CeriBell Q3 2024 Earnings Call Transcript

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November 12, 2024

There are 9 speakers on the call.

Operator

Thank you for standing by. My name is Kath, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cerebell Third Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

I would now like to turn the call over to Brian Johnston from Gilmartin Group. Please go ahead.

Speaker 1

Good afternoon, and thank you all for participating in today's call. Joining me from CerroBell are Jane Chao, Co Founder and Chief Executive Officer and Scott Bloomberg, Chief Financial Officer. Earlier today, CerroBell issued a press release announcing financial results for the quarter ended September 30, 2024. 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 this call that include forward looking statements within the meaning of federal securities laws and that these are being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Speaker 1

Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward looking statements. 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 and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our public filings with the Securities and Exchange Commission, including the final prospectus filed with the SEC pursuant to Rule 424(4) on October 11, 2024 in connection with our initial public offering. This conference call contains time sensitive information and is accurate only as of the live broadcast today, November 12, 2024.

Speaker 1

Cerabell 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. And with that, I will now turn the call over to Jane.

Speaker 2

Thank you, Brian. Good afternoon and thank you all for joining us today on our 1st earnings call as a public company. We are very excited to be here and to provide details on our strong Q3 performance. We will also briefly review our growth strategy and cover our key focus areas for the quarters and years ahead. Before doing so, I'd first like to take this opportunity to thank all our shareholders who have supported CerroBell since its inception.

Speaker 2

In particular, I'd like to thank those who participated in our recently completed initial public offering, which raised approximately $188,000,000 in net proceeds. I would also like to thank the entire CerroBell team, our Board of Directors and most of all, our customer who are saving lives every day. With your support and dedication, the future for Ceribell and the patients we serve has never been brighter. Turning now to a brief overview of our results. I'm pleased to report that the revenue for the Q3 of 2024 was $17,200,000 This represents 48% growth year over year.

Speaker 2

Meanwhile, gross margin for the 3rd quarter was 87%. As we will detail later, our performance was driven by continued progress in acquiring new customers and improving adoption by our established account base. For the rest of this call, I will first provide a brief introduction to Cerebell Technology, the unmet need we're addressing. I'll then provide further details on our commercial performance and the vision for the future. Scott will provide additional details in our quarterly financial results and our full year 2024 revenue guidance.

Speaker 2

At the highest level, we are focused on commercialization of the Cerebell system, our novel point of care EEG platform, specifically designed to address the unmet needs in the patient in the acute care setting. Our platform solution, which includes our highly portable, easy to use hardware and the AI powered algorithm enables rapid diagnosis and continuous monitoring of patients at risk of serious neurological conditions. The Cerebell system is commercially available in the United States, where our initial focus is on seizure detection and management in ICU and ED. We believe this represents over $2,000,000,000 addressable market opportunity in the U. S.

Speaker 2

Alone. In acute care settings, status epilepticus for seizure lasting longer than 5 minutes are a medical emergency. If not promptly treated, the condition can lead to mortality or severe and permanent brain injury. Seizures leading to stasis epilepticus can be triggered by a variety of common conditions, including brain tumor, traumatic brain injury, stroke, cardiac arrest and sepsis among others. We believe that there are roughly 3,000,000 patients in the U.

Speaker 2

S. Who arrive in the acute care setting and are at risk procedures. In the ICU, up to 92% of these seizures may be noncombulsive. Patients do not show visible symptoms, making diagnosis very challenging. EEG is the only tool to definitively confirm a seizure diagnosis.

Speaker 2

Historically, the only tool that clinicians have had to diagnose seizure has been the conventional EEG, which was optimized for outpatient clinics, not for the acute care setting. Conventional EEG systems have several inherent limitations, making timely diagnosis and continuous monitoring difficult and in some cases impossible. The Theravel system changes this, enabling rapid EEG deployment and continuous monitoring for seizure activity. After less than an hour of training, nurses and non specialized health care professionals can easily set up the Cerebus system in as little as 5 minutes. The Cerebus system can capture EEG waveforms with the signal quality clinically equivalent to conventional EEG and transmit the EEG signals to our EEG portal for neurologists to remotely review.

