Greetings and welcome to the electroCore Second Quarter 2023 Earnings Conference Call. It is now my pleasure to introduce your host, Dan Goldberger. Thank you, sir. You may begin.

Thank you all for participating in today's electroCore's earnings call. My name is Dan Goldberger. I'm the Chief Executive Officer of electroCore, and I am also a member of the Board of Directors. Joining me today is Brian Posner, our Chief Financial Officer. Earlier today, electroCore released results for the second quarter ended June 30, 2023. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during the call that include forward-looking statements within the meaning of the federal securities laws, which were made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact could be deemed to be forward-looking statements. All forward-looking statements, including, without limitation, any guidance, outlook or future financial expectations or operational activities and performance are based upon the company's current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list of the risks and uncertainties associated with the company's business, please see the company's filings with the Securities and Exchange Commission. electroCore disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information that is accurate only as of the live broadcast today, August 9, 2023. We're thrilled to report another record revenue quarter with sales of $3.6 million for the 3 months ended June 30, 2023. That's a 65% increase over the prior year. Gross margins continue at 84% and cash used in operating activities was $3.3 million for the second quarter of 2023. Subsequent to the end of the quarter, we strengthened our balance sheet by raising net proceeds of approximately $7.5 million in a registered direct and private placement of equity to returning institutional and accredited investors and certain directors and officers. We believe that our increased cash balance, along with potential future increases in revenue and continued rationalization of operating expenses will provide us with enough runway to operate our business through 2024 and beyond. More on that later when we discuss guidance. Our prescription headache business continues to grow worldwide. We launched 2 new nonprescription product lines in late 2022, Truvaga as a direct-to-consumer wellness brand and TAC-STIM for human performance for our active duty military personnel. Both new products continued to exceed our expectations in the second quarter and are driving excitement about the future. Truvaga is currently available exclusively through our e-commerce platform at truvaga.com. We are positioning Truvaga as a direct-to-consumer wellness product for stress, mental acuity and sleep. No prescription is required for this category. Truvaga recorded net sales of $290,000 in the second quarter of 2023, up from $147,000 in the first quarter of 2023. Based on this initial success, we continue to make targeted investments in marketing Truvaga. Through the first half of 2023, our revenue return on advertising spend, what the industry calls the media efficiency ratio has been greater than 2.2. In other words, we are spending $1 to generate more than $2.20 of revenue. We are carefully monitoring Truvaga return rates as well, which have increased slightly to approximately 14% so far this year. We believe that the Truvaga business can scale nicely if we can maintain or improve these metrics as we move through the year. TAC-STIM for human performance is being sold to select Air Force Special Forces and Army Special Forces units for accelerated training, sustained attention, reduced fatigue, and improved mood as defined by the Air Force Research Laboratory, or AFRL. No prescription is required, and you can find more information at www.tac-stim.com. We recorded $311,000 of TAC-STIM revenue in the second quarter of 2023, up from $88,000 in the first quarter of 2023. The sales funnel for this product continues to grow as word spreads across military units of the potential human performance benefits provided by TAC-STIM. In parallel, we're developing a second-generation product known internally as TAC-STIM 2.0 in collaboration with AFRL, and we delivered 10 prototypes to AFRL at Wright-Patterson Air Force Base for evaluation last month. Note that revenue growth for this product line is likely to be lumpy as active duty units purchased in bulk for pilot deployment. Turning now to our prescription headache business. The VA/DoD hospital channel continues to be our largest customer. You'll recall that our gammaCore prescription therapy is free to patients covered by veterans administration benefits, representing about 9 million covered lives across approximately 1,300 healthcare facilities. Sales in the VA/DoD channel grew 75% from $1.19 million in Q2 2022 to $2.81 million in the second quarter of 2023. 138 VA and DoD military treatment facilities have purchased prescription gammaCore products through June 30, 2023, as compared to 106 through June 30, 2022. Our physician dispensed cash pay channel, including gCDirect and gConcierge grew 33% from $325,000 in 2Q '22 to $433,000 in the second quarter of 2023. These channels have grown from 660 prescribers at the end of the second quarter of 2022 to 2,237 at the end of the second quarter of 2023. We added 403 new prescribers during the second quarter of 2023. We believe that the increase in prescribers could be a leading indicator of future growth. Last year, we announced a distribution agreement with Joerns Healthcare, LLC that we believe will add more than 12.5 million covered lives within a select managed care health system. The business model with Joerns will be similar to how we work with the VA hospital system. Joerns will handle adjudications, billing and collections, while electroCore will ship directly to patients and provide in-servicing and patient support. Our field sales team is responsible for educating clinicians within those managed care systems. We continue to work with Joerns on the implementation. And while we did not have any revenue in this channel in the second quarter of 2023, we did process several prescriptions during the quarter and expect to begin recognizing small initial revenues in the current quarter. Revenue from channels outside the United States decreased by 9% in U.S. dollars to $424,000 in the second quarter of 2023 as compared to $467,000 for the second quarter of 2022. Most of our OUS revenue was generated in the United Kingdom by prescription gammaCore sales funded by the National Health Service, or NHS, which increased 8% in local currency before unfavorable foreign exchange adjustments. Now turning to our clinical progress. On July 25, 2023, we announced the publication of a peer-reviewed manuscript, effect of transcutaneous cervical vagus nerve stimulation on declarative and working memory in patients with post-traumatic stress disorder or PTSD in the Journal of Effective Disorders. The study was conducted under the direction of Dr. Bremner with the support of Emory University and Georgia Institute of Technology in the Atlanta Veterans Affairs Medical Center and was sponsored by a Department of Defense small business technology transfer grant. The FDA previously awarded Prescription gammaCore breakthrough designation to treat the symptoms of PTSD, and we are working with the agency towards De Novo submission for that indication. On July 6, 2023, we announced that the NFL and the NFL Players Association jointly awarded two grants to independent medical researchers at the American Society of Pain and Neuroscience, ASPN and Emory University to fund investigations into innovative, first-of-their-kind alternative pain management methods that could benefit NFL players and society at large, and nVNS will be used in a pilot study assessing noninvasive treatment of refractory post-concussion headache pain led by Dr. Erika Petersen and researchers at the ASPN. The randomized study will compare nVNS in contact sport athletes experiencing post-traumatic headache to current standard of care treatments. On April 26, 2023, we announced that the National Institute on Drug Abuse, NIDA, part of the National Institute of Health, NIH, was awarded Emory University and the Georgia Institute of Technology, a 3-year, $6 million grant through the NIH, Helping to End Addiction Long-term initiative or HEAL, to conduct a pivotal clinical trial of gammaCore nVNS for the treatment of opioid use disorder or OUD. The double-blind, randomized, sham-controlled study to be funded by this grant will recruit approximately 100 patients with OUD. The primary efficacy endpoint of the study will be peak difference in the subjective opioid withdrawal score between nVNS and sham treatment on day 2 and 3 of the initial withdrawal period. On April 24, 2023, we announced that the Air Force Research Laboratories reported data from its study on the ability of our noninvasive vagus nerve stimulation to improve second language learning. The study was conducted at the Defense Language Institute in Monterey, California, the U.S. Department of Defense Premier Language School. The study was supported by the Defense Advanced Research Projects Agency, DARPA, within their targeted neuroplasticity training program. The study showed a significant positive effect of nVNS over sham on language recall. Participants received our treatment also showed significant increases in energy and focus over the course of each training segment. We'll continue to provide updates about our pipeline and other opportunities in the future. Now I'll turn the call over to Brian for a review of our financials and other guidance items. Brian?

