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Neurometrix (NURO)

Participants
Thomas Higgins Senior Vice President and Chief Financial Officer
Shai Gozani President and Chief Executive Officer
Yi Chen H.C. Wainwright
Jared Cohen JM Cowen
Call transcript
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Operator

Good morning and welcome to the NeuroMetrix's Third Quarter 2017 Earnings Call. My name is Candice and I will be your moderator on the call. NeuroMetrix is a commercial stage, innovation driven healthcare company combining neurostimulation and digital medicine to address chronic health conditions including chronic pain, sleep disorders, and diabetes. The company is located in Waltham, Massachusetts. On this call, the company may make statements which are not historical facts, and are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. in or depend conditions predictive to or are events future are that nature, upon that refer Statements forward-looking statements. reflect and statements results forward-looking current NeuroMetrix of Any about of operations other information. forward-looking views future

the rely the not call. risks as today. Mr. website including under to Please website issued factors duty Risk SEC, on materially Thomas now those the of introduce I'd may Officer, to available result Vice forth and in at on NeuroMetrix.com SEC's no in conference the the the should because undertakes update the described company's like actual on You a important and to the of intend Investor the Chief Senior not earlier the uncertainties, Financial results Factors and at number Higgins. NeuroMetrix Relations including information refer a periodic heading SEC.gov. set disclosed President to differ statements with Higgins? does filings NeuroMetrix factors, release Mr. forward-looking earnings this and company's on

Thomas Higgins

Candice. I'm joined and in Dr. President markets operates our both review. and you, and therapeutics diagnostics. quarterly call point-of-care the wearable we this Gozani, your CEO Shai appreciate two by NeuroMetrix participation on in Thank

are proprietary or neurostimulation in-house to Our diagnostic based achieve results. both technologies platform expertise in markets therapeutic our on in precision

with reduction population XX the represents pain Outside We X% could people. are nerve morning markets an of whether persons. DPNCheck in financial and condition for about first in this disease, U.S. This cash our In period all This highlights diabetic coupled diabetics in the addresses key market seasonality, a market equally We reported with in during addresses about in our top available people chronic and medical conditions acknowledged our we for addressing plan XX-Q a summer revenue DPNCheck, as U.S. tomorrow. affecting million line or XX a and of that weather the test from to the million QX, epidemic. opportunity aggregate was operations. large other Japan, a half of about usage be as markets. large. achieved recently estimated we suffering diabetics. Quell, device growth our markets. believe over-the-counter from people Mexico we China, file about well QX that wearable in US, as

equity We our to an cash the capital tranche while our of offering simplifying also supplement funded first position, structure. designed

were retail to ago shipped with devices double that sales shipped distributors. XX% electrode In nearly XX.XK XX.XK quarter. most method Turning reorder up up company $X.X the QX, $X.X the prior and we QX of was accounting was devices of sequentially million, year comparison QX to up packages and XX%. year-on-year, summer XX% to sell-through Quell million the shipments The XX% X% revenues In up revenue, quarter, XX% in down down half, Quell’s electrodes from million, during Quell quarter booked from $X.X million distributors, XX% were were second shipments XXXX. GAAP million decline Contributing months from were with retail revenues quarter sequential contributor largest factors results, GAAP value $X.X and under the in the which XX% about and which down of constituted QVC, total X%. down this the we shipments up the by total was revenue. year. Quell quarter down $X.X this to year-on-year. about invoiced for were were XXXX, in

net to future fourth sales a and balance in positive we sales. the now effect holiday convert QVC should the Our under the intend million e-commerce the deferred retail fourth sales revenue to the We year. ASU were hand that and recovery method year. new XX% second day see in distribution return pronouncement a implement GAAP will increased were amounts the September that as about quarter sell-through of our first XXXX-X quarter next end shipments policy. quarter accounting Quell recognition for indicate are XX returns that the million flat. sheet approximately this and quarter revenue we on in in Both of XX of X.X Orders X.X of which expect from were at should have of estimated this under in

of its down its to approach required XX% will accelerate inventory. the This but XX% be gauging to impact the for standard for product the year-on-year. on in will on to future our We We DPNCheck new accounting a stages Quell future place recognition revenue. sales, in likely $XXX,XXX of sell-through recognition. revenue returns line retail retailer provision total This report the shipments. were discontinue of revenue and contributed in early developing quarter third constituted held

with Medicare Our business in flat roughly both comparison second the US and Advantage QX quarter. was year-on-year in

same Mexico a our However, from where and thousand strong delayed. to In earthquakes XXXX. year, several this the Mexico was recorded OUS year of positioned shipment year keeping we order the XX% us expected a last The track the September DPNCheck dollar late for on growth full of do we was down for QX we’re thereby distributor and hundred of growth year-on-year. intervened

