NeurAxis, Inc. (NRXS) Q1 2025 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the NeurAxis First Quarter 2025 Results and Update Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Ben Shamsian, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining us for NeurAxis' First Quarter 2025 Financial Results and Corporate Update Conference Call. Joining us on today's call is Brian Carrico, CEO of NeurAxis; and Tim Henrichs, CFO of NeurAxis. At the conclusion of today's prepared remarks, we'll open the call for questions. If you are listening via the webcast, you can send in questions through the portal or you can simply e-mail me at NeurAxis, NRXS@lythampartners.com. [Operator Instructions]. Today's event is being recorded and will be available for replay through the webcast information provided in the press release. Finally, I'd like to call your attention to the customary safe harbor disclosures regarding forward-looking information. The conference call today will contain certain forward-looking statements, including statements regarding the goals, strategies, beliefs, expectations and future potential operating results of NeurAxis. Although management believes these statements are reasonable and based on estimates, assumptions and projections as of today, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties and other factors, including, but not limited to, the factors set forth in the company's filings with the SEC. NeurAxis undertakes no obligation to update or revise any of these forward-looking statements. With that said, I would like to now turn the event over to Brian Carrico, Chief Executive Officer of NeurAxis. Brian, please proceed.

Thank you, Ben. Good morning, and thank you for attending the first quarter 2025 earnings call. During today's call, I will highlight the continued execution in our commercialization strategies for IB-Stim, our neuromodulation technology and RED, our product for patients with evacuation disorder. We will recap Q1 and discuss the milestones and growth plans for 2025 as we come off another strong quarter of execution and growth. We continue the commercialization of our market-leading PENFS technology and inch closer to the ability to scale nationally. Following my remarks, Tim Henrichs, our CFO, will review our financial results for the first quarter of 2025. Let's first review the recent achievements. As I just mentioned, we are coming off another quarter of growth year-over-year, marking the third consecutive quarter of double-digit growth. As I mentioned on our last call, we are laser-focused on the new Cat I CPT code, which will become effective January 1, 2026, and claiming the remaining policy coverage needed to give access to the children who need IB-Stim. I will speak about these announcements in more detail later in the call. We are continuing to execute at a high level on our growth objectives, rooted in the foundation that strong published data will drive insurance expansion, leading to sustainable revenues and margins. We laid out these objectives in previous calls and continue to put the final pieces in place to allow blanket insurance coverage and in turn, the scaling of PENFS revenues. In recent months, we've made significant achievements as we advance and hit milestones, aiming for cash flow breakeven and profitability. Regarding IB-Stim, we are primarily focused on revenue trajectory, and we had significant growth of 40% in Q3 of 2024, 43% growth in Q4 of 2024 and 39% in Q1 of 2025. We continue to see only the very beginnings of new insurance policy coverage taking effect. As such, I'm excited to share with you that the momentum has continued into Q2. I now want to focus on and highlight the catalyst for what we expect to be continued revenue growth in the coming quarters. In the perfect world that we have been working toward and are nearing, children's hospitals could access blanket insurance policy coverage and utilize a Category I CPT code. For mass scaling and exponential growth, there are two critical components. First, the patient needs to be covered by insurance. And second, the physician needs to be compensated for their time in the form of RVUs or Relative Value Units, which happens with the Category I CPT code. We continue to move closer to this full picture being in place. As mentioned earlier, the Category I CPT code has been awarded by the American Medical Association CPT panel and will become effective this coming January 1. Regarding the insurance policy coverage, we went from 4 million covered lives just over a year ago to about 51 million covered lives today. So what does it take to earn the remaining payers? As we all know, the scientific community has accepted our flagship technology, but stronger revenues have been hindered by a lack of written insurance policy coverage. The most important recognition any medical technology can receive is independent guidelines by the academic society because this is an independent review of the literature and a grade is assigned, which the payers generally accept as a standard. We announced previously that a systematic review by the Academic Society NASPGHAN was released, showing our technology has the highest grade certainty level and largest magnitude effect. NASPGHAN is the North American Society for Pediatric Gastroenterology, Hepatology, and Nutrition, and they are the Academic Society for Pediatric Gastroenterology, where our technology resides. This systematic review is in abstract form now, but we believe this information is the work being used to publish guidelines in the coming weeks. We are told by the largest payers that this publication needed for policy coverage, so we are eagerly waiting for this publication to get to the payers. Sticking with insurance policy coverage; I want to go into detail about the most important aspect of our growth. As we have stated consistently, policy coverage is the key to exponential revenue growth. Again, we have had this indication long enough that the academic society and the physicians within the society who treat these patients at the 260 children's hospitals in the United States have been aware and are supportive of the insurance policy coverage and Cat I CPT code are imperative for seamless treatment. We also stated that once the insurance policy coverage is written and in place, the children's hospitals that were not already utilizing IB-Stim take about 120 days to get the technology loaded, their processes in place and begin ordering. With all of that said, our total covered lives today stand at about 51 million. Additionally, and as expected, we have countless payers currently in the review