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.

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 to CVRx's President and Chief Executive Officer, 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 expected 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 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 the innovation of our product portfolio. During the second half of 2022, we launched Barostim Neo 2 IPG, the second-generation device, which reduces the size of the IPG by 10% and extends its usability 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 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 morbidity 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, a few COVID sensitivity analyses, and accounting for the severity of hospitalization. While we and the steering committee are still blinded to the results, based on how the data collection is progressing, we believe 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 the FDA when we outline the data. Please note that the FDA is the ultimate decision maker on whether to allow additional claims and new labeling for Barostim based on its own evaluation of all the available data. The team also seeks 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 than a straightforward binary answer. In addition, we continue to make progress with 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 veteran medical device executive Kevin Hykes to our Board of Directors. Kevin brings his business acumen and 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 ten 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 kicked 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 to healthcare professionals and patients with cardiovascular disease. I will now turn the call over to Jared to review our financials.

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% as compared to $2.7 million 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 had 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 headcount. 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.

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.

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

Thank you for taking the questions. First, it seems that the cash burn might be higher than last year based on the sales and operational expense guidance. You mentioned a pathway to profitability without needing further capital raises. How crucial is a positive readout from BeAT-HF in reaching that goal? Also, what time frames are you considering regarding revenue or the years it might take to achieve cash flow profitability?

Hey, Robbie. Thanks for the question. 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. So when we say that we think we still have enough cash on hand to reach cash flow breakeven, that comes with the assumption that morbidity, mortality is neutral. We haven't yet drawn a line in the sand for when or publicly we will 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 flatline, similar to the burn that we saw in 2022. And then from there, we expect to see the overall burn start to drop on a quarterly basis.

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 would it still have to wait for FDA labeling?

Hey, Robbie, Nadim here. So thanks for the question. When we started the trial in 2016, we powered it to win, right? We are still hopeful that the data will provide a clear cut simple yes answer to all of the questions below. That said, the risk certainty here is the time it takes to get the word out. We will probably do the announcement of the results during a medical meeting. But if there isn't one, we need to make the timing right so we’d like to get it out as soon as possible. So we may end up doing the next event where we’ll invite you and others who want to listen in and will present the data. We have to wait for that medical meeting and do the presentation there via symposium. After that, we will need to wait for FDA labeling that will allow us to market the data. The FDA has been faster than most journals, but we have to wait for that as well. If the data is positive, we may need to be cautious with the assumptions, but the sales will likely see an uptick in 2024 rather than 2023. But if the data is positive, we may decide to expedite the process.

Got it. Okay. Just last quick one for me. Is this something you're going to try and submit for a late breaker at ACC? Or do you think you'll miss the date?

Thanks for the question. We don't know yet.

Got it. Okay. Appreciate you taking the questions.

Thank you.

One moment for our next question. That will come from the line of Matthew O'Brien with Piper Sandler. Your line is open.

Good afternoon. Thanks for taking the questions. I don't know, Nadim or Jared, which one of you this is for, but I don't want to overstate this too much. But when I look at the unit number in Q4 versus the number of active centers that you had last in Q3 and even in Q2, that productivity rate is down somewhat here in Q4. So can you just talk a little bit about why that's the case? And then the confidence in why those metrics improve so steadily especially even in Q1 and throughout 2023.

Yes. Hi, Matt. This is Jared. I can take that one. So as we look at the productivity for the accounts that we saw throughout 2022, part of this was driven by the success on the addition of new accounts which drove the overall average productivity down. We've said early on that right when an account starts, we see them treat one or two patients and then they push pause for a period of three, four, five or six months. They check out the results from a reimbursement perspective but also how the therapy is going with their patients. After they see that, they start to pick up the pace on their own productivity. The longer they are with us on average, the more patients they are treating. We still have confidence that the longer these accounts stay with CVRx, they are going to treat more and more patients based on the data that we've seen and collected over the last three years. The challenge we've faced over the last couple of quarters is that we've exceeded expectations on the number of accounts we are expecting to add, which just drives that overall productivity rate down because of the newness of those accounts.

