for the three months ended September 30, 2022, was almost $2 million, a healthy 33% increase over $1.5 million in the year ago period. Revenue declined slightly sequentially and I will discuss some of the puts and takes on revenue later in this call. Gross margins expanded nicely to 87% and net cash used in operations was about $4.6 million for the quarter ended September 30, 2022. Revenue from the U.S. commercial headache channel was $411,000 for the quarter ended September 30, a 160% increase from $158,000 in the third quarter of 2021. Approximately $359,000 of our U.S. commercial revenue in the third quarter came from cash pay programs. We have several initiatives in the U.S. commercial channel, which have delivered mixed results. Our cash pay clinician dispense programs, gCDirect and gConcierge have grown from 637 prescribers to 937 prescribers in the last 90 days. Revenue from those programs has exceeded our growth expectations and a 50% increase in prescribers should be a leading indicator of future growth. On the other hand, performance of our e-commerce platform has not met our expectations. We are currently restructuring that channel and expect a streamlined, more exciting offering to launch in January 2023. A few days ago, we announced a distribution agreement with Joerns Healthcare LLC that will add more than 12.5 million covered lives within a select managed care health system. The business model returns will be similar to how we work with the VA hospital system. Joerns will handle adjudications, billing and collections, while electroCore will ship directly to patients and provide in-servicing and patient support. Joerns will pay electroCore for devices dispensed. The Joerns agreement will take a few months…

Thank you, Dan. For the third quarter ended September 30, 2022, electroCore reported net sales of almost $2 million as compared to $1.5 million during the same period of 2021. This represents a 33% revenue increase over the same period last year. Gross profit for the third quarter of 2022 was $1.7 million as compared to $1.1 million for the third quarter of 2021. Gross margin was 87% and 76% for the periods ended September 30, 2022 and 2021, respectively. Our evolving commercial strategy has resulted in the launch of cash payment models under which we license certain starter devices. The cost of the licensed starter device is being recognized as cost of goods sold over the estimated useful life of the starter device. The incremental favorable impact on gross margin associated with licensing a portion of our devices was 9% in the 3 months ended September 30, 2022. Moreover, in recent quarters, we have sold an increasing amount of longer duration therapy, resulting in a higher average selling price. These factors and favorable absorption of labor and overhead costs due to an increase in the number of units sold contributed to the increase in gross margin. Total operating expenses in the third quarter of 2022 were approximately $7.3 million, an increase of approximately $2.2 million from $5.1 million in the third quarter of 2021. Research and development expense in the third quarter of 2022 was $1.6 million as compared to $470,000 for the same period in 2021. Our R&D expense for the quarter included an investment for our next-generation product currently under development. Selling, general and administrative expense in the third quarter of 2022 was $5.7 million compared to $4.6 million for the same period in 2021. Total SG&A expenses for the third quarter of 2022 included increased investments in our sales and marketing efforts to support our cash pay initiatives. GAAP net loss for the third quarter of 2022 was $5.5 million as compared to a GAAP net loss of $4 million for the same quarter of 2021. Adjusted EBITDA net loss in the third quarter of 2022 was $4.8 million as compared to a loss of $3.1 million during the third quarter of 2021. A reconciliation of GAAP net loss 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 during the quarter ended September 30, 2022, was approximately $4.6 million as compared to $3.4 million in the third quarter of 2021. Cash, cash equivalents and restricted cash at September 30, 2022, totaled approximately $21.9 million as compared to approximately $34.7 million at December 31, 2021. Looking ahead, for the fourth quarter of 2022, we expect net revenue to be between $2.2 million and $2.3 million, and net cash usage to be between $4 million and $4.5 million. And now, I will turn the call back over to Dan.

