NeurAxis, Inc. (NRXS) Q2 2026 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to the NeurAxis' Reports Second Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] Please -- also note today's event is being recorded. I would now like to hand the floor over to Ben Shamsian, Investor Relations. Sir, please go ahead.

Thank you, and good morning, everyone. Thank you for joining us for NeurAxis' Second Quarter 2026 Financial Results and Corporate Update Conference Call. Joining us on the call today is Brian Carrico, CEO of NeurAxis; and Tim Henrichs, CFO of NeurAxis. At the conclusion of today's prepared remarks, we will open the call to questions. Please follow the operator's instructions to ask a question. 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 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 risk 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 over the event to Brian Carrico, Chief Executive Officer of NeurAxis. Brian, please proceed.

Thank you, Ben, and good morning to everyone joining us. Q2 was an important quarter for NeurAxis, and I look forward to delivering several key progress updates today. It was our second full quarter of operating with the Category 1 CPT code for PENFS, which confirmed what we learned in the first quarter regarding what drives adoption and where we need to focus our commercial resources. This allowed us to stick to the plan and taking what we learned in Q1 to make disciplined strategic decisions in Q2 that will certainly play out in Q3 and Q4. Our strategy is centered on two priorities: number one, securing the remaining insurance coverage, which I have meaningful updates to report today; and number two, maximizing execution in covered markets while positioning the organization to scale rapidly as new coverage comes online. I will structure my remarks today around 6 areas: revenue and second quarter highlights; insurance coverage status and payer progress, key performance indicators or KPIs, commercialization, including our current structure, new hires and upcoming changes, the opportunity within VA Medical Centers and a summary of our focus to next steps. Following my remarks, Tim Henrichs, our CFO, will review our financial results for the second quarter of 2026. For the second quarter of 2026, revenue was $1.928 million compared with $894,000 in Q2 2025, representing 116% year-over-year revenue growth. The quarter was successful on many fronts, especially looking at the strategic changes we made commercially and the progress we made with payers. Q2 continued to confirm proof of concept with physician and patient demand continuing to build, but utilization is strong where health care providers with the right combination of payer coverage, physician engagement and operational capacity are in place. Therefore, we have accelerated commercial hiring in markets where PENFS has strong insurance coverage and the greatest near-term growth potential, which I will discuss later in the call. In Q2, we continue to see a strong improvement in average selling price, driven by the continued mix shift toward covered and reimbursed procedures and away from discounted financial assistance channels. That mix shift is important because it supports stronger revenue quality, margin potential and long-term scalability. Tim will discuss this in more detail. Some second quarter highlights include: -- based on the Q1 experience, which was confirmed again in Q2, we increased head count with our commercial sales, marketing and medical affairs support teams. Number two, we continue to operate with more than 100 million covered lives, but most importantly, I'm happy to report we had significant gains with two large key commercial payers, again, taking what we learned in Q1 and aggressively adding to our strategy to optimize coverage policy. Number three, we took steps to address the remaining gaps we need to close, including payer coverage, clinical reinforcement, market level execution, C-suite and administrator financial education and consistent face-to-face communication with each institution. Number four, we gained more consistent market feedback around hospital economics. The patients in some of our best accounts are waiting for multiple months for care due to capacity issues, which should not be the case. We expect this strategy and message to be meaningful, especially as we gain more policy coverage and move into 2027. In short, the quarter moved us from theory to evidence where proof of concept continue to succeed. The barriers that historically limited IB-Stim adoption continue to be better defined, and that gives us a crystal clear road map, which we are assertively addressing with disciplined actions beginning in Q2 and into Q3. All right. Now let's talk about insurance status. Insurance policy coverage remains the single most important driver of scalable growth. Q1 confirmed that a single substantial medical policy, while extremely valuable, is not sufficient by itself, and Q2 was no different. We are still treating only a fraction of the patients who could benefit from PENFS. Even within markets where coverage is already in place, we have barely begun to penetrate the available patient population. Providers continue to need confidence that coverage exists across a meaningful portion of their payer mix before they fully activate programs and allocate consistent clinic time. Based on these learnings, we elevated our market access strategy and pulled several additional levers, resulting in significant progress with two large payers. We are cautiously optimistic that these efforts will result in additional coverage in the second half of 2026 or early 2027. Furthermore, we are applying these same advanced strategies to all payers. Our payer outreach now includes multiple parallel channels, direct engagement with commercial payers and their medical policy teams, inclusion and the addition of the Category 1 CPT code to state Medicaid fee schedules where new codes for 2026 are not yet fully loaded. Physician and KOL advocacy to reinforce the clinical need and the published evidence, advocacy engagement with both the pediatric and multiple adult academic medical societies, navigation and messaging guidance from former payer executives and medical directors to refine our approach with the appropriate decision-makers and continued expansion of our internal prior authorization team to enhance administrative efficiency for providers and improve reimbursement confidence. As we look at the specific success with the two payers mentioned, I want to highlight the implementation of additional strategies resulting in the progress we saw is consistent with the previous success where I have repeatedly said, getting in front of the right people is the key. It's far from easy, but it's the key. As usual, I will not disclose specific payer names or details of the discussions, but we recently gained improved access to medical directors and other