Conference is being recorded. I would now like to turn the conference over to your first speaker today, Ben Shamsian with Lithium Partners. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining us for Neuraxis's third quarter 2024 financial results and corporate update conference call. Joining us today on today's call is Brian Carrico, CEO of Neuraxis. I am Tim Henrichs, CFO of Neuraxis. At the conclusion of today's remarks, we will open the call to questions. If you are listening through the webcast, you can send in a question by utilizing the ask question box or simply emailing a question to nrxs@lithiumpartners.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. Today's event is being recorded and will be available for replay with the webcast information provided in the press release. Finally, I would 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 any time of any phonetic 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 turn the call over to Brian Carrico, Chief Executive Officer of Neuraxis. Brian, please proceed.

Thank you, Ben. Good morning, and thank you for attending the third quarter 2024 earnings call. During today's call, I will highlight the many recent accomplishments in our commercialization strategies for IVStim, which is our IBS neuromodulation technology, and RED, our pending products for patients with evacuation disorder. We will discuss the milestones and growth plans for the remaining months of 2024 and into 2025 as we come off another strong quarter of execution and continue the commercialization of our market-leading PENFS technology. Following my remarks, Tim Henrichs, our CFO, will review our financial results for the third quarter of 2024. Let's first review the recent achievements. As I just mentioned, we are coming off a very strong quarter of year-over-year growth, the biggest milestone in the company's history, and a new FDA indication expansion. To highlight the three big announcements, we grew 40% year-over-year in Q3. We received notice of our category one permanent CPT billing code, and we received FDA clearance for an age expansion from 11 to 18 to 8 to 21 years of age, nearly doubling our market opportunity. I will speak in much more detail later in the call about all three announcements. 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 revenue. In recent months, we have made significant achievements as we advance and hit milestones with a goal of cash flow breakeven. Regarding IVStim, our primary focus on revenue trajectory saw a significant change from Q1 to Q2 and an even larger…

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 Q3 2024 10-Q filed this morning. 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 over the last few years is beginning to bear fruit. All year, we talked about accelerated growth in the back half of 2024, and now we are seeing it. As Brian mentioned, in the third quarter, we delivered strong acceleration in our revenues and units as a result of increased insurance coverage. 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. In addition, we are optimistic with regards to the commercialization of RED in late 2024. As such, we expect revenue growth to continue in the fourth quarter of 2024 and into 2025. Given our current cost structure, our goal as a company to reach cash flow breakeven is achievable as a function of our sales volume, given our strong gross margins. Our recent successes in obtaining substantially more insurance coverage keep us on that path. Finally, we have strengthened our liquidity position for the remainder of 2024 and into 2025 with a $5 million investment from a dedicated life sciences fund. This will replace $3.2 million in committed funding from a current investor. The transaction is expected to close mid-November, and this investment will top off our 2024 capital raise activity at $11.2 million. With that, I will go through the financial highlights in detail. 2024 third-quarter revenues were…

Thank you, Tim. In summary, we are early in what we see as strong top and bottom-line growth over the next few quarters. The consistent execution of our commercialization strategy is beginning to bear early fruits, as we see from the growth acceleration in the past three quarters. We are also achieving milestones that enable continued growth, including receiving our category one CPT code and the expansion of our 510(k) clearance. Furthermore, we remain excited about our opportunity with RED, which we expect to become commercial in late 2024 and has the potential to drive significant revenues. With that, operator, we would be happy to take any questions. As a reminder, you can ask a question on the webcast by typing in the ask question box, or if you are dialed in, follow the operator's instructions. Thank you.

Thank you. As mentioned, at this time, we will now conduct the question and answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile our Q&A roster.

Hi, Brian. While we wait for some questions, we have some that were sent to us. First, can you talk about the significance of receiving the category one code as well as the 510(k) extension?

Sure, Ben. First, the category one code is the culmination of five, six, seven years of work. It requires an overwhelming amount of evidence and data, and it requires a significant amount of utilization. The criteria are strict, and the bar is high. But the reason for that is the category one essentially cements the technology into the medical foundation from the standpoint of the commercial insurance companies and state Medicaids recognizing category one CPT codes. The billing of a category three code, which is what we currently have, is more difficult. Many Medicaids or most Medicaids do not recognize the code, which makes the prior authorization and the billing very difficult. The commercial payers, when it comes to billing a category three code, require a children's hospital, for example, to itemize the device cost, the physician time, the facility time, and the supplies. It's just a longer process and much more difficult for a chief revenue officer and revenue cycle team to operate with. So the category one code brings a recognizable code that will have all those items included in the code, and the reimbursement will be a permanent reimbursement amount. So number one, it makes the code much easier to bill, and that's really what's causing the delay once we get insurance policy coverage for accounts that have not brought the technology in before. The time to get that category three code set up is significant, as we mentioned multiple times today. So it brings a very clear path with a category one code to billing. Number two, it will bring a permanent reimbursement amount. So there's a set reimbursement amount. And number three, and probably most important, it brings RVUs. So RVUs are how physicians' time is measured. So, for example, a physician is required to earn so many or work so many RVUs throughout the course of the year, and this will bring RVUs. So this motivates them. Currently, if they are doing this procedure, they are not receiving RVUs, so it does not go towards their workloads for the year. So they are doing this from a clinical benefit standpoint, but they are not receiving any compensation, if you will, because they are not meeting those RVUs. So this is extremely important when you talk about streamlining and scaling the technology. Regarding the 510(k) extension, it increases the age range to eight. We get it at eight years of age up to 21 years of age. So I cannot tell you how many patients on a daily basis we are contacted that are eight, nine, ten, nineteen, twenty, or twenty-one years of age. So this is a significant improvement. It was just an excellent quarter.

