CVRx, Inc. (NASDAQ:CVRX) Q3 2023 Earnings Call Transcript

CVRx, Inc. (NASDAQ:CVRX) Q3 2023 Earnings Call Transcript October 26, 2023

CVRx, Inc. beats earnings expectations. Reported EPS is $-0.43, expectations were $-0.57.

Operator: Greetings and welcome to the CVRx Third Quarter 2023 Earnings Call. At this time all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mike Vallie from ICR Westwicke.

Mike Vallie: Good afternoon. Thank you for joining us today for CVRx’s third quarter 2023 earnings conference call. Joining me on today’s call are the company’s President and Chief Executive Officer, Nadim Yared; and it’s Chief Financial Officer, Jared Oasheim. The remarks today will contain forward-looking statements, including statements about financial guidance. The statements are based on plans and expectations as of today, which may change over time. In addition, actual results could differ materially due to a number of risks and uncertainties, including those identified in the earnings release issued prior to this call and in the company’s SEC filings, including the upcoming Form 10-Q that will be filed with the SEC. I would now like to turn the call over to CVRx’s President and Chief Executive Officer, Nadim Yared.

Nadim Yared: Thank you, Mike, and thanks to everyone for joining us. I’ll begin today’s call by providing an overview of our third quarter performance, followed by an operational update and a review of our financial results by our CFO, Jared Oasheim. Then I will conclude with our thoughts for the rest of the year, before turning to Q&A. We maintain positive momentum in the third quarter, building on the strengths we delivered during the first half of 2023. In particular, the performance within our U.S. heart failure business continued to surpass our expectations by growing by more than 90% in the quarter. This is a testament to our team’s ability to accelerate the adoption of Barostim through the increase scale of our commercial organization and our marketing and awareness efforts.

Barostim therapy continues to gain traction, and the feedback we receive from physicians and patients is very positive. Now, let’s dive into the details of our performance. Starting with the review of the quarter, worldwide revenue was $10.5 million a 70% increase over the third quarter of 2022. This was a direct result of execution within our U.S. heart failure business, which grew by 92% over the prior year. These results were achieved through the increased utilization of Barostim among our existing customer base. The continued addition of new active implanting centers, the measured expansion of new sales territories in the U.S. and increased awareness among physicians and patients. As a result of our sustained top line revenue growth stemming from our focused investments in higher return on investment initiatives, in combination with the prudent management of our operating spend, we have seen a continued reduction in our cash burn rate.

It is highly encouraging to see operating leverage within our business. And we anticipate this trend to be sustainable as we move into 2024 and beyond. Turning to an update on our operational progress during the third quarter. As a reminder, our focus areas are the continued expansion of our commercial infrastructure in the expansion of our clinical body of evidence. Starting with the expansion of our commercial infrastructure, we’ve expanded our commercial reach adding three new U.S. sales territories as anticipated, bringing our total to 35. During the quarter, we also made progress with our marketing efforts, which included our direct-to-consumer and patient education programs. As we move forward, we will continue working to fine tune these initiatives to drive increased awareness of patients and healthcare providers.

Moving to our second focus area, the expansion of our clinical body of evidence and in particular, on the regulatory front. Our ongoing interaction with FDA regarding our potential label expansion following the post-market BeAT-HF data continues to progress as expected. FDA is provided us with their initial feedback. And we have responded to their questions. We continue to anticipate a potential decision by year end. Now for an update on CMS and the proposed Outpatient Prospective Payment System, or OPPS for 2024. Earlier this year, we submitted the request to CMS to be assigned a new technology APC payment code as our transitional pass-through payment expires at the end of 2023. In August, the company presented before a CMS Advisory Panel and received a 5-0 vote in favor of mapping to the higher paying code, APC1580, which reimburses approximately $45,000.