decision-makers at 2 of the largest remaining payers without existing medical policy coverage. Those conversations reinforce our belief that the challenge has often been access to the right decision-makers rather than fundamental opposition to the therapy. Our message to payers remains consistent. IB-Stim addresses a large unmet need in pediatric functional abdominal pain and related disorders, offers a favorable safety profile, provides an evidence-based alternative to off-label medication use, including drugs with FDA black box warnings and is becoming the standard of care in children's hospitals nationally. The clinical evidence, published treatment guidelines, broad academic society and KOL support, Category 1 CPT code and existing payer precedent together create a strong foundation for additional policy coverage. In parallel to pursuing those remaining payers, our goal is to execute aggressively in markets where policy coverage exists and prepare the commercial infrastructure to scale as additional coverage comes online. As we manage Medicaid beneficiary access to PENFS, many states, as I mentioned, have yet to include CPT code 64567 on their 2026 fee schedule updates. This hinders medically necessary coverage through EPSDT special provision due to lack of payment methodology. It also delays program launches and impacts account activation due to health equity considerations, not to mention the inability to have a full-scale IB-Stim program with this payer void in those specific states. Importantly, these are implementation issues rather than clinical adoption issues. In markets where medical policy coverage and fee schedule inclusion are in place, the CPT code is having the intended effect. Following our successful CPT code milestone and expanded age indication for PENFS, the insurance policy operation has become incredibly intense with multiple layers of ongoing strategy with several payers simultaneously. Therefore, we're adding a VP of Healthcare Economics and Policy to dedicate sole focus on those key upstream initiatives. This role will be responsible for economic evidence generation for the payers, health technology strategy and payer advocacy. Our Vice President of Market Access and Reimbursement will shift their focus to key downstream initiatives, execution on facility and practice solutions, implementation of access pathways, reimbursement pull-through and program and procedure economics, which have all become a much bigger responsibility. KPIs. As we did in Q1, we will now provide meaningful KPIs each quarter going forward under the new CPT code environment. This section includes the metrics that best explain both current performance and future growth potential. The purpose of this KPI framework is not only to report historical performance, but to help investors understand the mechanics of adoption, where coverage exists, whether providers have operational capacity, how patient identification converts to treatment and how reimbursed utilization affects revenue quality and margin potential. These are year-to-date numbers through Q2 2026. Revenue of $3.6 million in 2026 versus $1.8 million in 2025, up 98%. IB-Stim average selling price, $1,003 in 2026 versus $772 in 2025, up 30% -- year-to-date internal prior authorization approval percentage, 31% in 2026 versus 12% in 2025. Year-to-date number of ordering accounts, 88 accounts have ordered year-to-date versus 76 at the same point last year, up 16%. Year-to-date revenue per ordering IB-Stim account in 2026 through June 30, each account that's ordered averaged $40,000 versus $24,000 in 2025, up 68%. Now I'll move to commercialization. Commercial execution is now the primary driver of growth. I will reiterate that our sole commercial focus is to execute aggressively in markets where policy coverage exists while preparing the commercial infrastructure to scale as additional coverage comes online. We have moved into an execution phase, aligning our commercial organization around the markets and accounts with the strongest coverage, demand and utilization potential. We are prioritizing hospitals based on reimbursement, patient opportunity and their ability to dedicate clinic capacity to IB-Stim. The most successful accounts share 3 common characteristics, which we've discussed before: strong medical policy coverage across a meaningful portion of the payer mix. That's number one. Number two, at least one physician champion who understands the clinical data; and number three, dedicated clinic time or a consistent workflow to identify, authorize and treat eligible patients. Where one of those elements is missing, utilization is not optimized. Our commercial model is therefore being built to identify the missing element at each account and address it directly, whether that means payer support, clinical reinforcement, operational workflow or economic education for administrators. We are also being disciplined about how we deploy resources. We are not expanding broadly into markets that lack sufficient payer coverage. Instead, we are focusing on in depth on select markets where coverage and demand are already favorable with the expectation that this approach will generate higher returns and more predictable growth. Regarding new hires and upcoming commercial changes. As stated earlier, we took what we learned in Q1 and made several changes in Q2 to align the organization for scale. We have been and will continue to be diligent with capital, but we have reached the point where we will be very aggressive commercially going forward, beginning in the states where we have optimal policy coverage. First, we are strengthening commercial leadership and coordination. The sales organization was aligned under a full-time Vice President of Sales role effective May 1, while marketing was elevated under a Vice President of Marketing role at the same time. This created tighter coordination across field execution, messaging, account support, digital awareness and market development as we expanded the teams. In Q2, we also added a digital marketing expert to bring real SEO focus to the patients and physicians in states where we have the best coverage. We added a medical science liaison to deliver science-based talks at grand rounds, division talks and educational dinners. We also added a psychologist with her doctorate as a strategic clinical adoption director to drive utilizations and programs by expanding the referral sources and educating on the importance of treating earlier in the patient's life cycle. Although only six weeks in, we are seeing direct results of all three new hires. Our payer access work will continue to receive dedicated leadership focus, including commercial payers, Medicaid and managed Medicaid opportunities by adding a full-time dedicated health economic and policy expert, which I mentioned earlier, who has been successful in his or her past bringing a procedure to market and gaining medical policy