Thank you, Dan. For the quarter ended June 30, 2023, electroCore reported net sales of $3.6 million compared to $2.2 million during the same period of 2022, which represents an approximately 65% increase over the prior year. The increase of $1.4 million is due to an increase in net sales across major U.S. channels, including the sale of our prescription gammaCore devices and revenue from the sales of our nonprescription human performance TAC-STIM and Truvaga products. Total operating expenses in the second quarter of 2023 were approximately $8 million as compared to $7.6 million in the second quarter of 2022. Research and development expense in the second quarter of 2023 was $1.2 million as compared to $1.3 million in the second quarter of 2022. This decrease was due to a decrease in compensation associated with cost-cutting measures, offset by our targeted investments to support the future iterations of our nVNS delivery platform. Selling, general and administrative expense in the second quarter of 2023 was $6.8 million as compared to $6.3 million in the second quarter of 2022. This increase was due to our continuing targeted investments to support our commercial efforts, offset by decreases in insurance and stock-based compensation expense. GAAP net loss in the second quarter of 2023 was $4.9 million compared to the $5.3 million net loss in the second quarter of 2022. Adjusted EBITDA net loss in the second quarter of 2023 was $4.5 million as compared to a net loss of $4.9 million in the second quarter of 2022. A reconciliation of GAAP net loss to non-GAAP adjusted EBITDA net loss has been provided in the financial statement tables included in today's press release. Net cash used in operating activities in the quarter ended June 30, 2023, was approximately $3.3 million as compared to $3.2 million in the second quarter of 2022 and significantly lower than the $5.9 million reported in the first quarter of 2023. Cash, cash equivalents and restricted cash at June 30, 2023, totaled approximately $8.7 million as compared to approximately $18 million as of December 31, 2022. Subsequent to June 30, 2023, the company raised net proceeds of approximately $7.5 million through a registered direct offering and concurrent private placements priced at the market under NASDAQ rules. Looking ahead, for the full year 2023, we are reiterating our net revenue guidance of $14 million to $15 million, representing more than 60% growth over 2022. We believe that our prescription headache channels will continue growing by more than 50% to at least $12 million for the full year. Revenue from new products in the Truvaga and TAC-STIM brands could be more than $2 million for the full year, and we will begin recognizing revenue for our distribution agreement with Joerns Healthcare for the sale of prescription gammaCore with a select managed care health system. Including our recent capital raise, we had a pro forma cash balance of $16.2 million as of June 30, 2023. We expect that cash usage will continue to decrease for the remainder of 2023 as revenues increase. We reduced R&D expense and continue to rationalize other operating expenses. Therefore, we expect our net cash usage to decrease significantly as we progress through the year.