Thank you, Brian. I am pleased with our year-over-year operating results, and I continue to be very enthusiastic about the company’s long-term prospects. Continued investment in our cash pay and insurance covered business models as well as clinical indications beyond primary headache could greatly expand the nVNS therapy market. The BOOST project being financed by the Air Force could accelerate the adoption of nVNS for human performance among our active duty military. We continue to build our intellectual property portfolio and we are developing a very exciting next-generation product platform to leverage it. October has been very strong in our VA DoD channel, which we believe may bode well for the fourth quarter. Our cash pay commercial initiatives are showing positive results. Our physician dispense programs are growing faster than expected as new prescribers make gammaCore available to patients directly through their practices or directly from electroCore. The Joerns announcement we discussed earlier dramatically increases the number of covered lives with access to insurance coverage for nVNS and could generate material revenue next year. Our UK business has recovered from a slow start in Q1 2022, but currency exchange continues to be a headwind to all of our international efforts. I see many potential growth drivers in the remainder of 2022 and 2023, including continued penetration of the VA DoD channel in the United States, continued penetration of the UK market, growth in our U.S. commercial channel, driven by cash pay business models and direct-to-consumer advertising, while we continue our efforts to gain commercial insurance coverage, and expansion of our international business through our distributor network and added traction within the UK e-commerce store. Longer term, we believe there are real opportunities for label extensions into post-traumatic stress disorder or PTSD, opioid use disorder, and minor traumatic brain injury. The Air Force BOOST program could lead to incremental product sales to the active duty military as soon as next year. At this time, I will turn the call over to the operator. Operator, please open the line for questions.

Thank you. [Operator Instructions] We have our first question from the line of Jeff Cohen with Ladenburg Thalmann. Please go ahead.

Hi, everyone. This is Destiny on for Jeff. Thank you for taking our questions. I think perhaps I will start with some questions around the cash pay model as well as the e-commerce channel, that’s a really incredible growth in prescribers. So congratulations on that. I am wondering if you can speak to any drivers of that growth or is that something that’s just coming about based on awareness or are there any campaigns you are currently doing to really educate these prescribers? Could you just talk a bit about that? And then I will circle back to my e-commerce question.

Sure and Destiny, thank you for the question. Variety of things, we do have a small, but aggressive field sales presence. And then that’s our direct employees are augmented, multiplied by a group of what we call 1099 reps, folks who work for straight commission. And we also have an inside sales function and our marketing function has been getting progressively stronger. So variety of activities, as well as we have moved beyond detailing traditional headache specialists in neurology. And roughly a third of the new gConcierge accounts come from functional medicine, integrated medicine that tend to be cash pay concierge-style medicine. And we have also opened it up to chiropractors and especially functional chiropractors seem to really have prior knowledge and experience working with the vagus nerve and looking for ways to stimulate the vagus nerve mechanically. And so they are early adopters or quick adopters of our technology for stimulating the vagus nerve non-invasively.

Okay, got it. That’s very interesting. And then quickly circling back to your e-commerce platform, you mentioned that it hasn’t necessarily met your expectations. I am curious what happened there? Is that a function of your marketing messaging or is it just an issue with the funnel or if you could just provide a little detail, that would be super helpful?

Yes. Look, we are not proud of it, but the idea was to partner with a telehealth provider to facilitate prescriptions for consumers who would find it more convenient than going to their local doctor. As a practical matter, the requirement for a prescription creates friction in that e-commerce patient journey, and the platform that we chose in partnership with Vital just had some plain old fashioned bugs and it was clunky to use. And so we’re going to take a deep breath and refresh and restart with what I believe is going to be a much more streamlined consumer experience in the near future.

Okay, got it. That’s very helpful.

And I should emphasize, though, that our awareness campaign, which was primarily in paid search and social media, was remarkably successful at bringing interested parties, unique visitors to our platform. It was moving them through the funnel and turning them into transactions where the disappointment came from.

I see. Okay, got it. So I guess that would mean that you have several interested individuals, if you will, that might be able to convert at a later date, which could potentially help support the top line. Is my understanding correct? Okay.

Yes. Yes, we will launch an abandoned cart campaign once we’re comfortable with the newly approved e-commerce platform.

Okay, got it. And then I’m just going to quickly transition to the VA and DoD channel, and then I’ll jump back in queue. But I’m wondering, has the strategy there changed at all? You added several additional hospitals this quarter, which is excellent to see. So, any change in strategy? Have you added any additional reps to target these clinics or anything that you can point out there?