coverage through strategic and aggressive means. Second, we launched a more targeted regional sales rep coverage model in key states with policy coverage, which is also showing direct impact due to being in person much more often. Frequency of visits matter. To drive clinical buy-in and utilization, our team needs to be in front of clinicians and hospital support teams more consistently. Third, we are increasing the rigor of our sales training. This includes internal and external training focused on product knowledge, clinical data, payer dynamics, provider economics and execution discipline. As additional policy coverage comes online, we need the team to be prepared to convert coverage into predictable utilization. Fourth, we are launching a focused initiative around an integrated health programs within pediatric GI. Many of our most important referral sources already operate within this model, which emphasizes multidisciplinary care and reduced reliance on medication. We view these programs as an important entry point for broader and earlier IB-Stim adoption. To support this effort, we added a doctor of Psychology as a Director of Clinical Adoption and Patient Access, as I mentioned. This role will be relationship-driven and patient-focused, helping institutions expand access, integrate IB-Stim earlier in the treatment pathway and operationalize program growth. Fifth, we are actively pursuing additional talent in areas that can accelerate adoption in addition to the VP of Market Access and policy, including a VP of Provider -- a Director or VP of Provider Economics to communicate the economic and operational value of IB-Stim to administrators and hospital stakeholders to gain exponentially more IB-Stim clinic time. We are also adding sales professionals in markets with adequate payer coverage and clear utilization potential. And finally, we're launching what we refer to internally as a strategic market initiative for select reasons. The concept is to coordinate payer access, field execution, clinical education, market development, prior authorization support, marketing, digital marketing awareness, KOL division talks, grand rounds, dinner presentations, MSL support and patient-facing messaging in the same targeted markets. The objective is to create local intensity in those states where we have payer coverage. The overall principle is simple. Coverage unlocks the opportunity, but execution determines the level of growth. To recap, our sole commercial focus is to execute aggressively in markets where policy coverage exists and prepare the commercial infrastructure to scale as additional coverage comes online. VA opportunity. I now want to spend a few minutes on the Veterans Administration opportunity. As previously announced, we were awarded a federal supply schedule contract, enabling commercial access to the U.S. Department of Veterans Affairs. The VA health care system serves nearly 7 million active patients annually and functional dyspepsia is estimated to affect approximately 3% of that population. Given typical VA adoption time lines, we did not expect meaningful Q1 or Q2 orders. However, we only launched in 3 small territories with W-2 reps who are simultaneously calling on children's hospitals in that region, limiting their time, and we are already seeing multiple VA facilities placing orders, reorders and many more moving through the activation process. This early activity reinforces our belief that the VA will become a meaningful channel over time. The pediatric commercial market remains our primary focus, but the VA represents a second meaningful growth platform with several attractive characteristics. A large patient population with significant unmet need, centralized federal purchasing infrastructure, a pathway that is not dependent on commercial payer coverage in the same way as the broader non-VA adult market, strong alignment with nondrug approaches for chronical functional GI conditions and the potential to leverage experienced 1099 VA-focused personnel and clinical education resources. To that point, we made the decision in Q2 to begin with 10 1099 territory reps calling on one to three VA hospitals each. The team spent June and into July interviewing, offered 10 positions in 10 territories the last week of July and the expectation is they are trained and in the field selling by September 15, so that by the end of this calendar year, we have a strong read on the VA revenue opportunity, which will allow us to expand significantly in early 2027 in the remaining VA hospitals with 1099 reps. This effort is being led and run by our VP of Market Development, who spent most of his career at Zimmer, and he will report up to our VP of Sales. More broadly, for the adult IB-Stim opportunity outside the VA, we continue to believe that broad medical policy coverage will require a large randomized controlled trial. On that note, there is a large multisite randomized controlled trial evaluating IB-Stim in adult patients with functional dyspepsia in the early stages. That study is designed to generate the evidence needed to support future adult medical policy coverage, while our near-term commercial focus remains strictly on children's hospitals and the VA. To summarize, Q2 was successful for several reasons. First, revenue was up 116% year-over-year. We added several key commercial team members to focus and drive utilization in the states where we have the best coverage. We made -- we made meaningful progress with two large payers, and we gained enough knowledge to make an easy decision to aggressively target the VA hospitals. The three priorities are crystal clear. Number one, insurance coverage. We made significant gains, as I mentioned, again, with two key commercial insurance payers. We are hiring an experienced VP of Market Access and Policy to aggressively implement the strategy and leverage to gain the remaining policy coverage. Number two, commercial execution. Our goal is to execute aggressively in markets where policy coverage exist and prepare the commercial infrastructure to scale as additional coverage comes online. We added several key commercial hires in Q2 and we will add several more commercial hires in Q3 to saturate the areas with policy coverage. And the #3 priority, we made the decision based on Q1 and early Q2 to aggressively expand into the VA with 1099 sales reps with the expectation that the first 10 are actively trained and selling by September 15. At this stage, success is straightforward in concept, though complex in execution, expand payer coverage and execute with intensity in the markets where strong coverage exists. We are moving decisively on both fronts. While monthly revenue may fluctuate and payer coverage exact timing remains difficult to predict, the underlying demand is more than clear. With that, I will now turn the call over to Tim Henrichs, our Chief Financial Officer, to discuss the financial results in more detail. Tim?