When it comes to the category one code, the 510(k) extension.

Thank you. Our next question comes from the line of Sergio Heiber with Heiber Research. Your line is now open.

Hi, guys. Congratulations on achieving everything that you stated that you were going to achieve and the code and the age extension. I was wondering about getting the clearance for extending the age. Does not that increase the covered lives?

Morning, Sergio. How are you? It will not change. Yeah. It will not change. We still need covered lives. So age expansion just allows more patients to be treated and actually be on label. But the policy coverage is separate. We still need to get written policy coverage from payers. They still have to write policy coverage to enable this. I mean, there are still large payers, for example, that still cover this technology on a one-off case-by-case basis. But to get written policy coverage, where it's an approved treatment for children, we still need to get written policy coverage with all of the payers.

I understand. But let me rephrase the question. So you have existing coverage with some insurance companies. Those same insurance companies have patients in the new age group that is not covered. So would not that mean that you have more lives under coverage?

Well, two answers to that. One, most policies right now state that they will cover, for example, the use of Blue Cross Blue Shield Massachusetts as an example. That policy states they will treat patients 11 to 18 years of age. Our market access team has already gone back to those payers and said that, you know, this age expansion has happened, those conversations with the payers are going very well, and we expect in short order that they will expand those patients, that age range within their policy from 11 to 18 to 8 to 21. Now the second part of your question is, do we have more covered lives? The answer is yes. In theory, but we will not announce more covered lives because covered lives is a standard, you know, there's a validated standard response to covered life. If a certain insurance company covers a product or a technology, we list all of those covered lives as covered. So, you know, if you dive into this deeper, which we could do for you, we know on our internal models how many patients there are at each specific age range. But that's not how you report or we report covered lives. Covered lives is reported based on how many patients there are. For example, if Blue Cross Blue Shield Massachusetts has a thousand lives they cover, I forget the exact number, it's three or four million. But if they cover a thousand lives, we report one thousand lives. Now to your point, yes, there will be twice as nearly double the amount of covered lives within that payer that we can now treat. That's true. But we do need to make sure that we get the payer to change the policy from 11 to 18 and move that to 8 to 21, which we are in the process of. And we do not see any issue or real delay in making that happen.

Thank you. Again, I tell a lot of my investment friends about your company, and everybody's impression is that the thing that the people that I speak to have not really understood is that it's a cure, not a treatment. And I was wondering if you have evidence that it's a cure. Are the studies reflected there is no recidivism of the disease?

That's a great question, Sergio. We do not use the word cure. Although we have three great papers showing long-term data at twelve months, it's statistically significant. There are patients, there are some patients, there are always a handful of patients that do not respond. I believe that anecdotally and that there are some registry data showing around seventy percent of patients have strong responses, have long-term outcomes. There are always going to be some patients that do not respond. And we've got some patients that long-term at nine months or twelve months or fifteen months relapse, if you will, and need another cycle of treatment. So it's not perfect. We do not use the word cure, but it's really good.

And then another question I get asked is why isn't it available for adults? So and will you be shooting in that direction?

Yeah. That's another great question, Sergio. We're going to release a new deck today that'll be in our IR firm, and we just haven't got to talk about that in our earnings calls yet, but we are well on our way to approaching the FDA for an adult indication expansion that would range from 21 through all adult ages. And I believe that we're aiming for late 2025 to earn that FDA indication, but that is in process. The adult demand, the adult market size is obviously significantly larger than the pediatric size, and there is significant demand from the adult market. That's a great question. We've been working on this for a couple of years. And we believe that roughly a year from now, we're cautiously optimistic that we'll be able to earn that indication as well.

And will you need clinical studies for that?

We do, and we have what we believe the necessary research underway and completed.

Okay. And then the new product, did you expect to get clearance from the FDA? Does that have a similar TAM or a larger TAM than the IVStim?

It's got a similar TAM. I believe it's around just a little over $2 billion market opportunity for the TAM. And how will you do that product search? The good news, Sergio, sorry to cut you off about that product, is that it already has a category one CPT code. That's what we're so excited about. IVStim that we've been working for so long on. And number two, RED already is reimbursed by most, if not all, commercial payers and Medicare.

Oh, that's fantastic. So you'll be able to market it nationally much faster.

You know, we expect to hit the ground running immediately with this product from a revenue standpoint.

And how will you sell that? Will you have an in-house team? A sales team, or through distributors?