Speaker 2

Claroty, our AI algorithm, continuously monitors the EEG, providing bed size alert for status epilepticus, seizure trends and other actionable insights to bed size and neurologists. Through clarity, clinicians can have higher confidence in treat promptly or not treat. With continuous monitoring, they can reduce the time patients spend in seizures. They also benefit from real time feedback on patients' response to medication. Importantly, we believe the Theravod system can also improve the hospital and payer economics by enabling multiple pathways for appropriate reimbursement and cost saving.

Speaker 2

We have demonstrated across several studies that Cerebell system can decrease the average hospital length of stay, reduce over administration of anti seizure medication and reduce unnecessary patient transfer. In addition, confirmed diagnosis of seizure may allow hospitals to receive appropriate reimbursement coding for more complex and costly management of patients with multiple comorbidities. And finally, Herriga is the only EEG system that qualifies for a new technology add on payment from CMS, which provides hospital additional Medicare reimbursement of up to $913.90 for eligible patients. These clinical and economic benefits as well as the technical performance of Cerebell System have been validated across 20 peer reviewed publications and 65 abstracts. Now I shift to an overview of our commercial approach and how it has translated to strong Q3 performance.

Speaker 2

For perspective, we estimated that there are 5,800 acute care facilities in the U. S. That stand to benefit from our offering. To fully penetrate the significant market, our commercial organization comprises 2 core components: our territory managers, drive account acquisition and onboarding and our clinical account managers drive utilization and hospital onboarding. Through joint efforts of these sales functions, Theravance has been able to continually expand its active account base, while generally increasing utilization within our existing account base.

Speaker 2

Our active account base now sits at 500 0 4 accounts, an increase of 25 during the Q3. Within this account base, we have continually increased the usage over the past 3 years, roughly doubling usage per account during the timeframe. Just yesterday, we were also pleased to announce our reset of our authority to operate or ATO from the Department of Veterans Affairs. This ATO represents a significant milestone in achieving authorization within the framework of the federal government's cloud computing security requirements. Practically, it allows the nearly 200 VA hospitals in the U.

Speaker 2

S. To fully deploy CerroBell's point of care EEG technology, including Claroty and our other cloud based services. We're humbled to be one of the very few medical device companies to receive a ATO from the VA and believe this will enable us to offer many advantages of the Clarity and the Theraglobe system to the veterans who are at elevated risk level of being diagnosed with a seizure disorder due to the conditions such as traumatic brain injury and post traumatic stress disorders. Looking ahead, we are continuing to invest in expansion of both sides of our commercial organizations as we look to capture the significant untapped opportunities within our market. Beyond investing in our commercial organization, we also intend to drive further awareness regarding the importance of acute care EEG monitoring and the unique features and capabilities of our platform solution.

Speaker 2

To accomplish this, we are directly engaging with clinicians, investing in marketing initiatives and importantly generating further clinical and economic data. This data stands to further validate the benefits provided by the HERABAL system and early detection and treatment of status epilepticus generally. In July, we were pleased to see the results from a new retrospectus sub analysis of a multicenter clinical study demonstrating positive patient outcomes following using the Cerebell system compared to the conventional EEG published in the Neurocritical Care, the journal of the Neurocritical Care Society. The study showed that use of Cerebell System is associated with a significant 4 day reduction in ICU length of stay on average. It also showed that patients using XERAVEL EEG were 33% less likely to leave the hospital with significant functional disability.

Speaker 2

These findings, along with 4 other abstracts, were represented at the 2024 Neurocritical Care Society Annual Meeting in October. We see these positive data as representative of our commitment to being at the forefront of clinical innovation and data generation in our space. As we look ahead, we also see several clear use cases for our platform beyond our current indication. In the near term, we are seeking to expand the age coverage of patients eligible for our Clarity algorithm. Currently, our hardware is approved for all ages, but Clarity's seizure detection algorithm is only approved for patients 18 and up.