Thank you, Brian, and appreciate everyone joining us on the call today as well. These financial results were included within our press release, which was issued earlier this morning and were also provided in more detail within our 10-Q. My comments will cover our financial results and liquidity position in more detail, including a bit of an outlook given the continued momentum we saw in the second quarter of 2026. The second quarter marks the eighth straight quarter of double-digit revenue growth year-over-year. Category 1 CPT code, increased payer and reimbursement coverage and a federal supply schedule, just a few reasons as to why our growth continued into the second quarter and, in fact, accelerated since the first quarter. And that mix of execution has expanded both our gross margin and operating leverage as we believe we remain well positioned to deliver on our commitments, financial, clinical or otherwise to both our patients and investors. So let's dive into the financial highlights in more detail. Revenue in the second quarter of 2026 of $1.9 million was up 116% compared to $894,000 in the second quarter of 2025, while revenue for the 6 months ended June 30, 2026, of $3.5 million increased 98% compared to $1.8 million for the 6 months ended June 30, 2025. And another first for us as the second quarter of 2026 yet marks again the strongest quarterly revenue performance in our history. IB-Stim unit deliveries increased 60% and 48% for the 3 and 6 months ended June 30, 2026, respectively, compared to prior periods due to the continuance of what we saw in the first quarter of 2026, which is a function of increased full reimbursement health insurance payer coverage we were awarded in the fourth quarter of 2026 and the IB-Stim Category 1 CPT code with the January 1, 2026, effective date. In the second quarter, of 2025, we were selling more units through our discounted financial assistance program than through full reimbursement insurance coverage. That patient mix has since reversed itself in the first and second quarters of 2026, significantly in favor of higher-margin full reimbursement payers. And as a direct result of that payer mix shift, our IB-Stim average selling price increased 28% from $778 per device in the second quarter of 2025 to $992 per device in the second quarter of 2026 and increased 30% from $772 in the 6 months ended June 30, 2025, to $1,003 in the 6 months ended June 30, 2026. And given the broad acceptance and operating momentum since the IB-Stim Category 1 CPT code became effective on January 1, -- we expect the positive mix shift impact on revenue and gross margin that I will discuss next to continue. Gross margin in the second quarter of 2026 increased 230 basis points to 85.9% in the second quarter of 2026 compared to 83.6% in the second quarter of 2025 and increased 210 basis points to 86.1% during the 6 months ended June 30, 2026, from 84% during the 6 months ended June 30, 2025. Gross margin expansion is a direct result of the adoption of the Category 1 CPT code and increased payer coverage as our unit growth shifted from discounted financial assistance to full reimbursement payers. And although our current market access strategy is targeting all payers, our efforts to achieve more insurance coverage are particularly focused on the largest payers. We expect that our success in that venture will continue to push our gross margins higher in future quarters due to the adoption trend we've experienced in the first and second quarters of 2026. Total operating expenses in the second quarter of 2026 were $3.8 million, an increase of 53% compared to $2.5 million in the first quarter of 2025. Total operating expenses for the 6 months ended June 30, 2026, were $6.9 million, a 25% increase compared to $5.5 million for the 6 months ended June 30, 2025. We measure, manage and present our operating expenses on 3 functions: selling, research and development and general and administrative. Consistent with the second half of 2025, we reclassified $392,000 and $758,000 from general and administrative expenses into selling expenses for the 3 and 6 months ended June 30, 2025, respectively, and $57,000 and $114,000 from general and administrative expenses into research and development costs for the 3 and 6 months ended June 30, 2025, respectively, to conform to the current period and more transparent presentation as these costs are leading indicators of our future success. Selling expenses in the second quarter of 2026 were $862,000, a 61% increase compared to $534,000 in the second quarter of 2025. Selling expenses for the 6 months ended June 30, 2026, were $1.7 million, a 63% increase compared to $1 million for the 6 months ended June 30, 2025. The increases are due to commissions that are directly related to our higher sales volume and additional sales reps and marketing personnel, including recruiting costs and higher travel expenses to drive growth attributable to the IB-Stim category 1 CPT code and increased payer coverage as we go deeper into our existing accounts. Research and development expenses in the second quarter of 2026 