NeuroMetrix, Inc.
Q2 2020 Earnings Call Transcript

Published: 23 Jul 2020

[Operator:]

Good morning and welcome to the NeuroMetrix Second Quarter 2020 Earnings Call. My name is Carla and I'll be your moderator on the call. On this call, the company may make statements which are not historical facts and are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are predictive in nature that depend upon or refer to future events or conditions are forward-looking statements. Any forward-looking statements reflect current views of NeuroMetrix about future results of operations and other forward-looking information. You should not rely on forward-looking statements because actual results may differ materially as a result of a number of important factors, including those set forth in the earnings release issued earlier today. Please refer to the risks and uncertainties including the factors described under the heading "Risk Factors" in the company's periodic filings with the SEC available on the company's Investor Relations website at neurometrix.com and on the SEC's website at sec.gov. NeuroMetrix does not intend and undertakes no duty to update the information disclosed on this conference call. I'd now like to introduce the NeuroMetrix Senior Vice President and Chief Financial Officer, Mr. Thomas Higgins. Mr. Higgins, please go ahead.

[Thomas Higgins:]

Thank you, Carla, and welcome everyone who's joined the call this morning. I'm joined on the call by Dr. Shai Gozani, our President and Chief Executive Officer. NeuroMetrix develops and commercializes neurostimulation based medical devices for the diagnosis and treatment of chronic health conditions. Our commercial products are DPNCheck, ADVANCE, and Quell. DPNCheck is a point-of-care test for the detection of peripheral neuropathies. ADVANCE is a point-of-care device that provides nerve conduction studies as an aid in diagnosing and evaluating patients suspected of having focal or systemic neuropathies. And Quell is the wearable mobile app enabled neurostimulation device indicated for symptomatic relief and management of chronic pain. It is available over-the-counter. The second quarter of 2020 was a continuation of the suppressed business activity evident in late Q1 this year, as a result of the COVID-19 pandemic. Late in the second quarter during the month of June, we saw a modest increase in orders for our diagnostic devices and consumables. This was encouraging. However, at this point, it would be premature to extrapolate the June activity to any conclusions regarding a broader recovery of the business. We have and will continue to maintain staffing and production capabilities to support our customers as well as to advance our priority R&D programs. During the second quarter, we took advantage of opportunity in the equity markets to strengthen our balance sheet. This provides us a degree of protection against delay in the economic recovery. Turning to operations, in the second quarter, total revenue was about $1.4 million. Gross profit on that revenue was about $900,000 representing a gross margin rate of nearly 64%. This was despite the low production volume and low fixed cost absorption in the quarter. By comparison, in Q2 year-ago, revenue of $2.4 million generated a gross profit of $1.3 million or 54%. This of course is after adjusting the prior-year numbers for $2.1 million inventory charge, therefore, year-on-year gross margin improved by nearly 10 percentage points. DPNCheck contributed revenue of $828,000 down 33% from $1.2 million second quarter last year. Medicare Advantage business was slow in April and May, this year with some recovery during June. This Medicare Advantage decline was partially offset by new stocking orders from China in support of the recently announced collaboration between our China distributor Omron Healthcare and Yabao Pharmaceuticals. DPNCheck margins were over 75% in the quarter. ADVANCE revenue was about $100,000 compared with $314,000 in the prior-year quarter. Margins on ADVANCE were 71%. And Quell revenue was $433,000 versus $811,000 in Q2 2019. The Quell gross margin rate was 76%, a significant improvement on the 41% margin over year-ago. Quell continued to make a positive operating contribution. Q2 operating spending was $1.7 million in comparison with about $4 million prior-year quarter. This dramatic reduction in spending 57% reflected last year's business restructuring, which has positioned the company's future profitability. R&D spending of $660,000 was down about 40%. Current period R&D includes the benefit of $114,000 in GSK funding for joint Quell projects. Sales and marketing costs of $379,000 were down nearly 70%. Quell staffing, consulting and advertising were all significantly reduced from Q2 last year. G&A spending of $678,000 was down about 60% year-on-year. This was due to lower staffing and professional services primarily legal. Collaboration income was zero in the current quarter following completion in 2019 of the GSK Quell development project. Last year, $1.4 million was earned under this Quell development. GSK continues to fund joint Quell development projects which funding is included as a credit to R&D expenses, I just mentioned. Net loss in Q2 2020 was $852,000 or $0.28 per share versus a loss of $3.4 million or $3.72 a share in the second quarter of 2019. Cash at the end of Q2 was $5.4 million. The cash position benefited from common stock sales of $3.7 million during the quarter under the company's ATM facility. Cash is forecast to be adequate to fund operations for at least one-year forward. The company maintains a simple, clean capital structure of common stock only and debt free. There are currently about 3.8 million company's shares outstanding. Dr. Gozani will now address our overall strategy.