Thank you, Brian. I'm very impressed with our second quarter 2023 operating results and with the continued momentum in our prescription headache business and bolstered balance sheet. We are increasingly enthusiastic about the company's long-term prospects. Continued investment in our cash pay and covered business models have greatly expanded the prescription gammaCore therapy market. As reflected by the continued revenue growth, number of facilities and number of prescribers realized in the second quarter of 2023, Truvaga has tons of potential as a direct-to-consumer wellness offering. We have started with an e-commerce business model, which will be the focus this year, and I look forward to launching a next-generation app-enabled product platform next year. Our metrics held strong during the second quarter of 2023 and we will continue to adjust our investment in all of our commercial channels as the year progresses. TAC-STIM 2.0 is a next-generation human performance product being financed in part by the Air Force Special Forces through their BOOST program. It could accelerate the adoption of nVNS for human performance among our active duty military in coming years. A pipeline of interest from different branches of the military continues to develop for our TAC-STIM product, which may result in expanded adoption in future quarters. We also believe that there will be civilian crossover as first responders, athletes, transportation workers, and gamers become aware of the human performance benefits published so far. Demand for our prescription gammaCore therapy in the VA/DoD channel continues to grow based on clinical performance and our increased presence in the field. We have about 35 trade commission sales agents for 1099 reps in the field, managed by our small team of territory business managers and supported by our customer experience team. Note that our sales and marketing expense increased by approximately $550,000 in the second quarter of 2023, while sales grew almost $1.4 million, signaling that there may be real leverage opportunities in the P&L if revenue increases over time. Our R&D spend on new products likely peaked during the first quarter of 2022 and we expect our quarterly cash usage to decline as we go through the year due to anticipated revenue growth, gross margin stable at approximately 84%, declining R&D investments and our intention to maintain discipline around operating expenses. Further out, we're working towards establishing additional indications for prescription gammaCore to treat post-traumatic stress disorder and/or opioid use disorder. Look for new product launches in 2024 featuring our app-enabled technology that can provide digital health solutions. That product platform will be launched in headache, wellness, and human performance as we ramp up our supply chain. We see many potential growth drivers for the remainder of 2023 and beyond, including continued growth in our U.S. prescription headache business in both the VA/DoD and commercial channels. Further development of the Truvaga product for wellness, mental acuity and sleep driven by ongoing consumer marketing efforts, further development of the TAC-STIM brand for human performance in the active duty military and beyond, revenue through our distribution agreement with Joerns Healthcare for the sale of prescription gammaCore within a select managed care health system, our app-enabled new product platform that will facilitate consumer-facing digital health solutions and unlock new business models, and prescription gammaCore label extensions into PTSD and/or OUD in 2024 and 2025. Finally, in July 2023, we strengthened our balance sheet by raising net proceeds of approximately $7.5 million in a registered, direct and private placements, institutional and accredited investors and certain directors and officers. The cash infusion, along with increased revenues and consistent reduction in burn could provide us with enough runway to operate our business well into the future. At this time, I'll turn the call over to the operator. Operator, please open the line for questions.