were $274,000, an increase of 138% compared to $115,000 in the second quarter of 2025. Research and development expenses for the 6 months ended June 30, 2026, were $374,000, a 68% increase compared to $222,000 for the 6 months ended June 30, 2025. The increases are reflective of the additional clinical research studies in 2026 as we continue our expansion of IB-Stim's FDA indications, partially offset by proceeds received for devices used in these clinical research studies. General and administrative expenses of $2.6 million in the second quarter of 2026 increased 46% compared to $1.8 million in the second quarter of 2025. The increase was due to incremental clinical headcount and advisory costs to educate and promote broader market access to payers and hospitals, incremental stock compensation expense from the third year of a 3-year vesting plan higher benefit costs and higher estimated incentive plan costs due to current performance. General and administrative expenses of $4.9 million for the 6 months ended June 30, 2026, increased 14% compared to $4.3 million for the 6 months ended June 30, 2025, due to additional clinical headcount and the market access, stock compensation, benefit and incentive costs I just mentioned, partially offset by the absence of the onetime nonrecurring legal settlement charge in 2025. Overall, we continue to demonstrate our ability to deliver operating expense leverage and achieve cash flow breakeven in the future as our revenue growth for the 3 and 6 months ended June 30, 2026, was 116% and 98%, respectively, compared to the same periods in 2025, which continues to outpace our operating expense growth by 2 to 4x. Our operating loss in the second quarter of 2026 was $2.1 million, 24% higher compared to $1.7 million loss in the second quarter of 2025, and our net loss in the second quarter of 2026 of $2.1 million was 23% higher compared to $1.7 million in the second quarter of 2025. Our higher gross profit from increased quarterly sales year-over-year was offset by higher selling expenses directly attributable to higher volume, higher R&D costs as we continue to pursue additional IB-Stim FDA indications and higher general and administrative costs due to higher headcount, compensation and advisory expense. Our operating loss for the 6 months ended June 30, 2026, of $3.9 million was 4% lower due to $4 million compared to $4 million for the 6 months ended June 30, 2025, and our net loss for the 6 months ended June 30, 2026, of $3.8 million was 3% lower compared to $4 million for the 6 months ended June 30, 2025, also due to higher gross profit from increased unit deliveries and higher operating expenses, partially offset by the absence in 2026 of the onetime nonrecurring legal settlement that was incurred in 2025. Our earnings per share improved from a loss of $0.22 in the second quarter of 2025 to a loss of $0.19 in the second quarter of 2026. On a year-to-date basis, our earnings per share also improved from a loss of $0.56 for the 6 months ended June 30, '25 to a loss of $0.37 for the 6 months ended June 30, 2026. As it relates to liquidity, cash on hand as of June 30, 2026, was $8.3 million. Our free cash outflow was $1 million and $2.3 million for the 3 and 6 months ended June 30, 2026. Our 2026 year-to-date average quarterly burn rate of approximately $1.1 million is significantly better than our 2025 average quarterly burn rate of approximately $1.5 million due to our lower operating loss and higher accounts payable as market access services were rendered and therefore, unpaid at the end of the quarter. Given that cash position, we have not utilized the at-the-market facility since May. We do believe we will achieve cash flow breakeven in the future. But again, that goal is dependent on the continuation of our growth trajectory and operating leverage to reduce our current cash burn. Regarding cash burn specifically, we have made great strides over the past 2 years to reach our current level of $1 million for the quarter. However, I do expect it to increase in the second half of the year as we make decisions to accelerate our revenue growth. Our first and second quarter results confirmed our proof of concept with the Cat 1 code and the major payer policy coverage, and we need to take advantage of that momentum. As Brian previously mentioned, we learned and made disciplined strategic decisions in the first half of the year with further execution expected in the second half. To accomplish that, our recent hirings of sales, marketing and clinical personnel and additional research and development expenditures will increase our SG&A in the short term. sales personnel to expand existing and new accounts, marketing and market access personnel to promote, target and secure additional patient hospital and payer coverage. clinical personnel to establish a physician champion and go deeper into accounts by expanding treatment access. Research and development costs as we expand clinical trials in pursuit of additional FDA indications, all future growth-related expenditures. And with that, let me turn the call back over to Brian.