process. Regarding children's hospitals, many have been ordering for years, but for a variety of reasons, we have not received early insurance policy coverage in those geographic regions. Once insurance policy coverage is written in these areas, the children's hospitals are expected to increase revenue very quickly because the product is already in their system, therefore, not needing the 120 days to get set up. The second part of the seamless treatment for patients, along with policy coverage is the Category I CPT code. As everyone now knows, we have achieved the company's most important milestone to-date in the form of a Category I CPT code, which will allow for more seamless billing and reimbursement. This is a permanent billing code that will become effective on January 1. The reason this code is so critical is that it brings a permanent code, making it much easier for revenue cycle teams to build the procedure. It will bring a permanent reimbursement amount, and it will provide RVUs, which is how most physicians' productivity is measured. One could argue that physicians in the children's hospital are currently treating patients for free because there is no RVU, which will no longer be the case come January 1. I want to move to the FDA milestones. Moving to FDA expansions; we have expanded our IB-Stim label to include a patient population beyond the current 11 to 18 years of age to 8 to 21 years of age, significantly increasing the number of children we can treat. Regarding RED or the rectal expulsion device, our point-of-care device that identifies patients with pelvic floor dysfunction and provides immediate actionable test results in patients with chronic constipation; we received FDA clearance on that technology on December 6 and are in the middle of a soft launch phase. As we look into 2025, we have submitted to the FDA for an expanded FDA indication for functional dyspepsia in children 8 to 21 years of age. This is critical because it would nearly double our market opportunity. Additionally, this indication will rely on the same Category I CPT code, the same insurance policy coverage, the same children's hospital call point, the same pediatric gastroenterologist physician and will utilize the same W-2 sales force. Now I would like to focus on how our efforts translate to revenue growth and why we continue to be bullish on significant revenue growth as we move closer to national insurance coverage and the effective date for the Category I CPT code. We are beginning to see many of the achievements reflected in the numbers. In the first quarter alone, 300 patients were treated through full purchase order or Patient Assistance Programs, an annualized rate of 1,200 patients. While this marks important growth, it still represents just 0.2% of the 600,000 severely affected children in the United States suffering from IBS who are in urgent need of IB-Stim. Additionally, we had 130 patients via the Patient Assistance Program who did not utilize the program, which would have taken our treated patients to 413 for the quarter. I want to highlight the sustained and increasing demand for IB-Stim. While our revenue growth has accelerated in recent quarters, the facts remain that we are still treating a miniscule portion of the addressable market because national policy covers in the Cat I have yet to be put in place. The positive change we do see here is largely due to accounts getting more comfortable with billing and coding, physicians seeing the academic society guidelines abstract stating PENFS has the highest rate of evidence and only the very slightest insurance policy coverage taking effect. On average, selling prices for patients receiving IB-Stim through financial assistance or our Patient Assistance Program are about 65% below our list price. The insurance barrier is causing us to leave significant dollars on the table. As insurance coverage increases across the country, the percentage of sales through full price purchase orders will also increase. This is why our #1 priority continues to be written insurance policy coverage as we now know the Cat I code will be effective on January 1. The plan of action is clear. We believe that strong peer-reviewed publications and key society support from the likes of NASPGHAN and the American Academy of Pediatrics results in successful coverage from insurance companies, which results in strong revenues. Our internal prior authorization team continues to grow and be successful as it reduces the workload for clinical staff, which allows greater access for pediatric patients and ultimately assisting in acquiring a permanent billing code. We believe that in time, most accounts will move their prior authorizations to the NeurAxis team as we see more and more added each quarter. We expect revenue growth to accelerate meaningfully as we move toward our goal of cash flow breakeven based on two catalysts, the continued gain of policy coverage from the carriers for IB-Stim along with the Category I CPT code. As mentioned earlier in the call, we received FDA clearance for RED for adult patients on December 6, 2024. I want to talk a little bit more about RED, the rectal expulsion device product, which we believe to be a great opportunity for NeurAxis. We now have FDA clearance, which allows us to soft launch the technology. RED is a self-inflating balloon that is an easy-to-use office-based point-of-care anal-rectal function test to identify patients with chronic constipation due to pelvic floor dyssynergia and who are unlikely to improve with increased lack of use. The current treatment involves much trial and error by the physician as to which treatment will work and RED will allow the physician to streamline the diagnosis and choose the best treatment option after the first visit, which is a win for the patient. Because the technology already has a Category I CPT billing code assigned to the procedure and strong national reimbursement, we believe the providers will be able to bring this clinically beneficial technology to their practice immediately. As we continue the soft launch, we will learn much more about revenue expectations in the coming months. In summary, we're pleased with the continued and consistent execution of building the foundation of strong data and academic society support. Nothing happened as fast as we want, but we are inching much closer to the final insurance policy coverages and effectiveness of the Cat I code, which we believe will set the stage for seamless patient treatment and result in significant growth and profitability. I will now turn the call over to Tim, our CFO, to discuss the financials. Tim?