Our first question comes from John Vandermosten with Zacks.

Great. Dan and Brian, can you review the structure of the Reliefband arrangement and how the economics work for that?

So we haven't said very much publicly about it. We have signed a distribution agreement with Reliefband for their Reletex product that we're going to take to our channel in the VA hospital system. And it's early days, but it overlaps very nicely with our call point and with our broader mission of bringing neurostimulation devices to the health care marketplace.

Great. And TAC-STIM and Truvaga have really seemed to have come out pretty strong. And with regard to TAC-STIM, are there any national opportunities, international defense agencies perhaps that you can pursue there? And do you need clearance from the DoD to do that? And then perhaps also maybe the DoD could kind of be a conduit to talking to others? What do you think about the opportunity there in terms of international department?

Yes. You're exactly right over the long haul. In the short run, the Air Force and Army that we're working with are very confidential about how they're deploying our vagus nerve stimulation technology in their conversations with their colleagues in NATO. It has come up, but we don't have very much visibility on how aggressively they're going to offer it to our colleagues overseas. Truvaga, we have to go through some regulatory compliance issues, but I certainly expect that Truvaga is going to be available in Canada, in the United Kingdom and in the European Union as we roll into next year and get through some of those compliance issues.

Great. It sounds like a lot of opportunities there. And last question for me. You had mentioned that R&D is going to be going down, but I'm wondering how that might be allocated going forward? I think there's PTSD, OUD and perhaps there's been a lot of other small things that are potential out there. How do you see kind of, I guess, in a pie chart of breaking down R&D into those different areas?

Our primary focus for R&D spending is currently on new product development. We are excited about launching our next-generation technology platform, which will utilize a smartphone as both a display and control system, integrating wellness data from other devices. This launch is scheduled for early next year. Consequently, our R&D expenses related to product development will decrease as we progress through the rest of this year, moving into pilot production and building inventory for the product line. We are collaborating with the FDA on a de novo submission to expand our label to include treatment for post-traumatic stress disorder, with the relevant data already collected, making it a minor part of our R&D expenses. We also plan to extend our treatment capabilities to address withdrawal symptoms from controlled substances like opioids. The National Institute on Drug Abuse has provided a $6 million grant to support the pivotal trial for this indication, led by Dr. Bremner at Emory University and the VA hospital in Atlanta. This trial will not impact our financials much, as it is primarily funded by the NIDA grant. In summary, we anticipate our R&D expenses will decline throughout this year, stabilizing at a significantly lower level into 2024.

Our next question comes from Swayampakula Ramakanth with H.C. Wainwright.

Thank you very much. I have a couple of questions to start with. You ended the last six months with a revenue run rate of $6.3 million, and the guidance you provided is clearly higher than what we can expect to annualize from that figure. I'm trying to understand the revenue trends and where you expect contributions to come from. I know you added over $800,000 from the new businesses, Truvaga and TAC-STIM. Will the anticipated growth come primarily from there, or is it more likely to result from expanding your points of contact at the VA? I'm looking to clarify how this business is set to grow over the next six months.