Thank you, Tim. With that, operator, and Ben, we'll be happy to take any questions.

[Operator Instructions] And our first question today comes from Chase Knickerbocker from Craig-Hallum.

Can you maybe just give a little bit more color, Brian, on the progress with the two large payers that you mentioned? Can't help but kind of notice your confidence. And maybe just a little bit more color on kind of what exactly you're seeing there? Is it just kind of the frequency, the cadence, the kind of context of the conversation, maybe just a little bit more there. And then just second, as we think about kind of sequential growth from here, do you think about kind of the next step-up in kind of growth acceleration being from that kind of next coverage win? Or kind of how do you think about the back half of the year as you think about your business sequentially?

Yes. My confidence comes from the fact that we've had direct conversations. I wouldn't be confident if we didn't have direct conversations with a payer who made comments or alluded to the fact that they believe this should -- they also believe this should be a covered service. And these are direct firsthand conversations. I'll just leave it at that. That's where the confidence comes from. And yes, the confidence is high. And regarding sequential growth, can we keep growing? Yes. There are two ways we -- three ways we continue to grow. Of course, adding another growth platform in the VA. But if you take the VA aside, there are two primary ways to grow. Number one, we have been a broad organization from a commercial standpoint for a long time because we didn't have the knowledge, the coding, the insurance policy coverage to responsibly spend the money in key states. That's changed. I pointed that out today that we are aggressively saturating the six or seven or eight states where we have, I would say, decent to good, better than good insurance policy coverage. And we are going to saturate those states with countless levers. And there are a number of covered lives there and patients that we can treat and continue to grow with no more additional policy coverage. And I think we can -- Q3 will be to be determined. And by Q4, I think we'll start to see more sequential growth. But without question, the next level, I'm not happy with these numbers. Nobody is thrilled with these numbers. Yes, we grew 116%. But the number of patients not being treated -- again, I said it today, we're basically treating no one. And when I say -- and that's based on the feedback from the physicians and from the patients that are coming through our prior authorization process. We're not treating anyone, and that's basically because of the lack of insurance policy coverage. So the growth comes straightforward from focusing on the states where we have policy coverage and saturating those policies we do have; and number two, those additional payers writing policy coverage. And that will not only unlock that new policy coverage, but it unlocks the policy coverage we have, which is not being utilized as a general rule.

And just last for me, if we think about kind of what a good account in a good state with substantial policy coverage looks like relative to maybe one that has kind of modest coverage levels. Can you just kind of give us a sense for kind of revenue and volume kind of per account and how it kind of starts the differences?

Yes. We're actually in the process of looking at that. And Chase, I could give you off the cuff numbers, but I'm going to wait until next quarter. The reason for that is so many children's hospitals have different numbers of providers. Some children's hospitals have 10 providers, some have 20, some have 50 or if you're talking about Philadelphia or Boston, they have 70 or 75. So to just give it a per revenue number isn't -- would not -- it wouldn't be accurate. It wouldn't be relative. So what we're doing is looking at this by penetration rate and what that means to the children's hospital, what's the penetration rate of that children's hospital. And those are numbers that will probably add to the KPIs to some level going forward. But yes, we've got a great idea of what that looks like right now internally.

And our next question comes from [ Lindsay Leeds ] from [ Microcap Opportunities ].

Congratulations on a strong quarter. I wanted to ask about...Do you think we should expect you to hit 200 million covered lives in 2027? Do you have enough visibility to know if that's something we should expect?

In 2027, that's certainly -- that's the expectation and then some. I would be personally based on what I know at this point, highly disappointed if we weren't over 200 million lives by the end of 2027, yes.

Okay. Great. I think you've mentioned this number before, but you're talking about additional coverage unlocking hospitals because you need to hit a certain percentage of covered lives before a hospital is willing to commit to an aggressive program. What is that percentage number that a hospital kind of wants to see?