Thank you, Brian, and let me add my welcome to everyone joining us on this call. These financial results were included within our press release, which was issued earlier and were also provided in more detail within our 10-Q. I will add some color on key areas of the financial results as well as an outlook on certain areas. The hard work that our team has put in the last few years is beginning to bear fruit. We are continuing our strong momentum, which began in the third quarter of 2024. This momentum has continued here into the second quarter of 2025. The good news is we are only in the early innings of our ramp as we expect the number of covered lives to continue to grow and our Cat I CPT code goes effective on January 1, 2026. In addition, we are optimistic with regards to the commercialization of RED with our soft launch in Q1 '25, as Brian mentioned moments ago. Given our current cost structure, our goal as a company to reach cash flow breakeven is achievable with the issuance of the guidelines expected in the near future, the Cat I CPT billing code going effective on January 1, and the significant increase in covered lives from a year ago, we expect our sales volume to continue to grow as we have demonstrated in the last three quarters. The continuation of our track record of that sales growth, strong gross margins and operating expense cost management will allow us to achieve that cash flow breakeven. With that, I will go through some financial highlights in greater detail. Revenue in the first quarter of 2025 was $896,000, up 39% compared to $647,000 in the first quarter of 2024. Unit sales increased approximately 46% due to growth from patients with full insurance reimbursement coverage and the company's financial assistance program that provides discounts to patients without insurance coverage. The company has made great strides in recent months in gaining insurance coverage and recent results are indicative of that success. As Brian mentioned, the strong momentum has continued in the second quarter of 2025, which we expect to be our fourth consecutive quarter of revenue growth year-over-year. As mentioned before, we remain highly focused on expanding our insurance coverage despite the inherent lag from insurance coverage device orders, which we have spoken about before; recent performance indicates strong demand and acceptance on the part of healthcare providers and patients for our product. Gross margin in the first quarter of 2025 was 84.4% compared to 88.4% in the fourth quarter of '24. Although we saw an increase in sales volume, the 400 basis point decrease year-over-year was due to a higher growth rate of the company's discounted financial assistance patients over the full reimbursement patients and higher device manufacturing and shipping costs. We expect our gross margin to recover into next year because when the Category I CPT code becomes effective on January 1, the devices currently sold at a discount will eventually transition to full reimbursement revenue upon insurance coverage, which will boost both our future revenues and gross margin. Total operating expenses in the first quarter of 2025 were $3.1 million, an increase of 27% compared to the first quarter of 2024, primarily due to the settlement of a lawsuit. Excluding the onetime legal settlement charge, the company's operating expenses would have remained relatively flat compared to the first quarter of 2024. Selling expenses in the first quarter of 2025 were $134,000, a 68% increase to $80,000 in the first quarter of 2024 due to higher sales volume and temporary commission structure to facilitate growth and adoption in the States. Research and development expenses in the first quarter of 2025 were $61,000 compared to only $6,000 in the first quarter of 2024. The increase is due to higher spending on a medical research study and costs to develop the RED device that we eventually soft launched in the first quarter. General and administrative expenses of $2.9 million in the first quarter of 2025 were 23% higher than the $2.3 million in the first quarter of 2024. The increase was due to: one, the settlement of a lawsuit; two, expenses related to the introduction of an annual short-term and long-term incentive plan that did not exist in the first quarter of '24; three, higher advertising costs to expand market awareness; and four, third-party costs incurred to enhance the company's internal control environment, partly offset by a onetime hiring grant in 2024 and lower third-party professional service costs as our new hires have absorbed work internally. Excluding the onetime legal settlement charge, general and administrative expenses would have decreased 4% year-over-year. We anticipate that in the near-term, we will be able to leverage our operating expenses levels to deliver strong top line growth. Operating loss in the first quarter of '25 was $2.3 million, an increase of 25% compared to a $1.8 million loss in the first quarter of 2024. Excluding the onetime legal settlement charge, the company's operating loss would have improved 9% compared to Q1 of '24. Our net loss in the first quarter was $2.3 million, an increase of 8% compared to $2.1 million in the first quarter of '24. Excluding the onetime legal settlement charge, the company's net loss would have improved 22% over Q1 of '24. From a liquidity standpoint, our cash on hand as of March 31 of '25 was $2 million. Cash used in operations in Q1 of '25 was $271,000 higher than in Q1 of '24, primarily due to a decrease in the company's payables, and we also have no long-term debt. And with that, let me turn the call back over to Brian.