Speaker 2

Over the medium term, we expect to move beyond feature detection. Brain function often remain a black box even in the best ICUs. Though EEG has historically been limited to the identification of seizures, EEGs have been scientifically demonstrated to aid in detection of a wide variety of other neurological conditions. We intend to leverage our proprietary platform and our AI capabilities to develop algorithms for some of these conditions, including delirium and stroke. I look forward to providing additional updates on these exciting opportunities on our future calls.

Speaker 2

To summarize, we see substantial growth runway within our immediate addressable RMB2 billion annual revenue opportunity market. We also see significant additional revenue opportunities with future indication expansion. We look forward to providing updates on our progress with these initiatives over the quarters and years ahead. Meanwhile, we intend to maintain a high degree of focus on our mission to become the standard of care for the detection and management of seizure in acute care setting. To summarize, over the coming quarters, we intend to invest in our commercial organization to drive adoption of Theragol system by both new and existing accounts, continue to drive awareness of seizures in the acute care settings by maintaining a leading presence in generating clinical and economic evidence and finally, to further scale our business to meet the growing demand for our novel EEG platform.

Speaker 2

With that, I will now turn the call over to Scott Lundberg, our CFO, to provide a review of our Q3 results.

Speaker 3

Thank you, Jane, and good afternoon, everyone. As Jane mentioned, total revenue for the Q3 was $17,200,000 a 48% increase from $11,600,000 in the same period of the prior year. The increase is primarily driven by continued commercial expansion, resulting in increased adoption of the Cerevel system across new and existing accounts. Product revenue for the Q3 of 2024 was $13,300,000 representing an increase of 52% from $8,800,000 in the Q3 of 2023. Subscription revenue for the Q3 of 20 24 was $3,900,000 representing an increase of 36% from $2,800,000 in the Q3 of 2023.

Speaker 4

For

Speaker 3

context, we benefit from 2 core revenue streams. Around 75% of our total revenue is product revenue generated through a conventional razor razorblade model, where the razorblade is our headband, a single patient use disposable. We also generate revenue from a monthly subscription based revenue stream, which includes our EEG portal and Clarity. This high margin recurring revenue stream accounts for approximately 25% of our total revenue. Gross margin for the Q3 of 2024 was 87% compared to 84% in the prior year period, reflecting continued pricing discipline, reductions in the cost of goods sold of our headbands and better leverage of our manufacturing overhead.

Speaker 3

As we look ahead, we plan to continue to drive gross margin expansion and operating efficiencies where possible. Total operating expenses for the Q3 of 2024 were $24,900,000 an increase of 48% compared to $16,900,000 in the Q3 of 2023. The increase in operating expenses was primarily attributable to the investment in the Cerrobel commercial organization expansion, increased headcount to support growth of the business and expenses primarily attributable to legal, accounting and professional service fees, including expenses related to our transition to becoming a public company. Net loss was $10,400,000 for the Q3 of 2024 or a loss of $1.85 per share, compared to a loss of $7,100,000 or a loss of $1.32 per share in the Q3 of 2023. Note that the weighted average share count of 5,600,000 used to determine loss per share for Q3 2024 does not reflect the closing of our IPO on October 15.

Speaker 3

New shares issued in connection with the closing of the IPO include 12,200,000 shares issued in the offering and 17,800,000 shares issued upon conversion of convertible preferred stock into common. These shares will be incorporated into the weighted average share count for the Q4 of 2024. Our cash and cash equivalents as of September 30, 2024 were $14,100,000 This does not include net proceeds of approximately $188,000,000 from our IPO. As Jay mentioned, we believe the net proceeds we raised from our IPO put us in a strong position to continue investing in growth while enabling us to comfortably achieve cash flow breakeven with cash on hand. Turning now to our outlook for the remainder of 2024.

Speaker 3

We expect full year 2024 total revenue to be in the range of $64,200,000 to $64,700,000 representing annual growth of 42% to 43% over the full year 2023. This implies sequential revenue growth in Q4 over our particularly strong Q3 in which we benefited from typical seasonal dynamics and less typical timing of a handful of large orders. While we do not provide guidance on the account base, it's worth noting that we have made a strategic decision to continue the practice that we began in 2023 in which we defer launching new accounts in the second half of December. This approach is grounded in our historical experience that it's better to avoid launching during the holidays as we believe uninterrupted attention on high quality launch is necessary to maximize usage during the 1st few weeks following launch, which we believe is a positive indicator for long term utilization rates. Overall, we remain encouraged by our 3rd quarter performance, our strong margin profile and the underlying unmet need and demand for our platform.

