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Edited Transcript of AVGR earnings conference call or presentation 13-May-20 8:30pm GMT

Q1 2020 Avinger Inc Earnings Call

REDWOOD CITY May 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Avinger Inc earnings conference call or presentation Wednesday, May 13, 2020 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeffrey M. Soinski

Avinger, Inc. - President, CEO & Director

* Mark B. Weinswig

Avinger, Inc. - CFO

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Conference Call Participants

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* Destiny Alexandra Buch

Ladenburg Thalmann & Co. Inc., Research Division - Research Analyst

* Nathan S. Weinstein

Aegis Capital Corporation, Research Division - Analyst

* Matthew Kreps

Darrow Associates Inc. - MD of IR

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to your Avinger First Quarter 2020 Results Call. (Operator Instructions)

At this time, it is my pleasure to turn the floor over to Matt Kreps, Managing Director of Darrow Associates. Sir, the floor is yours.

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Matthew Kreps, Darrow Associates Inc. - MD of IR [2]

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Thank you, Christie, and thank you all for participating in today's call. I would like to welcome all of you to Avinger's First Quarter 2020 Conference call. Joining us today are Avinger's CEO, Jeff Soinski; and Chief Financial Officer, Mark Weinswig.

Earlier today, Avinger released financial results for the first quarter ended March 31, 2020. A copy of the release is posted on the Avinger website under Investor Relations.

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, which are 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 facts should be deemed to be forward-looking statements. All forward-looking statements, including, without limitation, our future financial expectations, are based upon 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 descriptions of the risks and uncertainties associated with our business, please see our Form 10-K and 10-Q filings with the Securities and Exchange Commission. Avinger 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'd now like to turn the call over to Jeff.

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Jeffrey M. Soinski, Avinger, Inc. - President, CEO & Director [3]

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Thank you, Matt. Good afternoon, and thank you all for joining us. I'd like to open the call by extending my best wishes to each of you and your families as we, as a nation, deal with the challenges presented by COVID-19. The unprecedented steps taken to mitigate the spread of the COVID-19 virus have upended many aspects of our daily lives, including the health care procedures central to the needs of those suffering from PAD, and have impacted the businesses who provide the tools for physicians to treat this pervasive disease. While several states are taking the first steps toward resuming some degree of normalcy, much of the U.S. is still under varying degrees of shelter in place or social distancing orders.

As we disclosed in April, the first quarter was off to a very strong start prior to the impact of COVID-19. And while we will cover a number of exciting developments in the first quarter on our call today, our opening remarks will also provide perspective on the second quarter, how we've responded to the pandemic's effects on our business and the key milestones that we believe will drive our business in the second half of 2020 and into 2021.

Setting the stage a bit, throughout 2019, we focused our efforts on successful commercialization of our new products and evolved our business model to prioritize growth in disposable product sales and new account acquisition. As a result, we've continued to move away from legacy products and our reliance on large capital sales. This strategy appears to be working as we reported year-end results that were significantly better than prior years, demonstrating success in these efforts, increased momentum in our markets and the benefits of scale as we continue to deliver on our business objectives.

Looking at the first quarter of 2020. Total revenue in the first quarter grew 23% over the prior year, continuing the positive trend from 2019. Disposable sales also increased by 39%, a key metric of case activity. And Pantheris revenue increased by 75% to $1.6 million. These numbers are encouraging since they reflect much higher rates of growth in January and February prior to the onset of the COVID-19 pandemic in March and the rapid decline in case activity as states eliminated or reduced access to elective health care procedures.

Adding new accounts continues to be a key element of our growth strategy. We made significant progress in this area in the second half of 2019, adding 14 new Lumivascular sites in the third and fourth quarter combined. In the first quarter, we increased our pace of new account acquisition with the launch of 11 new clinical sites, including locations in high-volume states, such as Arizona, Michigan and Louisiana. This illustrates the momentum we've been gaining in the marketplace due to the strong interest in our new atherectomy products, including Pantheris SV. We are looking to continue to grow our customer base as centers begin to reopen. And during the current downturn, we have a focused effort on marketing the Lumivascular solution to physicians and customers who have a little more time available to learn about Avinger's technologies.

On the product front, Pantheris SV continued to perform very well from both a commercial and clinical perspective in the first quarter. We have now shipped this exciting new device to more than 70 accounts, and feedback from the field is overwhelmingly positive. Pantheris SV's lower profile and longer length enable physicians to safely treat a variety of lesions in the smaller vessels below the knee, an underserved area and one that we believe expands our addressable market by as much as 50%. We believe that SV also gives us a unique competitive position in the marketplace by driving usage across our family of PAD products and increasing familiarity with the Lumivascular approach and its compelling benefits.

We also continue to make significant progress in the development of our pipeline of new products, including Ocellaris, our next-generation, image-guided CTO-crossing catheter. You might recall that we received CE Marking for Ocellaris in December 2019 and soon after completed the first successful procedures in Europe with this new device across a variety of lesion types in the peripheral arteries, both above and below the knee. Those early cases reinforced our belief that this product is a game changer in the treatment of chronic total occlusions, or CTOs, which are completely blocked arteries.

Ocellaris is designed to bring several improvements to our platform, including real-time video rate imaging, rotational speeds up to 1,000 RPM and a user-controlled deflectable tip for precise maneuverability within the lumen, all of which we believe will enhance physician's ability for true luminal crossing of a wider range of CTOs.