underway in in where are are clinic DPNCheck recovery to return disrupted while diagnostic our understand has to City. shipment It We efforts will clear activity test. a of of is particularly Mexico contact We deployed. Mexico close leading distributor our is in this normalcy the higher with degree not health been when DPNCheck local local that

actively electrode X.X The million, sales mix cash away X.X million advances diagnostic that our the to increased higher and from shipments. managed legacy of its as This revenue. or gross the recorded improvement reflected e-commerce with a higher margin Quell compared rate retail, of in margin margin sales also of and unplanned as in shift the US DPNCheck XX.X% gross QX from a mix margin not last Our test resulted margin Mexico basis sales advanced XXX margin revenue or of towards $XXX,XXX of the remaining deferral. was line, about well an year. XX.X% shift toward contributed points of gross and in X% rate QVC marketed. beneficial At for of total,

Our million a by from were to decrease operating The due professional X.X prior lower from was ago year were million $X outside of and $XXX,XXX spending service of of reflected of with X% R&D last flat about the $X.X engineering G&A in of reflecting marketing spending year down XXX,XXX and unusual There was comparison with no quarter. the costs. Sales higher million increased that $X.X in expenses year. QX $XXX,XXX cost. essentially year million items. last QX spending

versus the was usage year ago. the Net a our ended a million quarter cash XXXX. We downward of continuing about cash cash. million $X.X from declined loss in $X.X $X.X net quarter million with of in second peak million usage in million $X.X Our trend $X

a in is first structure, the the third $X of capital million executed scheduled July October. million quarter, our for in we pipe which tranche second X.X funded the late tranche was offering Regarding and

shares capital shares the price to converted outstanding, XX.X total than on This a of the million. The at the warrant warrants weighted $XX. that including market repurchase preferred raising offering average a structure is of outstanding pipe will After common million repurchase closed, outstanding. included and our less eliminates second basis. of XX.X preferred currently three million small of distraction. share money converted simplifies a as an common XXX,XXX or count and total a new In pricing, were warrants shares exercise warrants number of of the XX% X.X leaves July We with plus the tranche and have addition an outstanding as duration be years X.X million

Now strategy. comment will Dr. on business our Gozani and

Shai Gozani

both believe you, focus past a Quell has and two solid important in our fronts. Quell validating same we positioned substantial been Tom. ago launch interest, concurrently third quarter that we made our that shipped efforts. we have our R&D This our at time on XXXX. the today address are product program will commercial Thank evolution technology on comments progressed rapidly to and My the Since in years We novel consumer Quell XXX,XXXth R&D while two now product strategy. launching have through device, advancing such platforms has about an our building generation DPNCheck. We progress

course the As is action line on our growth. primary we forward, focus to we consistent for of shareholders place now the optimal company and our look profitability, top believe while continuing

the implementing stages in the of are initial strategy. We

retail As I’ll particular, our growth Quell focus strategy how program. strategic address is advertising and strategy, Quell evolving this partnerships, channel our product primary my our comments will strategy, I will on remaining R&D. In impact

little with US market estimated consumers. Quell XX regard penetration bit market less X% to First, sits million of the advertising. of attainable a than

an generates we tipping to we pain marketing upward we As in expect evidence time, effect. and within the inflection point some to our a are expand viral of chronic community base user reach this sales starting see where fact over

will by most this However stage at sales still that of be we commercialization, direct generated advertising. recognize

a a through portion As been marketing advertising. building sales and result of and awareness spend TV our to has devoted substantial online

We is important. TV continue to that believe advertising

spending aligning profitability level to consistent sustainable more a TV focus. we is are our However, that with

consumers, cost such to that retail the deliver growth outlets channel, to of to digital our the the build regards and marketing. we margin, important we supplement will profitable We on retail With continue years Quell top to TV effective TV outlets on the growth, the efforts are strategy two in of focusing believe drive learning Quell over last educate Based our media channel the availability brand. provide with as and our shopping brand. is that opportunity

are have to chronic With clearance outside we financing marketing R&D. bring X.X Quell EU, we profitability, the While worldwide certain currently while ongoing regard strategic. and retail offset have focused billion essential and Australia. Quell opportunities for people to on Quell with are in at our available they pain we partnerships as potential in such partnerships, cost dilution. move will regulatory effort a remain limiting non-dilutive company our to to Canada, Therefore strategic the with expect and to There for the in strategic US to fact be

into time through at the over several have quarters. in I that these sophisticated the and engaged in capabilities is a technology and NeuroMetrix fruition We we in discussions next wearable that come may most ability development, R&D, core rapidly believe current strategic opportunities and partnerships OUS Research innovate. sector. to are the strength to expect to neurostimulation the and tap the

and advantages Quell of foundation to establish is including indications. competitive focus our for enhance clinical technology, growth long-term through a additional Our

we in developing XXXX. generation are Quell launch novel We to currently device third a that expect