Speaker 3

We also see our account backlog is stronger than ever. Following our IPO, we are well positioned financially and believe we have a clear path to delivering sustained future growth. With that, I'll turn the call back to Jane.

Speaker 2

Thank you, Scott, and thank you all for your time today. We appreciate your support and continued interest in CerroBell as we work towards achieving our mission to become the standard of care for the detection and management of seizures in the acute care setting. We look forward to providing you with updates on our progress in the quarters to come. With that, I will now turn the call over to the operator for any Q and A.

Operator

And your first question comes from the line of Travis Steed with Bank of America. Your line is open.

Speaker 5

Hi, this is Stephanie Piazzolla on for Travis. Thanks for taking the question and congrats on the Q3 here. I wanted to ask a question on utilization. Curious if there's any more detail that you can share on utilization trends in the quarter and maybe what are some of the underlying assumptions for Q4? And maybe early thoughts about next year, just high level how utilization can trend relative to the steady growth that you've been seeing there?

Speaker 3

Hey Stephanie, Scott, thanks for the question. We as you know driving utilization is a core part of our strategy and we've been effective in that and continue to be effective in that. We do have a small degree of seasonality as we think about Q3 and Q4 relative to Q2. But we usage growth in Q3 was consistent with what we expected and we expect to keep driving that going forward. I also will point out that we break out our product revenue as part of our income statement.

Speaker 3

So you should be able to track along to look at the quality of revenue per account.

Speaker 5

Thanks. And then maybe just one follow-up question. Maybe more high level, just wanted to get the latest thoughts on how you'll use the IPO proceeds and areas of investment for future growth and if you're thinking about center ads or sales rep hires any differently? Thanks for taking the question.

Speaker 3

Sure. Yes, of course, we ended up raising quite a bit more than we initially set out to. So we're evaluating various opportunities to drive further growth. Fortunately, our IPO came right as we were starting our 2025 operating plan process. We're evaluating it in real time.

Speaker 3

Our core principle, of course, is going to be that the cash has to achieve breakeven, but we are planning to look at various initiatives both on sales and R and D in order to drive future growth.

Operator

Your next question comes from the line of Robbie Marcus with JPMorgan. Your line is open.

Speaker 5

Hi, this is Lily on for Robbie. Thanks for taking the question and congrats on the Q1 as a public company. As you think about Q4 and 2025, what do you see as the main levers that you're pulling to drive growth from here? Is the priority to continue to drive penetration in existing accounts? Are you focusing on rolling out into new ones?

Speaker 5

Is it expanding the sales force? So what are you prioritizing and where do you see the most potential for upside here?

Speaker 3

Sure. Yes. And you nailed it. The 2 biggest levers are driving more accounts and driving adoption within the account. Those have been and will continue to be our 2 levers.

Speaker 3

As you know, we've been focused on expanding our sales team on the territory manager side who drive account acquisition. We're working to build that up. That won't impact Q4, so that's more of a longer term lever. So the way I would think about it is on the short term utilization is for Q4 utilization is the more effective way to drive growth and over the long term net new adds or adding new accounts is the more effective way to drive growth.

Speaker 5

Got it. That's helpful. And then just as a follow-up, I was hoping to get a bit more color on the VA approval. I think I heard you say 200 hospitals total. So should we be expecting you to launch in all of those accounts?

Speaker 5

And when do you expect those accounts to become active and start contributing to

Speaker 2

the model? Thanks so much.

Speaker 6

Yes. The VA 200 account, we do not see this ATO impact the near term revenue. This is more approval or life is to hunt, if we may frame that way. This opens the door for us to potentially enter the 200 accounts. Our initial TAM, we communicated 5,800 hospitals in the U.

Speaker 6

S. That does not include the 200. So now we are essentially expand our 10 to 6,000 facilities in the U. S. And we'll treat the VA accounts very similar or equivalent to other hospitals we are pursuing.