Yes. As usual, Destiny, you’re right on top of it. The VA hospital system, the good news is that it’s a very sticky business and the challenge is that it’s a high-touch business. And so, the combination of our field sales personnel and the associated 1099 reps working in concert with our inside sales and our customer experience team were getting better and better at that high touch, staying in contact with the supply chain folks at the VA hospitals, as well as just our increased ability to open up new hospitals, partly because of the team that we put together, and let’s face it, the pandemic is still receding, and so the VA hospital system is slowly but surely adjusting to the new normal and letting us in.

Okay, got it. Thank you for taking our questions.

Thank you.

Thank you. [Operator Instructions] We have our next question from the line of John Vandermosten with Zacks. Please go ahead.

Hello and good evening, Dan, Brian and Peter. Glad to have you on the call again.

Hi, John.

Hello. Jeorns, that’s a great addition to the portfolio of partners. And I want to see if there are any characteristics of the Jeorns lives that stands out maybe in terms of geography or anything like that. I noticed that they did have a pretty broad set of their own partnerships on their website and wondered how the ones that you’ll be exposed to are made up.

Yes. So John, thanks for noticing. And the business model, look, this is giving us access to a managed care provider. And broad strokes, the Jeorns agreement is going to work very similar to how we work with the VA hospital system. And from a very high level, the VA hospital system is ultimately a managed care organization, where the doctors and the clinical staff are all employees of the hospital, right? So Jeorns is going to handle the back office stuff of adjudicating prescriptions, making sure that the individual is on the right benefit plan, and looking at the deductible status and copay status and managing all of those collections, whether it’s a deductible collection or getting reimbursement from the healthcare system. And then just like we do with the VA hospitals, we will be shipping directly to the patients. Our staff will handle patient education and in-servicing, and we will get paid by Jeorns as they go through their collections process. So it’s a very exciting breakthrough for us. It’s a large, primarily West Coast managed care outfit that is under contract. And it’s going to take us a while to get the plumbing, to get the back office stuff to be working smoothly. But once we’re sure that it’s working smoothly, our field sales staff will start a campaign to call on those facilities, much like we call on the VA hospital facilities.

Okay, great. And how full is your pipeline of prospects in the managed care or commercial space? I know we have – maybe you can also tell me how many we have so far. I know Jeorns is adding to some others that you’ve closed earlier. But what does the pipeline look like?

The pipeline is very large, but it is moving very, very slowly. We continue to have conversations around getting added to benefit plans from commercial insurers, and then based on that entering into fee schedule conversations, but I can’t say that anything is imminent at this time.

Okay. And last one for me is just on the trend throughout the quarter for sales. I had heard from some other companies out there that they saw a weak July and August that picked up in September. I know you said VA actually didn’t follow that pattern. But I was wondering, in a broader sense, maybe in some of the other segments, what you saw as a trend throughout the quarter month-to-month?

Yes. I think we saw that same kind of, I’m going to call it, back to normal seasonality, where July and August are slower because people are taking vacations. People in the clinical staff are catching up on vacations. September was stronger, and October has been especially strong. We’re really very excited about the momentum we have for October and the first couple of days in November. One of the seasonality things that we saw in 2021 was in the federal government system, pulling forward some orders from October into September. And I think I mentioned it in my remarks, but we saw the opposite in the VA hospital system of – we did not get that bump of orders at the end of September, but it looks like we got that bump of orders at the first couple of weeks of October. So I have no idea – in coming months, maybe we will get some color on whether the budget year has something to do with that or not.

Okay. Yes, I know that a lot of the government entities try to spend their budget at the end of the year, right? So they get it reinstated at the same level. And on October, is there anything in particular you can point to why you think the strength is there? I mean the stock market has been all over the place, right and not that that’s necessarily a barometer that would drive sales of gammaCore. But anything you can point to out there that might explain a strong October?

Yes. Look, I think we are getting better and better at running our sales and marketing functions. I think the VA hospitals are slowly but surely going through a sort of return to normal, and we’ve got gradually improving access in the VA hospitals. And for our cash pay commercial activities, success breeds success, right? We have one or two prescribers in a particular city or town that are starting to have success and then their colleagues and their competitors notice. So right now, it seems to be a very virtuous cycle and we’re enjoying it.

Great. Thank you, Dan.

Appreciate the time, John.