Got it. Makes sense. So just to put a finer point on it, just because you're up 15 and 20 active centers in Q2 and Q3 respectively, that's the reason why that metric is down a little bit. And you're not seeing any change from trend line as far as utilization among those accounts as we're kind of exiting that six-month window?

Yes, that's correct. We're still seeing the centers that have been with us for a couple of years doing more than the centers that have been with us between one and two years and they're doing more than the centers that have been with us less than 12 months.

Got it. Okay. And then we can get into margins and all the other stuff, which are positive updates, I guess later. But the other question I did have was really on the DTC campaign. It seems like there's a lot of patients out there and I know it's just a pilot study, but what are you seeing as far as running some of those studies getting in front of patients that could be good candidates for this and then transitioning them all the way through to potentially getting an implant?

So the DTC pilot is key, and we are still keeping it as a pilot for a little bit longer to understand the questions that you're asking. Patients often have no idea what form of heart failure they have if they have an ICD or a CRT; they think they have a pacemaker. It's a disease that's harder to characterize. Our incidence rates show that each year, we are looking at around 4% to 5% of overall heart failure patients being candidates. So therefore, it’s a game of numbers and we track every single click along with the patient information we gather. If they are seeing their own physicians and we identify insights for hospitals that are already activated, things will move much faster. Conversely, a lot of variables keep this a challenging endeavor at the moment.

Got it. Thanks so much.

Thank you.

One moment for our next question. That will come from the line of Margaret Kaczor with William Blair. Your line is open.

Hey, good afternoon, everyone. Thanks for taking the question. Just because BeAT-HF obviously is a short-term catalyst, I was just curious if you can walk us through any commercial and marketing changes that you would make based on, let's call it, three scenarios where the first is positive on morbidity, mortality or on all events, maybe a more gray area, but numerical improvement mortality, but not on events. And then third of maybe a less good morbidity outcome or whatever gray area that would be less good that you would look at? How would that change your behavior, I guess, relative to the guidance you have?

Thank you, Margaret, for your question. The three scenarios you mentioned are crucial. Starting with the negative where the data is neutral, we will continue our current plan as a baseline. If we have positive trends but do not meet the endpoint itself, we would likely maintain our current marketing and sales strategy. Now, if we hit the most significant accretive endpoint and the FDA provides the labeling that confirms our device improves heart failure outcomes, we may choose to accelerate our sales and marketing efforts in the U.S. Still, the ramp-up will take time as we need to identify talent and train them.

Yes. That was great. And then, I guess, turning further on that right, so the existing accounts who already have a good sense of training and patient use and history with Barostim. Have you talked to them about what their expectations are for the trial and how they might change their utilization once the data is now available? Also, how would they view their TAM opportunity changing should one of those more positive scenarios come up?

We have to be careful and stick with the FDA-approved labeling. It's why our sales force does not engage in speculative discussions about outcomes. That said, if we hit the endpoint, the total addressable market (TAM) could increase because our existing labeling with the FDA did not include certain patients who may be treated with a CRT device. If we meet the endpoint, we will ask the FDA to remove that exclusion, which would likely lead to an increase in our TAM. We will probably have updated numbers on the TAM along with the results of the trial.

Great. Thanks. That'd be fantastic. Thanks, guys.

Thank you.

One moment for our next question. That will come from the line of William Plovanic with Canaccord. Your line is open.

Great. Thanks. Good evening. Thanks for taking my questions. A lot of them have already been answered, so I think I'll stick with some guidance and P&L stuff. As you talked, you gave us the rep cadence you expect in terms of the new account cadence. Would you expect that to stay the same or are you shifting more to a go deep strategy?

Hey, Bill, this is Jared. I can handle that one. From an account perspective, last year, we were talking about adding high single-digits on a quarterly basis throughout 2022. This year, we're expecting that to be in the range of about 10 to 12 new active implanting centers added on a quarterly basis as we march through 2023. There will also be work done by the account managers to reach out to referral pathways for those centers that are already active. So the centers that have been around for 12 or 24 months will try to go a little deeper and engage more with the referral cardiologists along the way.