Speaker 6

So we will see the potential upside moving forward, but not impacting the near term revenue forecast.

Speaker 5

Great. Thanks so much.

Operator

Your next question comes from the line of Margaret Kaczor Andrew with William Blair. Your line is open.

Speaker 7

Hey, everyone. This is Macaulay on for Margaret tonight. Thanks for taking our question. And I want to echo the congrats on the solid Q1 as a public company. Scott, I know you touched on some of the seasonality, and it was great to see the 25 new account adds this quarter.

Speaker 7

But if we look at new account adds in the Q4, the last 3 years, I think you've averaged a high single digit sequential decrease, which would imply around mid teens, call it 16, 17 new adds next quarter. So wondering if that's the right way to think about it for this year and maybe heading into next year, what we should imply for account adds on a sequential basis?

Speaker 3

Yes, Macaulay. So the main factor there, at least for last year and this year, I don't know that we did the same extent 2 years ago, is our strategic decision not to launch accounts after mid December. What we found is that during that period when a lot of the doctors and nurses are on holiday, you either don't get the mind share or you don't have them there consistently consistently enough to build a habit you need to have a high quality launch. So we've made the decision to effectively, except for in special circumstances, shutdown launches in mid December. Those effectively get pushed into Q1.

Speaker 3

So I guess that's seasonality, but it's seasonality driven by our strategic decision rather than the market in that case.

Speaker 7

That's helpful. And then maybe just one on the expansion opportunities that you mentioned within stroke and delirium. Wondering how enrollment is tracking in the 200 patient delirium trial. It looks like it has estimated completion date by the end of this year. So wondering if you could provide any updates there or maybe an expected release for timing, call it first half twenty twenty five?

Speaker 6

Yes. We continue enroll the patients at the historical rate as we have seen, especially on the delivery front. On the stroke front, we are exploring to potentially recruiting even more sites, so we can enroll patients even faster. And the nature of both of these studies are more for data collection to train the algorithm. So there is no formal readout at the end of the enrollment of both

Speaker 7

studies. Sounds good. Thanks again for taking

Speaker 3

the questions.

Speaker 6

Thank you.

Operator

Your next question comes from the line of Josh Jennings with TD Cowen. Your line is open.

Speaker 4

Hi, good evening. Thanks for taking the questions and congratulations on the strong results. I wanted to just focus on the cost effectiveness of the Cerevel platform. I mean, it's pretty impressive. We just had a study published showed a 4 plus day length of stay decrease.

Speaker 4

And that's usually the low hanging fruit for technologies. But you have revenue generating potential for adopting customers. Maybe you could just help us think through that. I think you're decreasing transfers, up coding to a major comorbidity or complication. Maybe anything else you can list and how impactful it is as you're marketing the platform to new adopters?

Speaker 6

Yes. Josh, you summarized it well. For us to provide not just the clinical impact, but also the economic impact to the different drivers resonate with different hospitals. And so far, for instance, more remote or smaller hospitals that transfer patients out more frequently, the reduction of transfer would resonate with them more and some facilities are very much putting the capacity management of ICU as their top priority. So the ICU reduction would resonate more.

Speaker 6

And as we move forward, we will continue building even more both clinical as well as economic evidence to support our continuous expansion of our adoption of the technology.

Speaker 4

Thanks. And just a follow-up on that. I mean, do you see the cost effectiveness come in at a higher level with customers that adopt Clarity Pro? And maybe you can help us think about the attachment rate this quarter for new adopters. I think it's extremely high, if not 100%, but also just the early adopters that haven't adopted Clarity Pro and any traction there?

Speaker 4

And are you seeing conversions from that historic base? Thanks for taking the questions.

Speaker 6

So just to make sure I understand the question is what's the percentage of customers who have converted from Phase 2 Clarity and also how much hospitals has adopting Clarity Pro. All our new accounts we is 100% using our AI algorithm Clarity or ClarityPRO. And with ClarityPRO, we are still in the process of driving adoption because there are additional associated fees that customer need to pay for ClarityPRO. And we are only 1 year in the untapped. So we are driving both fronts for Clarity and ClarityPRO moving forward.

