CVRx, Inc. (NASDAQ:CVRX) Q4 2022 Earnings Call Transcript

CVRx, Inc. (NASDAQ:CVRX) Q4 2022 Earnings Call Transcript January 26, 2023

CVRx, Inc. beats earnings expectations. Reported EPS is $-0.51, expectations were $-0.56.

Operator: Good day and welcome to the CVRx Q4 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker Mr. Mike Vallie with CVRx. Please go ahead.

Mike Vallie: Good afternoon. Thank you for joining us today for CVRx’s fourth quarter and full-year 2022 earnings conference call. Joining me on today’s call, are the company’s President and Chief Executive Officer, Nadim Yared; and its 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 the CVRx’s President and Chief Executive Officer, Nadim Yared.

Nadim Yared: Thank you, Mike, and thanks everyone for joining us today. To begin today’s call by providing an overview of our fourth quarter and full-year performance followed by an operational update, a review of our financial results by our CFO, Jared Oasheim. And then I will conclude our thoughts on 2023 before turning to questions-and-answers. We are very proud of everything that our team accomplished in 2022. It has been a great year for CVRx. We made progress towards all our strategic initiatives resulting in the increased adoption and utilization of Barostim, despite several macro disruptions throughout the year. This is demonstrated by the fact that our worldwide revenue increased by 72% over 2021 primarily driven by our U.S. heart failure businesses 108% annual growth.

And the year was capped by a strong fourth quarter. Our worldwide revenue for the fourth quarter was $7.2 million, an increase of 96% over the fourth quarter of 2021. Performance in the quarter was driven by the continued expansion for U.S. sales force and contributions from our marketing initiatives, which led to an increase in U.S. active implanting centers. In the U.S. our heart failure business generated $6.0 million, an increase more than 121% over the fourth quarter of 2021. The increase was primarily driven by continued growth and expansion into new sales territories, new accounts and increased physician and patient awareness. When we went public in the summer of 2021, we were in the very early stages of our commercial launch in the U.S. At the time, we expect it to consistently grow this business in line with the investments in our commercial organization.

We are very pleased with how this has played out with the fourth quarter being our 10th consecutive quarter of increasing U.S. heart failure revenue with average quarterly sequential growth in excess of 20%, since the IPO. Now for an update on operational developments during the fourth quarter to support greater adoption in use of Barostim. Our focus areas were: one, the continued expansion of commercial infrastructure; two, innovation of our product portfolio; and three, the expansion of the clinical body of evidence. Starting with the continued expansion of our commercial infrastructure. During the quarter, we added three new territories bringing that total to 26. We are excited with the quality of sales talent we have been able to attract and look forward to continuing to build upon that quality in 2023.

During the year, we generated momentum with several for marketing programs, including our direct-to-consumer or DTC pilot program, our new branding campaign and patient education programs. The DTC pilot program has been successful to-date and has had a positive impact on our U.S. business. To-date, we have made minimum investments in localized DTC campaigns and we have seen more than 100 patients undergo a Barostim implant and have a robust pipeline of potential patients with interest in learning whether they are candidates for the therapy. We plan to continue to optimize these campaigns to make them more cost effective as we evaluate whether to roll them out more broadly. Our second area of focus is innovation of our product portfolio. During the second half of 2022, we launched Barostim (ph) IPG the second-generation device, which reduces the size of the IPG by 10% and extends virtualized by 20% reducing the frequency of device replacements for patients and their providers.

It is remarkable for the Neo 2 extends longevity by employing a smaller footprint and allows for a streamlining of the implantation procedure. Our third focus of area is the expansion of our clinical body of evidence. The BeAT-HF clinical trial was designed to demonstrate that Barostim provides a mortality and more rated benefit in addition to a reduction of symptoms of heart failure in patients with reduced ejection fraction. As previously announced, we accrued the required 320th event in the trial and are working to collect and monitor all the data. As a reminder, the primary endpoint is a mortality and morbidity composite endpoint, and we have pre-specified a few potentially meaningful secondary and ancillary endpoints and analysis. These include the hierarchical win ratio analysis, few COVID sensitivity analysis, and waste account for the severity of hospitalization.

