Good day and thank you for standing by. Welcome to NeurAxis Reports Second Quarter 2024 Financial Results. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would like to hand the conference over to your speaker today, Ben Shamsian. You may begin.

Good morning, everyone, and thank you for joining us for NeurAxis's second quarter 2024 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 will open the call to questions. If you are listening through the webcast, you can send in a question through the portal utilizing the Ask a Question box or by simply emailing a question to nrxs@lythampartners.com. If you are dialed into the live call and would like to ask a question, you can follow the instructions provided by the operator by pressing star and 11 button. 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 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 now like to 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 second quarter 2024 earnings call. During today's call, I will highlight the many recent accomplishments in our revolutionary neuromodulation technology commercialization strategy. We will discuss the milestones and growth plans for 2024 and into 2025 as we continue the strong execution of the commercialization of our market-leading PENFS technology. Following my remarks, Tim Henrichs, our CFO, will review our financial results for the second quarter 2024. First, I'm going to review the recent achievements and milestones. 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 are coming off another very successful quarter where we 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 have made significant achievements as we advanced and hit milestones, forging a clear path to profitability in 2025. Regarding IB-Stim, we are primarily focused on revenue trajectory and we had a significant change from Q1 to Q2 as new insurance policy coverage is taking effect and some of the issues from Q1 are residing. Further to that point, we are very optimistic based on the strong first month of Q3 that real revenue growth is taking hold based on the continued adoption of the insurance policy coverage. As we all know, the scientific community has accepted our flagship technology but has been hindered by a lack of written insurance policy coverage. The largest payers have been waiting on the academic society to publish guidelines for functional abdominal pain associated with IVF. The most important recognition any technology can receive,…

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 Q2 '24 10-Q. I will add some color on key areas of the financial results, as well as an outlook on certain areas. From a big picture standpoint, we are continuing to execute on our plans, including the commercialization of our PENFS technology. We have been successful in leveraging our 16 completed studies to gain insurance coverage. We expect the number of covered lives to continue to grow through the end of the year. In addition, we are optimistic with regards to the commercialization of RED in late 2024. As such, we expect revenue growth in the back half of 2024 and into 2025. Given our current cost structure, our goal as a company to reach profitability is achievable and a function of our sales volume, given our strong gross margins. Our recent successes in obtaining substantially more insurance coverage since December keeps us on that path. Finally, we have strengthened our liquidity position in the second quarter of 2024, as we secured an incremental $3 million in funding in May, in addition to the $6.1 million in financial commitments in the first quarter of 2024 from strong, long-term investors who know the MedTech space well. So far, we have funded $4.9 million, with the remaining $4.2 million coming in monthly installments through 2025. With that, I will go through the financial highlights in detail. 2024 second quarter revenues were $612,000, compared to $646,000 at the same period in 2023. Although revenues in Q2 '24 declined 5% on a year-over-year basis, this is a significant improvement compared to year-over-year declines of 20%…

Thank you, Tim. Let me conclude with where I started. I cannot stress enough how the consistent execution continues to lay the foundation and pathway to meet our goals, and we are seeing the results of that via insurance policy coverage to release some of the issues that were present and reflected in Q2, and more so to start Q3. This is what the milestones we are achieving, and it's setting NeurAxis up to achieve accelerated growth in the second half of 2024 and into 2025. We remain focused on leveraging the strong data from our studies, leading us to insurance acceptance from the lives we have covered today to a significantly higher number by the end of 2024. Furthermore, we remain excited about our opportunity with RED, which we expect to become commercial in late 2024 and has the potential to be our largest revenue driver in the 12 months following. With that, operator, we'd be happy to take any questions.

Thank you, ladies and gentlemen. [Operator Instructions]. Our first question comes from Mark Foster with Kirr Marbach & Co. Your line is open.

Hey, Brian. Good morning.

Good morning.

A couple of questions for you. If I look year to date, your operating expense is averaging roughly $2.5 million a quarter. So obviously, to get the breakeven, you've got to ramp sales pretty good to cover that. Can you talk a little bit more? I mean, you've given some indications of what's out there and maybe teased us a little bit with July. What kind of visibility do you have into that? Can we still expect breakeven by the fourth quarter of this year?