While this is encouraging, it is important to note that this vote is non-binding. If CMS instead decides to map Barostim to APC5465 without the transitional pass-through payment for 2024, which is the basis for the company’s plans, then the average reimbursement to hospitals will be approximately $30,000. The final outpatient payment rule is expected to be published in late November. We are pleased with the accomplishments of the third quarter and the overall progress throughout 2023. Our performance has been consistently strong, largely driven by exceptional growth in our U.S. heart failure business. We have steadily expanded our commercial reach and made strides in marketing and patient education. Our ongoing discussions with FDA and a positive vote from the CMS Advisory Panel in August are encouraging, though our guidance does not hinge on these outcomes.

We remain confident in our business to help bring relief to many patients suffering from heart failure. I’ll now turn the call over to Jared to review our financials. Jared?

Jared Oasheim: Thanks, Nadim. In the third quarter, total revenue generated was $10.5 million, representing an increase of $4.3 million or 70% compared to the same period last year. Revenue generated in the U.S. was $9.6 million in the current quarter, reflecting growth of 90% over the same period last year. Heart failure revenue in the U.S. totaled $9.4 million in the current quarter on a total of 303 revenue units compared to $4.9 million in the third quarter of last year on 167 revenue units. The increases were primarily driven by continued growth in the U.S. heart failure business, as a result of the expansion into new sales territories, new accounts and increased physician and patient awareness of Barostim. At the end of the current quarter, we had a total of 159 active implanting centers, compared to 91 on September 30, 2022, and 140 on June 30, 2023.

We also had 35 sales territories in the U.S. at the end of the current quarter, compared to 23 on September 30, 2022, and 32 on June 30, 2023. Revenue generated in Europe was $0.9 million in the current quarter, representing a decrease of 19%, compared to the same period last year. Total revenue units in Europe decreased from 61 in Q3 of 2022 to 47 in the current quarter. The number of sales territories in Europe remained consistent at six for the three months ended September 30, 2023. Gross profit for the three months ended September 30, 2023, was $8.8 million, an increase of $4 million, compared to the three months ended September 30, 2022. Gross margin for the current quarter increased to 84%, compared to 78% for the same period last year.

This increase was due primarily to a decrease in the cost per unit, driven by an increase in the production volume. Research and development expenses for the current quarter were $2.7 million, reflecting an increase of 18%, compared to the same period last year. This change was driven by a $0.3 million increase in compensation expenses as a result of increased headcount and a $0.1 million increase in non-cash stock-based compensation expense. SG&A expenses for the current quarter were $15.7 million, representing an increase of 23%, compared to the same period last year. This change was primarily driven by a $1.9 million increase in compensation expenses, mainly as a result of increased headcount, a $0.5 million increase in non-cash stock-based compensation expense, a $0.3 million increase in marketing and advertising expenses associated with the commercialization of Barostim in the U.S. and a $0.1 million increase in travel expenses.

Interest expense increased $0.5 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022. This increase was driven by the interest expense on borrowings under the loan agreement entered into on October 31, 2022. Other income net was $1.1 million in the current quarter, compared to $0.3 million for the same period last year. The income in the third quarter of 2023 was primarily driven by interest income on our interest bearing accounts. Net loss for the current quarter was $9 million, or $0.43 per share, compared to a net loss of $9.8 million, or $0.48 per share, for the same period last year. Net loss per share was based on 20.8 million weighted average shares outstanding for the third quarter of 2023 and 20.6 million weighted average shares outstanding for the third quarter of 2022.

At the end of the third quarter, cash and cash equivalents were $83 million. Net cash used in operating and investing activities was $8.2 million for the third quarter. This is compared to net cash used in operating and investing activities of $13 million for the three months ended June 30, 2023, which included our annual premium for our directors and officers insurance of approximately $2 million. The improvement in our cash burn has been driven by improved gross margins, increased productivity from our U.S. sales team and a reduction in our R&D spend associated with the BeAT-HF trial. Now turning to guidance. For the full year of 2023, we now expect total revenue between $38.5 million and $39 million, up from $37 million to $38.5 million.