Thanks, Tim. To summarize, while we have recently achieved several critical milestones, we are still in the early innings of what we expect to be substantial top and bottom line growth over the coming quarters. Our disciplined execution of the commercialization strategy is starting to deliver tangible results quarter-after-quarter as evidenced by the accelerating growth in these past three quarters. We are also strengthening the foundation for future expansion highlighted by the receipt of our Category I CPT code and the broadened 510(k) clearance. With that, operator, we'd be happy to take any questions.

[Operator Instructions]

Okay. We have some questions that were sent to us by investors. First, let's speak about the guidelines. When do you expect them? And can you talk about the timeline of receiving the guidelines until we see strong orders stemming from those?

Yeah, Ben. As we've discussed, the two things we do not control the timing of the guidelines and the writing of the policy covered by payers. It was announced at a conference last weekend in San Diego that Dr. Miranda and I attended that the guidelines are expected to be published by the end of this month. So that would tell you in the next three weeks. From there, orders will increase based on the policy coverage expected from those guidelines, which we're cautiously optimistic won't take too long. The reason these guidelines are so impactful is because they are independent. They are by the academic society and their access have zero control over what they say and when they're published. And of course, they've taken much longer than anyone expected. But it was announced last week at a podium presentation that they will be published in the month of May. And from there, the guidelines will be sent to the payers that we've been in communication with. Many of the payers previously, the large wood crosses have taken somewhere in the neighborhood of 90 to 120 days to write policy coverage. There's no guarantee that the bigger payers will do it that quickly. But we're cautiously optimistic that they'll do it relatively the same timeframe.