Good questions. A couple of answers to those questions. I won't speak for Tim and the CFO, but I think a significant number of those expenses in the first half of the year and late last year were non-cash, non-recurring. But I won't get into those numbers. If you have specific questions around the financials, Tim can answer those. Regarding the growth, yes, we've had a very nice start to Q3 because of the policy coverage that took effect early this year. It's starting to take hold in only a couple of accounts. There are three or four large payers that we are told by them are waiting on the guidelines. And 90%, 95% of the children's hospitals nationally are waiting on those large payers. The revenues that we have are from a very small number of children's hospitals. We're not attached to the guidelines. The guidelines are going to be published independently, so we don't know if that will happen next week or if that will happen in October or September. We just don't know when those will be published, and that's why those are so strong is because they come independently from the academic society. Regarding profitability, I think on the last call I said we expect to be profitable within 12 months, which would be Q1 of 2025. I don't see any reason to change that. I'd call that guidance, but I don't have any reason to change that line. So we're more confident today, especially with Startup Q3, than we were even six or eight weeks ago. We're very pleased with the insurance policy coverage that's taken effect, and in those areas and how that's translating to revenues in those few areas and I'll stress few. We have countless, multiple accounts from revenue we lost in 2023. I don't have the exact number in front of me, but well over a million dollars where accounts were billing, insurance companies receiving a no authorization required and then not being paid. So those accounts are all on hold. As I said today, we've brought that revenue back to down 20%, down 5%, and Q3 is looking very nice to date. And I think that everyone's going to be pleased with the direction we're going. I can tell you that we're certainly confident in the position and still have no reason to believe that we aren't trending towards profitability in Q1 of '25.

Great. Mark, let me address the expense question directly. It's a good one, right? We pay attention to it, of course. You mentioned $2.5 million on average, which obviously is correct through Q1, Q2. Specifically for Q2, our G&A expenses were higher than a year ago by about $1.1 million, but last year we were not a publicly traded company yet and that has added about $375,000 quarter-over-quarter. Then in the current quarter, we actually did incur about $625,000 of one-time cost of severance and consulting that will not recur next year. So that would put our G&A expenses at about $100,000 higher than last year on a pro forma basis. And looking forward, when you exclude these one-time costs in the second quarter in particular, but it would flow into the first quarter as well, our current quarterly G&A run rate is approximately about $2 million. So just trying to bridge the gap for you between the $2.5 million and the $2 million because of one-time charges in there.

That's helpful. So what's a reasonable cash burn number going forward?

So our cash burned depending on the month, but it's in between $400,000 and $500,000 a month. And year-to-date, on the cash flow statement that we filed in Q today, it's right around $3 million and it's rated at that $500,000 mark on average through the first six months of the year. We continue to believe that we'll hold that through the remainder of the year. From an expense standpoint, those numbers that I just gave you, I don't really expect those to change that much in the last six months of the year. It is our ability to continue to get insurance coverage, drive IB-Stim revenue, and then when we get, we believe when we get the approval from the FDA on RED, that top line revenue will drop down at pretty healthy gross margins, which will drop all the way down into operating profit and improve our profitability position.

Right. Okay. So you've got $1.8 million cash on hand. You've got $4.2 in these monthly installments. So $6 million, if your cash burn is $500, out of that $6 million, you've got a 12-month runway. So if you think you're profitable in the first quarter, you shouldn't need any additional financing given what you have on the table currently. Is that correct?

We're cautiously optimistic. We would never say never, of course, we can't dictate. We see the abstract that was posted. We're told that that's what the guidelines will be published based on. We can't dictate when those guidelines will be published, and then we can't dictate how many months it takes for payers to actually put policy coverage in place. Or if there's some additional unexpected unforeseen hurdle, but assuming the guidelines are published this fall and the insurance companies take those guidelines and translate those, the policy coverage as we're told, then we're cautiously optimistic we have the funding we need to get us a profitability based on current knowledge.

It seems like your relationships with Inspire, Flagstaff, those firms has been pretty good. If you needed to do that, I assume those are still viable options?

I wouldn't commit funding for anyone for them, but I'm confident, it's safe to say we have a strong relationship with these investors, yes.

Okay, great. Thank you very much.

Sure.

[Operator Instructions]

Hey, Brian. We have a question that was sent in. Can you talk about any feedback from doctors or patients who've used IB-Stim?

Yes. I mean, at this point, the overwhelming majority of pediatric gastroenterology physicians tell us that there's nothing in this space with as much evidence and nothing that performs nearly as well as IB-Stim, and as soon as the blanket policy coverage is in place, we will see the results of that. Regarding patients, the number of letters and emails we get from families who have had their life changed to the positive continues to grow exponentially. You have to remember that the revenues we are seeing, and this goes back to Mark's questions, are from only a small number of children's hospitals who have some insurance policy coverage, and even those children's hospitals aren't treating most of the children they need to treat. Again, as I mentioned earlier, just in the past 12 months, we've only treated about one-tenth of 1% of the children that are debilitated and in need, so it's safe to say that we have complete academic society buy-in and the technology is here to stay.

Okay. We have another question for you. Can you talk about the timeline for the commercialization of RED, and how do you think about the revenues for the product?

Good question. Two things. We know the need is immense, and we also know there's already a CPT-CAT1 billing code and blanket commercial and Medicare insurance policy coverage. Predicting revenues is difficult at this point because we cannot market the product. We, of course, have internal models which we are not ready to share, but as we launch and apply those models to reality, we'll be able to share those and give guidance.

And I'm not showing any other questions on the phone lines.

Okay. Well, thank you all very much for being with us today. We look forward to communicating with you again soon. Have a great Friday and a great weekend. Thank you.

Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect and have a wonderful day.