ElectroCore, Inc. 2023 Q2 Form 10-Q Summary
Business context and reporting period
ElectroCore is a commercial-stage bioelectronic medicine and wellness company developing and selling non-invasive vagus nerve stimulation products, including prescription gammaCore, consumer wellness product Truvaga, and human-performance product TAC-STIM. This report covers the three and six months ended June 30, 2023. The financial statements are unaudited and reflect the 1-for-15 reverse stock split effective February 15, 2023.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $3.551 million | $2.157 million | $6.331 million | $4.056 million |
| Gross profit | $2.966 million | $1.799 million | $5.288 million | $3.338 million |
| Gross margin | 84% | 83% | 84% | 82% |
| Operating loss | $4.988 million | $5.820 million | $11.185 million | $11.401 million |
| Net loss | $4.903 million | $5.337 million | $10.770 million | $10.919 million |
| Net loss per share | $1.03 | $1.20 | $2.27 | $2.25 |
| Cash used in operating activities | Not separately provided | Not separately provided | $9.172 million | $8.024 million |
- Q2 revenue increased 65%; six-month revenue increased 56%. Growth came from VA/DoD gammaCore sales and initial revenue from Truvaga and TAC-STIM.
- Operating expenses were $7.954 million in Q2 and $16.473 million for the first six months. Six-month research and development expense rose 30% to $2.964 million, while selling, general and administrative expense rose 8% to $13.509 million.
- Cash and cash equivalents were $8.442 million at June 30, 2023, plus $0.250 million of restricted cash. Total cash, cash equivalents and restricted cash declined from $17.962 million at December 31, 2022 to $8.692 million.
- Total assets were $14.222 million and total liabilities were $7.158 million. The company had no outstanding insurance-premium borrowing at June 30; operating lease liabilities totaled $0.664 million.
- Current liabilities were $6.575 million, including $4.210 million of accrued expenses and other current liabilities. Accrued litigation legal fees were $1.035 million.
Material changes versus the prior comparable period
- Revenue growth was led by VA/DoD gammaCore revenue of $2.081 million in Q2 and $3.786 million for the six-month period, compared with $1.190 million and $2.430 million, respectively, in 2022.
- Q2 revenue included $0.290 million of Truvaga revenue and $0.311 million of TAC-STIM revenue; neither product generated comparable-period revenue. Six-month revenue from these products was $0.437 million and $0.399 million, respectively.
- Gross margin improved to 84% for both Q2 and the first six months, compared with 83% and 82% in the corresponding 2022 periods.
- Despite higher sales and gross profit, the company remained substantially loss-making. Six-month operating cash use increased to $9.172 million from $8.024 million.
- Management cited cost-cutting measures implemented April 1, 2023, which reduced Q2 research and development compensation expense. Six-month SG&A included $0.332 million of severance charges.
- The company received $0.211 million from selling New Jersey state net operating losses in January 2023, compared with a $0.445 million tax benefit in the 2022 quarter.
Guidance, outlook, risks, contingencies, and unusual items
- Management expects substantial negative operating cash flow to continue through the remainder of 2023 and plans continued targeted investment in sales, marketing, and the next-generation therapy delivery platform.
- The VA/DoD channel represented 59.8% of six-month revenue. The Federal Supply Schedule contract, which supports a majority of expected remaining 2023 sales, expires January 15, 2024. Renewal has been requested, but is not assured and could be renewed on less favorable terms.
- The company stated that its cash and anticipated revenue are expected to fund planned requirements for 12 months from the financial-statement issuance date, but disclosed substantial doubt about its ability to continue as a going concern because of recurring losses, operating cash use, and dependence on commercial success. The financial statements contain no going-concern adjustment.
- On July 31, 2023, after quarter-end, the company raised approximately $7.5 million net through registered direct and private placements of common stock or pre-funded warrants and warrants. The proceeds are intended for sales and marketing, working capital, and general corporate purposes.
- On July 5, 2023, the company entered into a new insurance-premium financing arrangement for approximately $0.618 million, with a ten-month term and 6.03% annual interest rate.
- Stockholder litigation remains pending in federal court. One federal securities case was dismissed with leave to re-plead in July 2023; related derivative cases were administratively dismissed without prejudice. The company has not accrued a potential loss because the probability and amount of loss cannot currently be estimated.
- Revenue is concentrated in government and other institutional channels, including the National Health Service in the United Kingdom. TAC-STIM revenue may fluctuate significantly from quarter to quarter, and the company faces market-acceptance, reimbursement, regulatory, competitive, foreign-currency, and execution risks.
Important facts for investors to verify
- Whether the Federal Supply Schedule contract is renewed before its January 2024 expiration and on what terms.
- Actual cash burn and liquidity after incorporating the July financing, warrant terms, insurance-premium financing, and ongoing operating losses.
- Whether Truvaga and TAC-STIM can scale sufficiently to reduce dependence on VA/DoD revenue.
- The status and potential financial exposure of the remaining securities and derivative litigation.
- Whether revenue growth can continue while sales and marketing investments remain elevated and the company approaches profitability.