Okay. Tim, we have a question for you. Can you talk about how you see your operating expenses in the near- and medium-term going forward?

Sure. There's actually two answers to that question. Now just to review our current state, excluding the legal settlements in the first quarter here of '25, our operating expense dollars were relatively flat from the first quarter a year ago, while our revenue was up 39%. So we have spent wisely as we have high-caliber team members that have grown the top line and increased our research and development and marketing expenses, while we self-funded those expenditures by obtaining cost reductions in other areas such as insurance and professional services without sacrificing quality. Solid performance and execution from the team. Then from a percentage standpoint, our operating expenses as a percent of sales, excluding the legal settlement, is down for the third consecutive quarter, demonstrating that we are leveraging our fixed costs and not adding expenses anywhere near the rate of sales growth. So in the near- and medium-term, I expect two things. First, that our operating expense dollars will likely increase as I believe we'll need to invest in our sales and marketing teams going forward to meet the upcoming demand we expect from the guidelines, the Cat I CPT code and then increased insurance coverage. Second, I expect our operating expenses as a percent of sales to continue to decrease as we've seen in the last three quarters as our top line and gross profit will outpace any increases in operating expenses.

Okay. We have a question regarding RED. Can you provide some more color on what you've learned so far and how you're thinking about it going forward?

Yeah. So we continue in the soft launch stage and the response continues to be stronger than what we expected. The uptick in revenue in accounts beginning the utilization has been slower. These adult GI practices are large. They have Committees, Boards, CEOs, and that takes time. Many of those committees were canceled in March and early April because of spring breaks and moved back a month. This is no different than a value analysis team or committee in a hospital. So the response, again, we went to Digestive Disease Week last week, which is the largest global GI conference in the world. And again, the response was excellent. There is a significant need for this technology and the fact that it already has a Category I CPT code and strong national reimbursement eliminates that hurdle. So this is about ultimately commercial execution. We're slightly changing physician practice habits and practice flow, but not -- this is not a long procedure, so that doesn't appear to be a real hurdle. So we're excited about this. The response is really strong.

Okay. Tim, we have a question for you regarding the legal settlement. Can you provide some color in terms of the scope and sort of what -- if we're done with the expenses that was?

Sure. This legal settlement goes back to 2019 -- and we've actually provided disclosures in our 10-Q. And so I recommend that investors read that as well. Having said that, to answer the question, what we agreed to do is to settle the case for $750,000, which will be paid in equal monthly installments beginning in January of '26 and continuing through the end of December '26. Ultimately, we look at this as a positive for the company. This lawsuit has been out there for a while. It gets us behind us. It prevents any further risk of legal fees, potential litigation and the continuance of it. It's just best to put this behind us since it's been out there for so long. We believe we've negotiated a reasonable settlement in our case with payment terms and the company and the management team is looking forward to moving on and getting this behind us.

Ben, I'll add to that. This happened in 2015 and '16. So the risk of anything like this happening again, the statute of limitations have passed. The lawsuits filed in 2019, as Tim mentioned, but this ultimately boils down to how much would it cost us to go to trial, and this was at or below, and then we have no risk and no time spent. We believe that our position, we felt like we would win, but it wasn't worth the time, energy and money over the next 18 to 24 months versus putting this behind us and the answer that the Board and the executive team decided was to end it and not to affect our cash flow in 2025.

Okay. Operator, can you queue for questions.

[Operator Instructions] I'm not showing any phone questions at this time.

Okay. Well, thank you all very much for being with us today. We look forward to communicating with you again soon. We do expect some announcements in the coming 3 and 4 weeks, and we'll communicate those through press releases. Everyone, have a nice week. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.