Or both. Well, that's one reason we took this product on. And if you look at our pipeline, which will be on our deck release later today on our IR, the synergies between our product is all pediatric GI, adult GI, and children's hospital. So it allows our W-2 Salesforce to have the synergy, a very laser-focused synergy, who we call on. But to answer your question, it will be our W-2 Salesforce that will pick that product up. They have the time, the bandwidth, and the ability to do so. They have the gastroenterology expertise as we continue to build this company and the foundation on those principles I just mentioned, this will fit in very nicely.

And then my last question is, will you reach the target of 50 million covered lives by the end of the year, and do you still expect to reach profitability next year?

Twofold. Number one, we set out to get in the year to reach 50 million covered lives. We also expected the guidelines to already be published, which, and we know there are countless payers, we believe, with policy coverage written, and they're waiting for the published guidelines to be released. And now those published guidelines are not quite out yet. You know, we're cautiously optimistic those will be out in January, and then those other policies will come through. Having that said, there are many payers that we believe are on the cusp of announcing policy coverage that could happen tomorrow or it can happen on January second or sometime in between. So it's still very possible we have those 50 million covered lives by the end of the year. And regarding cash flow profitability in 2025, that's the trend, that's the goal, and we continue to work towards that. Yes.

So, Brian, you had said that you expected the publication in January because it's inherently better to publish in January than at the end of the year, and I didn't understand that. Could you explain?

Yep. Great question. So first, the reason these guidelines are so important is that this is an independent review of the literature by the academic society, which means we have zero involvement from a standpoint, a moral standpoint. We are not able to be involved. We don't want to be involved in this. That's why the credibility is so high. We were cautiously optimistic these guidelines would have been published in the fall. And the fact that they're not here yet, we believe that they'll be January. And the reason for that is we're told that journals want to publish academic journals want to publish in January because they're judged internally based on citations. And if they publish during a twelve-month January to December calendar year, if this so if they publish in October or November or December, they only get one or two months of citations, whereas if they publish in January, especially something as significant as the academic society guidelines for functional abdominal pain, that gives them a full twelve months of citation, which is very beneficial to them. Again, this is not a conversation we've had directly with the journal. This is just somewhat common knowledge in the med tech space and in the academic space from a publication standpoint. And that's we're reading between the lines here.

Thank you. That's all my questions. Keep on doing a great job, and hopefully, it'll attract some shareholder attention that you keep coming up with great news, and the market hasn't responded yet.

Yeah. We are cautiously optimistic that this announcement today, the 40% growth year-over-year combined with the category one code, the increased insurance policy coverage, the expanded FDA indication, and then the upcoming launch of RED, you know. And then as I mentioned, Sergio, Q4 is off to an excellent start. So the Q3 momentum has continued into Q4. And look at some point, Sergio, we keep stacking strong quarters on top of each other with these milestones. The market will recognize.

I think so too. Thank you very much for taking my questions, and congratulations on the quarter and the excellent development.

Thanks, Sergio. Appreciate your time.

Alright. We have a question for you, Tim. On the last call, you spoke about expecting G&A expenses to settle in around $2 million a quarter. Can you comment about $2 million in Q3? Can we continue to expect this level in the near future?

Yeah. From a cash perspective, the answer to that is yes. From a GAAP perspective, we will have some incremental startup costs for RED into 2025, and then we also introduced a long-term incentive plan for employees in the fourth quarter of 2024, and that will result in some incremental non-cash expense. But our plan as we head into 2025 is to be able to cover those expenses with the revenue growth that we are projecting. Short answer from the cash, yes. From a GAAP perspective, we will see some increased expenses, but we expect to hold our run rate going into 2025, especially with the revenue growth that we're seeing here in the third quarter. We're expecting in the fourth quarter, and we think that'll carry into 2025. To continue to reach our goal of cash flow breakeven in the future once our revenues continue to grow at the pace they currently are.

Okay. We have one more question here for Brian. Can you talk about the timeline for the commercialization of RED, and how do you think about the revenues over the next few quarters?

Yeah, Ben. So we're cautiously optimistic that we'll have this FDA indication by the end of Q4. And then we will, once we're really close to the FDA indication, we'll tee up manufacturing, and we will launch this product very quickly, whether that be the end of Q4 or the beginning of Q1. And then we'll plan what's traditional from a soft launch standpoint. We'll launch so many accounts in the first thirty days, so many accounts in the first sixty days, and so many accounts in the first ninety days and make sure that everything is as planned. Then we'll open this up. But as I mentioned earlier, we expect meaningful revenues out of this product in 2025. And assuming everything comes through the FDA and the soft launch goes as planned, we've spent about a year and a half on this technology at this point since we began the discussions of licensing it from the University of Michigan. And we're confident that the FDA will come through, that we will launch this product, and we'll see meaningful revenues in 2025 and are cautiously optimistic in the first half of 2025.

Thank you. At this point, there are no more questions in the queue. Therefore, I'd like to turn the call back to Brian Carrico for closing remarks.

No. Thank you, everyone. I appreciate your time. We look forward to a great Q4 and talk to you again in spring. Everyone have a wonderful holiday season, and we will talk soon. Thank you.

Thank you. This does conclude the program. You may now disconnect.