Thank you. [Operator Instructions] We have our next question from the line of Anthony Vendetti with Maxim Group. Please go ahead.

This is Thomas McGovern speaking for Anthony. So I just have a couple of questions regarding the Teijin Limited licensing agreement. So I don’t know if it’s too early for you guys to speak on this, but have there been any developments? And do you have any more insight on when you expect the Ministry of Health to give you guys some regulatory approval in Japan?

So we’ve had frequent ongoing conversations and data transfers to our colleagues at Teijin in Japan. But we do not yet have that first determination. So the first step in the process for Japanese Ministry of Health is to determine if the pivotal data that was collected in the U.S. and Europe will be adequate to support a regulatory filing or – and unfortunately, it’s more likely that the Japanese Ministry of Health is going to say that they like all of the pivotal data, but they want to see some number of patients trialed in Japan. So that’s going to be an important factor in figuring out the time line, whether we have adequate data or whether a small follow-up pivotal trial has to be executed.

Got it. That makes a lot of sense.

So all I got for you is a definite maybe.

Alright. I appreciate it. So in your preliminary, and I know it’s not a huge chunk, but you said that of your revenue from outside of the U.S., about $45,000 of that came from licensing fees associated with that agreement. Is that something that we should expect as a revenue stream quarter-over-quarter? And if so, is it going to be kind of staying at that $45,000 level or will it fluctuate quarterly?

So we got an initial payment in March, which is being amortized over four quarters. So you’ll see that number for the next two quarters, right, Brian?

Yes, that’s correct. That’s correct, yes.

And then there is an annual license fee to maintain exclusivity that’s smaller, but then the license fees start to kick up again based on clinical and regulatory milestones. So we know what the number will be for the next two quarters. And beyond that, it’s going to fluctuate.

Okay, great. I appreciate that insight. And so just my last question is about your consumer awareness campaigns and I know you’ve touched on this a few times throughout the call. But I remember last time on the call, you mentioned that you were kind of being cautious and you’re confident in the approaches to gaining additional clients, but you were also kind of cautious and wanted to see the response we were getting from the social media influencer approach as well as the paid search. And it sounds like both of them are going fairly well, as you said earlier, but could you just provide a little bit more insight on that and how we can expect kind of spending in that area to progress throughout the rest of the year? And then as you guys kind of relaunch with your revised platform for payment in the beginning of 2023?

Yes. So just elaborating on Destiny’s question, we’re very pleased with our ability to drive consumers to the top of the funnel, and that’s one measure of the success of the paid search and influencers in social media. And we’ve got pretty good tracings on which channel drove how many unique visitors. We had a full spend in October, but now that we’ve made the decision to relaunch the platform, we’re turning down the spending in November and December. And then assuming things go smoothly with the relaunch, we will start to ramp up that spending again in the beginning of next year. So a lot depends on how smoothly the relaunch goes, and do we solve for some of those friction points, the clunkiness that I mentioned earlier.

Okay, great. Thank you very much. Those are all my questions. Thank you for taking the time to answer them.

Absolutely, thanks for your time and attention.

Thank you. We have next question from the line of John Vandermosten with Zacks.

Hi, I thought I’d ask a follow-up on gross margins since it was so impressive. And I guess I’ll kind of frame it like this. If the growth areas that you anticipate growing at a greater degree continue the trajectory, do you anticipate gross margins staying in that range where it is now? Because as I understand it, the higher margin comes from just a change in the way you’re selling the service.

Hi. John, it’s Brian. Yes, we’ve been over 80% for four quarters in a row. Part of it is the way we’re selling and part of it is the product mix and part of it is just greater revenue. So as long as the top line stays strong, we think we should be able to stay over that 80% gross margin, again, as we’ve done over the past several quarters.

Okay. Great, thank you.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session, and I’d like to turn the call back over to Dan Goldberger, CEO, for closing remarks. Over to you, sir.

Thank you, operator, and thank you all for joining today’s call. I want to give a special thanks to all of our employees, to the healthcare professionals and their patients, who’ve been loyally supporting gammaCore therapy, and we look forward to telling you about our December quarter next year. Stay well, everybody.

Thank you. Ladies and gentlemen, this concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.