70%.

Okay. So we're thinking if you get a couple more insurance coverages from large programs, that will put you over that 70% mark at a large number of additional hospitals?

That's accurate. Yes. Each additional payer from here brings significant -- brings cumulative effects in a number of states and those states continue to expand with additional policy coverages, yes. You're starting -- I view this as the bucket has holes in it and the more holes you fill, the more insurance policy coverage that comes, the more holes you fill and it becomes -- and the bucket fills much faster.

Okay. Perfect. I wanted to ask about your R&D spend. Should we expect that in every quarter after this, you'll continue to be spending on the adult studies and the additional indications?

Well, the investigator-initiated trial is at six sites, six centers, six multisites. It's an investigator-initiated trial. We are -- so we are covering the cost of the devices. We're covering the cost of a research coordinator or partial research coordinator time in certain institutions, but this is not a full-blown CRO spend. We're not talking about $5 million or $6 million here. but we are spending money on a research coordinator. Will this be big dollars relatively speaking, from what investors are used to seeing in biotech or med tech from a CRO standpoint, far from it. These will not be big dollars. Will we continue to spend money on a quarterly basis to make sure the study is -- has the resources necessary? Yes.

Okay. As far as additional indications other than the FAP or the things that you're already covering today, are you able to say anything about additional indications that you might be pursuing? Or will that be coming up in later quarters?

Well, I can tell you that public knowledge on clinicalTrials.gov, you can see that we've got an RCT for cyclic vomiting syndrome in pediatrics. That's progressing. That's the same call point as what we have now functional in pediatric gastroenterology. There's an adult study being done in the Atlanta VA with Emory University through an NIH-funded study for adult indications. And that's really the focus. The adult RCT on functional dyspepsia is the third focus there. So Look, those are ongoing in the background. We're spending virtually zero time and virtually zero resources on those. Our focus is maximizing the indications we have because to look at a number of roughly $2 million in a quarter and to see who's not being treated, I talk about this on a quarterly basis. It's difficult to explain the number of patients not being treated because of a number of commercial plans that are hanging in the balance, and that's our focus.

Okay. Great. I want to switch to the VA program for a second and ask those 10 reps that you're deploying, do you have any idea of what you would expect success to be as far as sales per quarter for those reps?

We have clear-cut expectations that I'm not going to disclose those today. I think next quarterly call, we'll likely move forward either talking about how -- what the revenue looks like and breaking that out and we might wait for Q1 to do that in Q1 report in Q4, how that broke out. And we'll at least explain what we expect from each territory or each VA going forward in the next call.

Okay. And kind of the basis of the 1099 is you're not paying them anything unless they're selling devices. Is that correct?

Yes, [ Lindsay ], you're right. This has been a very successful model in med tech, in the VA with 1099 reps for decades. These -- there are many, many successful reps with 15, 20 years' experience, outstanding relationships, and we expect this to be successful.

And our next question comes from [ Sergio Heiber ] from [ Microcap Opportunities ].

Can you hear me okay?

Yes.

So yes, congratulations on a good quarter. There's a lot of good stuff there. And hopefully, the market reaction hasn't been favorable, but you guys did a really great job, and I think eventually the market will notice that. I just have one question regarding OpEx and the OpEx has been increasing as revenue has increased. So when can we see the profitability start to kick in? And do you have a forecast still in place that you'll hit free cash flow this year?

Well, let me -- I think Tim will have an answer to that, but let me first say this. We've been extremely diligent with capital to the point that I think investors across the board, and I'm getting -- I've got multiple messages already in the last 15 minutes around the support to spend money in areas where we have insurance policy coverage, and I can assure you I'm ahead of that. We're already deploying resources in those areas where we have commercial coverage. Do I want to be profitable, Sergio? Of course, yesterday. But I don't want to be profitable more than I want to drive revenue and the revenue opportunity in the states where we have insurance policy coverage significantly outweighs the desire to be profitable. And I think that -- so I'm going to spend money in the coming months and quarters to drive revenue in those areas where we have policy coverage. Number two, the one additional large payer, let alone two additional large payers will unlock significant revenue and give us a slingshot run at profitability, if not get us to profitability. So I don't like patience. I don't like waiting, but that's where we are with one or two of these -- more than that, especially two payers. I have -- I know dates and I understand when things are happening, but I'm not going to talk about that today. So this all goes back to profitability, and we're being extremely diligent with capital. We have been. But we have the knowledge and understanding right now to go to states where we have policy coverage and drive revenue, and we're going to do it. And we're going to spend a little money last quarter, this quarter and next quarter. So we'll see -- and my expectation is revenue results out of that. It will take 90 to 120 days to see the results after a hire. -- but that's expected, and we're going to be aggressive. Tim, you may have something to add to that, but I can tell you from my standpoint, I'm here to drive revenue.