Okay. And that kind of ties into the DTC question and I think you kind of alluded to the fact that I want to make sure I heard that right; is this more of an efficiency in terms of spend that you're trying to titrate and find out what is the most efficient in terms of getting a patient and converting them or getting a lead and converting it through a patient? Is that where a lot of the focus on the DTC is today?

Yes, the direct-to-consumer awareness campaigns that medical device companies did 20 years ago are very different from what we are doing today. We favor channels where we have traceability of every single click and every single patient. Everything leads to the campaign itself. 90% of the work is what happens behind the scenes. We track every consumer who sees an ad and turns into a candidate, identifying possibilities and contacting our sites that perform the procedure. The cost for every campaign is closely monitored almost daily, as we are optimizing for profit. We're not in the business of throwing money at awareness campaigns; we need to see results based on our spend.

Okay, good. And then quick Jared, the $1.136 million gain in the other, that's a little it's kind of a big number, just curious what that was. And then just you've kind of went through it with Margaret, but in like as simply as possible, what would you define as positive, what would you define as neutral, and what would you define as negative for the BeAT-HF outcomes? I know that's hard to do, but I think for investors, if you could sum it up like where are those kind of breakpoints and how should we think about it?

Hey, Bill. The main contributor to the other expense net category is the interest income from our current cash balance. As for the second part, Nadim can address that.

Yes. Regarding the statistics, there is a p-value that ensures that the type one error is less than a certain percentage. The FDA wants to know whether you achieved those results as a fluke by chance or whether the observation is robust. What I consider to be positive is if the primary endpoint met the statistical relevance that the FDA is looking for. If it's trending positive but does not meet the endpoint, we will analyze if other pre-specified, prioritized endpoints measured clinically relevant results. Even if we do not meet the primary endpoint, but we meet another secondary or ancillary endpoint, we still believe that there is a net positive above our base case right now.

Thank you.

One moment for our next question. That will come from the line of Alex Nowak with Craig-Hallum. Your line is open.

Okay, great. Good afternoon, everyone. And perhaps I missed this, but can you expand on what is happening in the background collecting all the morbidity data to move the readout from the first half to the first quarter? You must be seeing something or hearing something to give you that confidence it's going to come this quarter rather than more in the first half of the year?

Hey, Alex. This is Nadim. It's not the data itself but the rate of collection of the data and the rate of monitoring of the data. We are identifying the trend of monitoring of sites to ensure that we will have the data examined as required by the FDA before we are unblinded. Based on the synergy we see, we can narrow the timeline for blinding, so we have a strong likelihood that this will happen in Q1 instead of Q2.

Okay. Understood. And then, would it be possible to double the number of active centers in 2023? Or what are you thinking about ramping sales for this year?

Yes, Alex. The US heart failure business expects to add around 10 to 12 active implanting centers on a quarterly basis moving forward. Most of the revenue is coming from centers that have already signed up and activated in 2022. While we're very confident about the quality of our existing accounts, the last quarter did see some new center ads because of the growth in existing territories. We still haven’t cracked the code fully in Europe as we anticipate about $1 million per quarter as stable revenue.

Okay, understood. That makes sense. And maybe on that point of the European market, what do you need to happen for Europe to really ramp? Is it just more focus on it, or is it a reimbursement dynamic?

It’s all of the above. We’ve been more focused on the U.S. for good reason. In Germany, we have a ZE code from a reimbursement perspective, which creates a burden on procedures in terms of profitability and market access. We need to establish the procedures first to be able to get into DRG examinations, as it requires about 1,500 procedures in a lower-price environment. Because of that, it makes it harder to reach that scale in Germany. We have not decided to invest heavily in Europe right now, as we need to break that loop.

Yes, you have. That makes total sense. Really appreciate the update.

Thank you so much.

I'm showing no further questions in the queue at this time. I would like to turn the call back over to you, Mr. Nadim Yared for any closing remarks.

Excellent. Thank you so much, operator, and thanks everyone again for joining us for our fourth quarter earnings call. We appreciate your time and look forward to updating you on our progress during our next update. Good night.

Thank you all for participating. This concludes today's program. You may now disconnect.