Speaker 4

Excellent. And then you just see improved cost effectiveness profile for customers that have CLARITY Pro? Or is it pretty similar for CLARITY and CLARITY Pro for those the different algorithms?

Speaker 6

The clinical benefit is even stronger for customers who have ClarityPRO. And in terms of the behavior user behavior or profile so far, we have not seen major difference that separate the 2.

Speaker 4

Fantastic. Thanks, Jim.

Operator

Your next question comes from the line of Bill Klovanich with Canaccord Genuity. Your line is open.

Speaker 8

Great, thanks. Good evening and thanks for taking my questions. Really, I just wanted to circle back on the VA A TO. Just I think Jane, you mentioned that the 200 VA accounts were incremental. So would I just want to assume that you aren't selling into the VA today and this gives you the hunting license in the future?

Speaker 8

Or do you already have some VA accounts and this allows you to transition those to Clarity accounts?

Speaker 6

Thank you, Bill, for the question. We have some very small number of accounts that's existing VA accounts. But because they cannot have any cloud product and service, so the current VA customers only have the best side recorder to record EEG. And they are not only they don't have access to Clarity, they also don't have access to our cloud based EEG reading portal. So it's very difficult for neurology to review.

Speaker 6

So as you could imagine, because it's a very small portion of our product solution, the usage has been rather limited. Because both the usage as well as the number of accounts are rather limited, it's probably the best way to think about the 200 hospital VA as all new account acquisition than converting existing customer to clarity.

Speaker 8

And does this ATO allow you with the VA as its separate contracting to be able to bring in the clarity, which is kind of why you're cautious about the time to ramp, because you have to turn around with contracting and get the addition of the clarity monthly fee?

Speaker 6

Yes, you're right. So the ATO is more approval of us to of all the VA system to use Clarity and our portal, which they were not able to do before. It's separated from the commercial contract. From the commercial contract perspective, it's going to be a like many other hospital system is a combination of bottom up sale that we go to individual facilities, getting both the physician as well as administrator support and a combination of top down working with some of the headquarter decision makers as well. So it's similar to other hospital system we're working with.

Speaker 8

Okay. And then for Scott, just the raise the proceeds raised in the IPO were double what you expected. I mean, it gives you guys a huge cash cushion. And I think somebody asked earlier in regards to the incremental cash plans on either investing and going after OUS sooner or new indications sooner or and I think you said that's part of the process you're planning for 25 given all the new information. When could we expect messaging and more clarity around kind of your future plans given the incremental cash you raised?

Speaker 8

And thanks for taking my questions.

Speaker 3

Yes, Sherb. I think we probably will be able to talk about some of it on our next call, right? Because at that point, we'll have our operating plan built and approved by the Board. There's other things, of course, like our clinical data where we'll give news as it comes out, which as we've indicated in the S-one is 2 to 4 years for delirium and stroke. But as far as the use of proceeds question, I think we'll have more granularity on that in a few months here.

Operator

Thank you. I will now turn the call back over to Jane for closing remarks.

Speaker 6

Thank you. And really want to thank everyone's time and your support to CerroBell. And we are very excited for our future. And thank you for our first earnings call. Have a great afternoon or evening.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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Key Takeaways

  • Cerabell reported Q3 revenue of $17.2 million, a 48% year-over-year increase, while expanding gross margin to 87%.
  • The company raised approximately $188 million in net proceeds from its initial public offering, strengthening its cash position to fund growth and drive cash-flow breakeven.
  • Active accounts reached 504 acute care facilities (up 25 in Q3), with usage per account roughly doubling over the past three years.
  • Cerabell received Authority to Operate (ATO) from the VA, opening the door to deploy its cloud-based EEG platform and AI algorithm across nearly 200 VA hospitals and expanding U.S. TAM to over 6,000 facilities.
  • New peer-reviewed data showed the Cerabell system was associated with a 4-day reduction in ICU length of stay and a 33% lower risk of significant functional disability at discharge.
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Earnings Conference Call
CeriBell Q3 2024
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