We continue to expect full year gross margin between 83% and 84%. And we now expect operating expenses between $77 million and $78 million, down from $78 million to $80 million. For the fourth quarter of 2023, we expect to report total revenue between $10.5 million and $11 million. I would now like to turn the call back over to Nadim.

Nadim Yared: Thanks, Jared. Our approach to advancing the adoption of Barostim, while upholding our financial stability, has yielded positive outcomes once again, reflecting the effectiveness of our operational model. Our operations are performing well with steady revenue growth, improved margins and a reduction in our cash burn. Our solid performance in the third quarter, has led us to make another upward adjustment to our revenue projection for the year. We’re looking forward, to carrying this momentum into this final quarter of 2023 and beyond. And now I would like to open the line for questions. Operator?

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Q&A Session

Operator: Thank you. [Operator Instructions] And our first question comes from the line of Robbie Marcus with JPMorgan. Please proceed.

Unidentified Analyst: Hi, this is Alan on for Robbie. Congrats on a good quarter. I just had one quick question to start on your forward-looking guidance. You’ve been able to pretty consistently guide and beat the guide, several quarters in a row now. And when I look at your implied guidance for fourth quarter, given the really strong implanting center adds, you had in the third quarter. It looks like the benchmark should – it looks like kind of a very achievable floor once again. So what kind of dynamics are you seeing so far in October that lead you to believe that this is the right guide for fourth quarter?

Jared Oasheim: Hi, Alan, this is Jared. I’ll take that one. Thanks for joining the call here. So yes, we’ve continued to exceed expectations on our quarterly growth throughout 2023. That includes the number of active implanting centers, but then also being able to exceed the top end of the guidance that we’ve given over the last few quarters. So, we’ve been pretty happy with the growth that we’ve seen throughout 2023. I’d say the one thing to consider here for Q3 results as we march into Q4, was what we saw in Europe. Europe has continued to be flat, roughly around that $1 million mark on a quarterly basis. But again, most of our focus is in the U.S. business, and we’re seeing really, really good results on that side of it. One thing to call out.

Nadim mentioned it earlier was around the OPPS final ruling coming out in November. And we did mention that there is the non-binding vote that went our direction, so it was 5-0 in our favor. And our base case is assuming that we don’t get mapped to the new attach APC, that would increase the reimbursement for our hospitals. But if we are surprised and we do get mapped to that new payment code. There is a chance that some of our customers that maybe have had complicated add-on payment calculations in the past could delay procedures from December into January. So that they could potentially benefit from that more predictable payment code, APC1580, and that approximate reimbursement of $45,000. So, I think taking all of that into consideration, we’ve seen good results in the U.S., kind of steady results in Europe and then the unknown related to that payment code coming out in November.

Just kind of all came together for the guidance that we put out for the fourth quarter. But again, we were really happy to be able to push that full year guidance number up.

Unidentified Analyst: And then just a quick follow-up. I know the base case right now is that you don’t get mapped – to 1580 that you stay on 5465. But if you do get a mapped to 1580, will you essentially be able to hold ASPs kind of where they are in like in off the $30,000-plus range? Thank you.

Jared Oasheim: Yes, it’s a good question. So, I think we’ve seen ASPs north of that $30,000 throughout 2023. We’ve been really happy with the results so far this year, based on that add-on payment that we have had. I think as we march into 2024, without going into detailed guidance there. I think it’d be hard to say, that you could maintain those ASPs at that level longer term, but you could be approaching those numbers, right? So maybe not exactly the $30,000 or $31,000, but maybe high 20s would definitely be conceivable.

Operator: Our next question comes from the line of Matthew O’Brien with Piper Sandler. Please proceed.

Matthew O’Brien: Thanks for taking the questions. Just to maybe follow-up a little bit on the last question about the unanimous vote. I know Nadim and Jared, you’re data driven, but there’s no guarantees I get all that. But I’m sure you’ve looked at this. How often will CMS look at something – that has a unanimous vote and then say, no, we’re going to do something different? And then how often will they look at something like that and say, yes, it makes sense. We’re going to go with this recommendation. Any kind of framework you can provide on that?