Quell We generation over will profitability substantially experience business. supply the improve third enhance the Quell margins is the for device and anticipate optimized. chain We user once of the XX%

therefore leveraged is In spend. R&D to growth to strong sustained the summary, As evolve we the DPNCheck R&D our we and invest and that our enhanced such, our invigorated on business strategy towards it in a capabilities. level opportunity by long-term maintain view continue to and of commercial Quell are our current essential by lines, Quell prepared with comments. is plan and concludes innovation and profitability product our That

will questions We happy be to at point. take this

Operator

And Yi from Instructions] Chen question Wainwright. our [Operator first of comes H.C.

now Your open. line is

Yi Chen

the my is Texas over? Hi, impact Mexico is, My thank impact question you taking - the question. already for first are in and

Thomas Higgins

in hear not So from Mexico in our according distributor the we is everything over to impact already Mexico.

a due call, the add large had has in list this to selling the scheduled to Mexico just doesn't go postponed and the As been to that to. Mexico we Ministries and I that priority this of mentioned impact to on we’re in was the that earthquake of in the September shipment top very

when is this it. cleared to it know will difficult make to when so and be for And able shipment will us we be

and We impacted regard So, storms advantage a and the regard be DPNCheck US you little destined the With a year. quarter. bit say, last and advantage the the would business we for that to for recovery to lot shipments in more I that Medicare we is gather with use however business strong method, ship is in I down. a though what Southeast well of pretty would which Mexico From mid-to-late both were the of believe over. of our so being QX that’s recovery can that pin remind probably difficult by part testing the not under that test early underway in seasonal should Medicare Southwest, it’s control. with the to good are by

a in QX and QX QX. degree So, to in lesser

Medicare So, QX US for slow typically is advantage.

Yi Chen

Okay.

from generated related both? is mostly to or follow-up, to the DPNCheck Quell Just or revenue Mexico

Thomas Higgins

DPNCheck. exclusively this that No

Yi Chen

at Okay. a the regarding third it than XXXX, the generation priced be in Quell Got it. And price question generation? likely second will higher current

Shai Gozani

is Our it price the that current the point. priced same be will thinking same at point,

Yi Chen

But improvement in with margin? an gross

Shai Gozani

That is correct.

Yi Chen

Thank Okay got it. you.

Operator

of Cohen our from Jared Thank you. [Operator And question Instructions] JM comes next Cowen.

is line now open. Your

Jared Cohen

electrode feedbacks just you getting you reorders users re-usage, a getting, that quick then bit seem a get positive you seems just little be seem to it little like be to time about on could guess I should Yes, more. question if and you at more this talk from a bit

Thomas Higgins

I One, strong see growth. think a of points. did year-over-year we couple

However, I that would rates. you do reorder we expect agree to with see higher

reorder, one summer and to the We’re see electrode We do we People device. the to reasons stronger in approaching generally for fact one September package currently and are quarter variety of August about did the month in expect per going in as product less reorders a month. use some recovery seasonality. July opposed the proactive

every think further and that ageing the rate, So an definite focus is supported, a facilitate dig of think kind customers order is the and a to We to our maximize understand area reorder it it do I it need I focus. better process in but for of company. existing job, so and better

Jared Cohen

Okay. in need idea see will the you daily to with the of are Does them be terms are of so using an when or get to terms electrodes when an they how to reordering usage, you of get not? using and know applications they help idea points the people in your devices that

Thomas Higgins

a of have are app not - system, users to see the need sort many - a not app they doing. the we all all allows what account in use that is Cloud so tiered It Cloud a accounts users and

have XX% between have visibility, on some of not our or somewhere visibility, we customers so everybody. probably but XX% do So level we of so to some

particular on usage we about time. are of electrode can't and about used that. and optimize We information to that don't a users period using electrodes - So digital the there is really have learning some signature best we when any - tell them, deal - digitally is on great have not how for so somebody are no time has

is to the it we change them So can't specifically time inform electrode.

we we any two that somebody yet, have implemented technology, a month that but or digital will technology, electrode or have We a know for way to it that used currently call not have we not had week months.

on users of longer. for, using We we places two that robust that week are is it many for or the than people can media if pretty electrodes for take based in the use it evidence and so are seeing longer some period it other social much care it anticipated they designed

we So that’s to into. need something look

Jared Cohen

you thank Okay, very much.

Operator

no to over to time. I'm like back turn for And Gozani the Thank showing this you. closing conference further questions any Dr. at I’d remarks.

Shai Gozani

XXXX. this joining you Thank close to you updating for us forward on out conference call. We we look as

Operator

Ladies today's This have you Everyone and for in gentlemen, program thank day. you conclude great a conference. the may all does disconnect. participating and