Thank you for the question, but let me rephrase it in a different way. So what I'm looking for is when can you see scaling leverage because yet OpEx is going up about even with the revenue growth. So I understand that adding insurance payers will lead to profitability. I'm just looking for an answer regarding scaling and how that will leverage.

Sergio, the OpEx, first of all, is not going up at the same rate as sales. Year-to-date, our sales are up 98%. Our operating expenses are not up that much, nowhere near that, as a matter of fact. Secondly, regarding OpEx, I'll refer you to my comments regarding liquidity a little bit earlier. And so the operating expenses did increase in the second quarter, and it's because of decisions we made in the second quarter from what we learned in the first quarter. We got some additional insurance coverage in specific states. We hired a few more sales personnel to drive revenue. As Brian mentioned, and he's repeated, he's drilled it into all of us is that insurance coverage is paramount. And what we did in the second quarter is then we sought out third-party experts and we spent dollars and expenses, of course, to get ourselves into a position that Brian just commented on with 2 significant payers. We have not gone down that path before. And then on top of that, Brian commented earlier that in the second half of the year, we're actually looking to hire somebody full time. So take it from external costs to internal costs such that we can continue to take that model and get after the right and talk to the right people at the large payers so we can tell our story, including the economics of it so that we can pick up coverage. And so we will continue to spend in those areas. Third, we hired clinical personnel, psychologists, we hired a medical science liaison. Those 2 people, one of the many things that they're doing is to understand exactly the workflow in the hospital and figure out how we can expand IB-Stim coverage because the demand is there. That we know. Is there not enough room? Do we not have a physician champion? Do we not have the right coverage? And Brian also pointed out, in many states, we're not added to the Medicare -- sorry, to the Medicare list, which we're working on as well. All of those things are leading us back to bringing in some internal people and hiring internal people to drive the revenue story for us. And so we've hired them in the second quarter and late into the second quarter, we're going to see the full benefits of those into the third and the fourth quarter, but we do expect revenue generation from hiring those people. And that's why the operating expenses increased. Like I said, they will increase to the second half of the year, but we're expecting revenue from that strategy.

And I think it's really impressive that the burn rate -- as far as I can tell, the burn rate actually reduced from what I can see. Is that correct?

Yes. It did come down, Sergio, but just to temper that a bit. And we're actually -- with the first and second quarter, we're pleased with where we were on the cash burn. But because of what Brian and I just discussed, we hired a number of people that we truly are confident are going to drive revenue for us. But in the meantime, that is going to be some cash burn in the second half of the year. But once we get the revenue, that will offset it and then some. So there could be a little bit of timing there. So our cash burn could tick up. I believe it will tick up in the second half of the year, but that's -- anticipation of the future revenue growth that we believe we're going to get and get us back down to our current run rate next year.

And Tim, the preferred shares, the interest rate ends very soon. Do you have plans on how that will be paid going forward?

Yes. So in the first 2 quarters of the year, we paid it via common stock instead of cash. The Board has -- that is going to be a Board decision. So they haven't obviously decided on the third and the fourth quarter. But you can go back and look at what was decided in the first and second quarter, which was common stock, but no guarantees as to how that will play out in the third quarter and the fourth quarter. That will be up to the Board, but there is a trend.

And then I haven't read the filing yet. Is the growing concern still a factor? And is that a factor in consideration for insurance coverage?

I don't think the going concern is a factor at all for insurance coverage. And the going concern is still there and will remain there until we're able to reach cash flow breakeven/profitability, which will be at some point in the future. I mean our revenues are up 98% on a year-to-date basis, which is substantially higher than what we've had over the last couple of years. And as Brian said, we're just -- we're not even treating -- we're treating a fraction of what's out there. So we remain obviously very confident that we're going to reach that cash flow breakeven. And these next 2 insurers that Brian commented on will be a really big step forward. I think it's going to rely on -- it's going to depend on the insurance coverage. We picked up in the fourth quarter, and we expect to pick up some larger ones, obviously, here in the second half of the year into 2027, and that will certainly change our outlook on the going concern. but it would be premature for me to comment on that other than it would be more probable at some point in the future with more insurance coverage, obviously.

And once again, congratulations on a great quarter and great progress.

And with that being our final question for this morning, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Brian Carrico for closing remarks.

Thank you, everyone, for your time. Look, for anyone who wants to have a follow-up call, I'm happy to take those and have a nice fall, and we'll talk to you in a few months. Thank you.

The conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.