[Shai Gozani:]

Thank you, Tom. First, I will cover the impact of the COVID-19 pandemic on our company. As Tom mentioned, Q2 sales were adversely impacted, particularly DPNCheck and ADVANCE, which are clinic-based diagnostic procedures. Most healthcare clinics stopped elective procedures and routine healthcare in March and have only recently started to resume these types of visits. Quell has been affected as well, although to a lesser degree as consumers financial situation deteriorated due to the poor overall economy we saw a reduction in new device sales. Based on sales in the second half of June, we expect to see some recovery in Q3 although not to normal levels. We're hopeful that Q4 will have relatively normal sales. However there remains a high degree of uncertainty as the pandemic progresses and direction from state and federal government and public health agencies evolves. Our largest Medicare Advantage accounts for the DPNCheck product are in California, Texas, and Florida, which are also currently seeing high COVID-19 infection rates, and therefore we have to be cautious about the pace at which sales will rebound. As a supplier of medical devices, we're an essential business and have continued to operate largely uninterrupted. We successfully transitioned our business operations in early March to provide for employee safety, while continuing to support our customers particularly those using Quell for pain management. Functions that could be performed remotely such as R&D, finance and customer service have been operating from home, while manufacturing, fulfillment functions continue at our Woburn, Massachusetts facility with appropriate precautions. We did not undertake any layoffs or furloughs. We recently reopened our facility to all employees with adherence to state guidelines, although we expect that most employees will continue to work-at-home on most days for the foreseeable future. Now moving to our Q2 2020 results. We're pleased with company's performance despite the severe slowdown in April and May and the partial recovery in June. Our ability to limit our quarterly loss to $150,000 despite the impact of the pandemic is evidenced that we have made substantial stride in establishing an efficient cost structure. These efforts will serve us well as we march towards achieving operating profitability, which remains our primary corporate goal. There's more work to be done and the pandemic will now push profitability into late 2021 but we have taken the right steps. Along these lines, we have some highlights. We continue to make good progress in updating our DPNCheck technology. This includes the second-generation device and technology in a disposable biosensor that will control reuse and prevent any future risk of knockoffs giving this very high margin. We're also launching improved reporting and data management software that moves DPNCheck from a clinic-based product to an enterprise solution. All these elements will be commercially launched this year or by early 2021. We believe that these product improvements will position the DPNCheck business to grow faster through better pricing, enhanced utilization by existing customers, and new market opportunities. We also made progress in expanding DPNCheck distribution by signing a collaboration and distribution agreement with Biomedix in the Medicare Advantage market, and by supporting our China distributor, Omron Medical, and our partnership with Yabao Pharmaceuticals. We expect that these and future partnerships will help drive continued growth of the DPNCheck business. Finally, we have been updating our Quell strategy which has led to some substantive changes to the Quell relief website to our digital marketing strategy and we will soon initiate physician outreach effort to drive Quell recommendations for low extremity chronic pain. In summary, NeuroMetrix's excellent products are targeting large markets. We're committed an operationally efficient organization that is structured to support growth and move towards profitability. And that concludes our prepared comments and we would be happy to take any questions at this point.

[Operator:]

We don't have a question at this time. I would now like to hand the call back to Dr. Gozani.

[Shai Gozani:]

Thank you very much for joining us on the call today and we look forward to continue to update you through the balance of the year.

[Operator:]

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