Yes, that's an excellent question, and I appreciate it. The positive news is that all of our U.S. channels are beginning to accelerate this quarter. We're already more than a third of the way through the quarter. The VA hospital system, which is our largest customer, experienced a 75% growth in the second quarter. We expect this growth to continue, possibly even increase, particularly within the VA hospitals as we move into the latter half of the year. This is partly due to a growing recognition that vagus nerve stimulation is effective for this demographic. Additionally, we are successfully recruiting more commission-based sales representatives, which we refer to as 1099 reps. Consequently, our network of on-the-ground sales personnel is rapidly expanding in a sustainable manner. This segment is already our largest revenue contributor and is experiencing the highest growth rate. Our commercial prescription sales have leveled off this year compared to last, but a significant opportunity lies in our partnership with Joerns, which provides us access to Kaiser. While we haven't reported any revenue from this channel yet, we anticipate generating some modest revenue this quarter from it. Approximately 12 million covered lives will now have access to gammaCore prescription therapy for headaches following our agreement and resolution of the back-office issues. I see substantial potential for growth from this new medical benefit for Kaiser patients. Both Truvaga and TAC-STIM have exceeded our expectations in terms of early adoption. Although their current numbers are small relative to our other channels, there is considerable room for growth. We have consistently mentioned that the TAC-STIM business could become very substantial in the coming years, but the growth may be sporadic as it typically involves large orders of devices at once. Therefore, predicting the exact timing is challenging, but we have a robust and expanding pipeline for tax NPOs.

On the TAC-STIM military business, it’s interesting that it has only been about six months since you began generating revenue, and you're already considering a second-generation product. While I realize you can't disclose too much about internal discussions, how should we view the introduction of second-generation products? Will this lead to a new wave of revenue, and how will TAC-STIM be affected by the release of a second generation? Can you market both the first and second generations over the next year to year and a half?

Yes. That's a great question. Moving forward, we need to improve our communication about what's happening. You can find images of the new military-grade version of our noninvasive vagus nerve stimulator on the TAC-STIM website. This version is a robust MIL-SPEC implementation that was mainly funded by the Air Force Research Laboratories at Wright-Patterson Air Force Base. In addition, we are working on a platform for civilian applications of vagus nerve stimulation that will connect via Bluetooth to a smartphone. The Department of Defense specifically prefers to avoid smartphone connections due to various security concerns. Therefore, these are distinct products designed for different users, yet both are fundamentally noninvasive vagus nerve stimulators. I hope this clarification helps. We have better images of the various product configurations on our websites.

Okay. And then I'm sorry, I'm flipping back and forth. Then going back to the VA channel. Since the COVID ended, I had to be careful it might be coming back. You have had more interactions for the VA centers. So is the depth of your relationship with individuals at the VA increasing? And how much of that you have already recognized and how much of that is still on the table?

There is a tremendous amount of runway ahead of us, both in terms of the number of facilities that we have opened up and within any given facility, the number of departments that we have opened up. We generally start with neurology in any particular facility. Behavioral health is very interested in what we're doing, especially around PTSD and substance abuse. We have access now to women's health to pain management and in some cases, we're now getting into primary care in the VA hospital settings as well. So we have tremendous forward opportunity not just to open up new facilities but to go deeper into our existing customer facilities.

Okay. One last question for Brian. So this quarter, you clocked 84% as gross margin. With the second-generation product coming up on the TAC-STIM business, and also with, at the same time, increasing in terms of volume of product leaving your facility, how should we think about gross margin, not just for '23, but in the short to midterm from here?

Yes, I believe we are quite confident in maintaining a gross margin above 80%. We have consistently been above this threshold since late 2021, aside from occasional one-time adjustments. Therefore, we are optimistic that we will remain above 80% for the foreseeable future.

Our next question comes from Nick Sherwood with Maxim.

Congrats on the quarter. Can you provide information on the demographic data or metrics you've obtained from your e-commerce platform and digital marketing initiatives, such as which social media platforms are driving traffic and what types of customers are coming in from these efforts?