While we and the steering committee are still blinded to the results, but also based on how the data collection is progressing with our belief that we will be in a position to unblind and share the data before the end of the first quarter of 2023. Our goal for this post market trial is to broaden Barostim’s labeling. We plan to submit the totality of the evidence in our corresponding analysis to FDA when we outline the data. Please note that FDA is the ultimate decision maker on whether to allow additional claims a new labeling for Barostim based on its own evaluation of all the available data. And team also seek advice from a panel of independent experts. At this point, it is difficult to plan for a specific scenario. The results may produce a conclusion that is more complex in the last than a straightforward binary answer.

In addition, we continue to make progress BATwire, our ultrasound guided implant toolkit. In 2022, we added more sites and more patients into the clinical trial. As a reminder, we expect to complete the trial in 2024. We announced in late September that we added the veteran medical device executives, Kevin Hykes to our Board of Directors. Kevin brings his business acumen and his decades long experience in the field of cardiovascular implantable devices. Additionally, with the promotion of four leaders to the executive team, we now have eight out of 10 of our executives promoted internally. Showcasing the strength and depth of our talent bench at CVRx. In summary, we had a fantastic 2022 as we considerably expanded the adoption and application of Barostim as seen by 10 consecutive quarters of strong growth in our U.S. heart failure business.

The year was start off with a successful fourth quarter during which we continued to push the growth of active implanting facilities in the United States, highlighting once more the benefits that Barostim can provide both healthy and professionals and patients with cardiovascular disease. I will now turn the call over to Jared to review our financials. Jared?

Jared Oasheim: Thanks, Nadim. Total revenue generated in the fourth quarter was $7.2 million, which is an increase of $3.5 million or 96%, when compared to the same period last year. Revenue generated in the U.S. was $6 million for the fourth quarter, which is an increase of 109% over the same period last year. Heart failure revenue in the U.S. totaled $6 million in the fourth quarter on a total of 193 revenue units, up 121 percent as compared to 2700000.0 dollars in the same period last year on 95 revenue units. The increase was 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 fourth quarter, we had a total of 106 active implanting centers, as compared to 46 at the end of Q4 2021 and 91 at the end of Q3 2022. At the end of the fourth quarter, we have a total of 26 territories in the U.S., compared to 14 at the end of Q4 2021 and 23 at the end of Q3 2022. Revenue generated in Europe was $1.2 million in the fourth quarter, which is an increase of 49%, when compared to the same period last year. Total revenue units in Europe increased from 39% in Q4 2021 to 68 in Q4 2022. The revenue increase was primarily due to the lessening impact of the COVID-19 pandemic in Europe. The number of sales territories in Europe remained consistent at six during Q4 2022. Gross profit was $5.7 million for the fourth quarter, an increase of $3 million, when compared to the same period last year.

Gross margin increased to 79% for the fourth quarter compared to 73% for the same period last year. Gross margin for the three months ended December 31, 2022 was higher due to a decrease in the cost per unit and an increase in average selling price, partially offset by a larger percentage of our revenue units coming through both systems versus battery replacements. Research and development expenses were $3 million for the fourth quarter, which is an increase of 70%, when compared to the same period last year. This change was primarily driven by increases in compensation expenses due to increased head count. SG&A expenses were $14.1 million for the fourth quarter, which is an increase of 46%, when compared to the same period last year. This was primarily driven by an increase in marketing and advertising costs associated with the commercialization of Barostim, as well as higher compensation costs from increased headcount.

Net loss was $10.5 million or $0.51 per share for the fourth quarter, as compared to a net loss of $10.6 million or $0.52 per share for the same period last year. Net loss per share was based on approximately $20.6 million weighted average shares outstanding for the fourth quarter and approximately $20.4 million weighted average shares outstanding for the same period last year. At the end of the fourth quarter, cash and cash equivalents were $106.2 million. Net cash used in operating and investing activities was $10.9 million for the fourth quarter, compared to $7.6 million for the same period last year. We continue to believe we have enough cash on hand to reach cash flow breakeven without needing to raise additional capital. Now turning to guidance.