Yes, that's a great question. We haven't shared much of that information publicly. One important metric we closely monitor is our media efficiency rate, which measures our media spending—primarily on the Internet—against the revenue we're generating. Currently, we are spending $1 on media to generate between $2.20 and $2.25 in revenue, which is quite scalable. Most of our spending has been focused on specific areas, as evidenced by our Google Analytics. We recently engaged an agency to enhance our social media presence by creating engaging content for us. This agency began its work in June and July. As a result, our current social media metrics are lacking, but I am optimistic that once this agency ramps up, we'll see improved performance on platforms like Facebook, Instagram, and TikTok. We're not heavily utilizing Twitter or X at this point, but we're planning a more focused campaign starting in the fourth quarter, leading up to the launch of our next-generation product early next year.

Our next question comes from Tyler Bussian with Brookline Capital.

Dan and Brian, I have a couple of quick questions for you. The first pertains to the plans for the second-generation devices. Will you be releasing those devices through both the gammaCore and Truvaga platforms? I know you mentioned that they are not part of the TAC-STIM. Are you considering a separate branding approach for that app-connected device?

We're going to start in the consumer segment with our Truvaga brand. gammaCore Sapphire, our flagship prescription product, has been our primary focus, but we believe there is a segment of prescription customers who would prefer an app-enabled platform that can gather and record data, particularly for tracking headaches. The idea of maintaining a headache diary is quite common. Therefore, we envision introducing this option in the prescription market, likely alongside gammaCore Sapphire rather than as a replacement.

Got it. So just for clarification. The plan is to take the current Truvaga device and fully replace all offerings with this app enabled, not offer the non-application based device when you get 2.0 out?

Correct.

Okay. Great. And then the other quick question I've got. So research and development plans are primarily a wind down for the rest of the year. But Brian, do you know for SG&A, how should we think about that line item going forward? It seemed like in the last two quarters, freight it stayed pretty stable. Is that still the plan? Should it maybe raise a little bit with sales continue to grow? What's kind of your expectations there?

I believe we should consider this in two parts. First, there's the sales and marketing aspect, which has both a variable and a fixed component that will increase with sales, particularly the variable portion. Additionally, as Dan mentioned earlier, we are rationalizing our operating expenses. We have reduced some positions in general and administrative expenses, so the fixed part of G&A is expected to decrease slightly. This will be somewhat offset by the variable costs associated with sales and marketing. Overall, it should remain relatively stable. Of course, we hope the variable costs will rise more alongside the increase in revenue, which is beneficial. That's the perspective we should maintain.

There are no further questions at this time. I'll hand the floor over to Dan Goldberger for closing remarks.

Thank you, operator. We appreciate everybody joining our call today. I want to give a special thanks to all of our employees who work tirelessly to deliver our amazing therapy to patients. I also want to thank the health care professionals and their patients for their loyal support of gammaCore therapy. We are also thankful for the support of AFRL, NIDA the NFLPA for supporting our new product initiatives and research. Lastly, we have to thank our shareholders, new and old, for their ongoing support of the company and our mission to improve health to our proprietary noninvasive vagus nerve stimulation technology platform. To our long-term directors, JP Errico and Trevor Moody for reelection at our shareholder meeting last week and we've reduced the size of the Board from 9 to 7 directors. JP Errico cofounded the company with his uncle, Dr. Tom Errico many years ago. He's the most brilliant and passionate inventor and businessman I've ever had the pleasure to work with. Trevor Moody has been a Director for many years preceding and through the initial public offering and the difficult transitions that followed. Trevor's strategic insight and advice have been fundamental to the business success that we're starting to report. We're very fortunate that both of these fine executives will continue to be available to us as consultants going forward. Sadly, I want you to know that the electroCore family is mourning the untimely passing last week Stefan Florea, a long-time engineering team member at our Rockaway, New Jersey facility due to his illness. He'll be missed. We've made a lot of progress at electroCore and we couldn't have done it without all of your unwavering support. Thank you all, and have a good evening.

Thank you. This concludes today's conference. All participants may disconnect. Have a good day.