As announced in early January, for the full-year of 2023, we expect total revenue between $35 million and $38 million. Gross margin between 78% and 79% and operating expenses between $76 million and $80 million. For the first quarter of 2023, we expect to report total revenue between $7.1 million and $7.5 million. I would now like to turn the call back over to Nadim.

Nadim Yared: Thanks, Jared. Before opening the line for questions, I would like to discuss our key areas of focus for 2023 as we seek to drive the increased adoption and utilization of Barostim. First, the continued expansion of our commercial infrastructure especially our direct sales force in the United States remains a top priority. We expect to continue hiring top talent throughout the year and are targeting a total of approximately 38 U.S. territories by the end of 2023 or on average adding three new territories per quarter. In addition, we will continue to invest in marketing efforts to help drive increased awareness of Barostim. Outside of the U.S., we have added additional talent to our direct sales organization in Germany and we continue to expect to add incremental headcount in 2023 to support our commercial strategy in that region.

Our second focus area is the expansion of our clinical body of evidence. Both our post market study of BeAT-HF and BATwire remain on track with our previous updates. In regard to BeAT-HF we have been conducting this trial since early 2016. And here we are seven years later, we are looking forward to potentially unblinding the data and sharing the results with you before the end of this quarter. Looking ahead to 2023, we are very eager to accelerate the development of Barostim by utilizing the positive momentum we have built over the previous two years. While we are still very early in the commercial ramp and the market penetration, we are totally focused on the significant potential to provide treatment to as many patients as possible. And now, I would like to open the line for questions.

Operator?

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Q&A Session

Operator: Thank you. Our first question will come from the line of Robbie Marcus with JPMorgan. Your line is open.

Robbie Marcus: Great. Thanks for taking the questions. Maybe first the cash burn is going to be — it looks maybe a bit higher than last year based on the sales and OpEx guidance and you talk about a pathway to profitability without further capital raises? How important is a positive readout from BeAT-HF to getting to that target? And any time frames that in terms of revenue or years out that be thinking about cash flow profitability? Thanks.

Jared Oasheim: Hey, Robbie. Thanks for the question, so one thing that we’ve been consistent on is the model that we’ve built is under the assumption that we get a neutral readout from the morbidity, mortality trial. And that’s not based on us being pessimistic about the results it’s just us taking a conservative approach. And so when we say that we think we still have enough cash on hand to reach cash flow breakeven and comes with that assumption that morbidity, mortality is neutral. We haven’t yet drawn a line in the sand for when a publicly when we’re going reach that cash flow breakeven point from a run rate perspective. But we do expect this to be the year where we see that cash burn start to flat line. To be similar to the burn that we saw in 2022. And then from there, starting to see the overall burning start to drop on a quarterly basis.

Robbie Marcus: Great. If I just want to dream big and say it is a positive trial. How important has or how big a barrier has not having a mortality benefit been to driving physician adoption? And if it does have a positive, do you think we should be thinking more like a rapid improvement in adoption following? Or is there still — would it have to wait for FDA labeling? So maybe a little time afterwards?

Nadim Yared: Hey, Robbie, Nadim here. So thanks for the question by the way. Listen, when we started the trial in 2016, beginning it in 2016 started enrolling it, we powered it to win it, right? So we’re still hopeful that the data will be put out clear cut simple yes answer to all of the questions below. That said, it’s the risk certainty here is the time it takes to get the word out. First, we’ll probably if there is a medical meeting, we’ll do the announcement of the results during the medical meeting. But if there isn’t one, closed by in terms of time, long enough to sit on the data for too long, so we’d like to get it out as soon as possible. So we may end up doing — and basically in the next event where we’ll invite you and other people who wants to listen in and will present ourselves the data.

But that does didn’t get it , so we’ll have to wait for that medical meeting and do the presentation there via symposium or . After that, you also heard those, one is the FDA labeling that would allow us to market the data. And the second is the publication surprisingly, FDA has been faster than most journals. The median time to publish and manuscript this month. So those are the uncertain element that’s would make me hesitate to say, yes, we will see a pickup in 2023, but the pickup in sales would happen in 2024. But based on your previous question, if the data is positive, we may desire to so paradoxically, we may burn cash a little bit faster earlier to funnel that