In spite of the recent disruptions caused by COVID-19, we remain on track to achieve our goal of filing a 510(k) submission for U.S. premarketing clearance with the FDA this quarter. Pending FDA clearance, we are hopeful that Ocellaris will be available for market launch and a contributor to our revenue growth in the fourth quarter of this year. Timely, as we hope this will also coincide with increased case activity across our key markets as restrictions on elective procedures are lifted in more states and cath lab schedules return to more normal operations.

We also continue to invest in the accelerated development of our next-generation imaging console, the L300 Lightbox. Our next-generation L300 system is designed to deliver our proprietary OCT imaging through the use of a state-of-the-art solid-state laser, a more powerful computing platform and advanced software system. It's also designed to provide variable high-speed catheter rotation, which we believe could be important for future catheter applications.

Most exciting, we believe that we can deliver this enhanced capability within a highly portable, radically reduced size and weight configuration. We anticipate the final L300 design to weigh less than 20 pounds, be mountable on an IV pole and fit inside a standard carry-on-case, providing for easy transport by our sales reps and clinical specialists, cost-efficient shipping through a standard overnight carrier and efficient integration into the cath lab environment and existing image banks. We also expect the L300 to provide a significant cost reduction compared to our current Lightbox, overcoming a key barrier to entry.

We believe that all of these enhancements will have a positive impact on new account acquisition, provide a more efficient service strategy and broaden customer expansion of our image-guided platform to a wide range of accounts. We expect to be in a position to complete product validation in the upcoming months and, at this point, anticipate being in a position to file a 510(k) submission with the FDA prior to the end of the year.

On the clinical side, we continue to make important progress on our INSIGHT IDE clinical trial, evaluating Pantheris for the treatment of in-stent restenosis, or ISR, in lower extremity arteries. The preliminary data from the first patients enrolled in this study was presented last year and was highly encouraging. We anticipate completing enrollment in the INSIGHT study and being in a position to submit a 510(k) application to expand our label to include the ISR indication by the end of this year.

In addition to INSIGHT, in January, we announced that we had initiated enrollment of our first patient in a new clinical study for Pantheris SV called IMAGE-BTK. IMAGE-BTK is a post-market trial designed to evaluate safety and efficacy end points for Pantheris SV in the treatment of peripheral artery lesions below the knee. This study has been paused due to COVID-19, and we expect progress to resume in the second half of the year when case activities return to more normal levels. We will update you as we have more information on how the schedule for this study will change.

As discussed earlier, COVID-19 began to impact our business in March, with case activity declining rapidly as hospitals and medical providers deferred elective procedures in accordance with the guidelines -- or the guidance issued by the U.S. Surgeon General and Centers for Medicare & Medicaid Services and the restrictions put in place by state and local governments. In addition, many hospitals restricted access for sales representatives and clinical support staff as they prioritize resources for the treatment of COVID-19 patients and take measures to limit the spread of the virus.

We've continued to see the impact of these restrictions in the second quarter, with overall case volume off by more than 50% in the first weeks of the quarter. While most noncritical procedures have been deferred, our image-guided devices continue to be used in hospitals and outpatient centers every day for the treatment of more urgent cases, such as critical limb ischemia, or CLI, a severe form of PAD that can lead to tissue and limb loss if left untreated. In most of these cases, our clinical support staff is present at the invitation of the treating physician and in compliance with hospital guidelines.

As more states loosen restrictions on elective and noncritical procedures and resources become available in the health care system, we are starting to see an improvement in case activity and expect to see this improvement continue in the latter part of the second quarter and into the third quarter when we hope to see positive steps towards the return to more normal case volumes. However, as communicated previously, we expect our revenue to be significantly impacted by COVID-19 throughout the second quarter.

During this time, our priority is to maintain a strong connection with our physician customers and to be ready and available to support their cases now and in the future as case volumes improve. We've also continued our outreach to current potential customers through direct communication and broader marketing efforts. We've initiated a series of physician-focused webinars led by key opinion leader physicians and kicked off this series last week with a session on the treatment of below-the-knee lesions that was virtually attended by over 70 physicians. We are also conducting virtual referral meetings targeting podiatrists and other referring physicians for our current Lumivascular sites. And we've implemented training programs for our sales and clinical teams to strengthen our organization as we prepare for a return to higher volumes.

I could not be more proud of our headquarters and field-based teams as we continue to advance our strategic initiatives, including the commercialization of our next-generation products, effectively deal with the challenges presented by COVID-19 and, most importantly, continue to support physicians in their limb and life-saving work, treating patients with critical PAD.

As Mark will address in a few moments, during this period, we've also taken steps to increase our cash resources and reduce our cost structure in response to the disruption from COVID-19. We believe these actions will give us the needed flexibility and runway to navigate through the second half of the year. As case volumes increase and demand returns, we expect to be in a position to rapidly resume full market capabilities and grow our market opportunity through the addition of new products, new label indications and new customer sites.

At this point, I'd like to ask Mark to cover our financials, and then I'll come back for Q&A. Mark?

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Mark B. Weinswig, Avinger, Inc. - CFO [4]

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Thank you, Jeff. Total revenue for the first quarter of 2020 was $2.3 million, an increase of 23% year-over-year. The increase included a strong start to case volumes in January and February, while in March, we saw a decline in elective and deferred normal procedures as hospitals and health systems prepared for an expected influx of COVID patients. In addition, shelter-in-place and stay-at-home orders in most states limited patient access to noncritical health care services.

Despite the slowdown in activity in March, the first quarter saw a 35% year-over-year increase in catheter sales primarily in our Pantheris next-generation and Pantheris SV families. It's important to note that sales from legacy products and console revenues continue to decline as our business evolves to a sales strategy focusing on higher-margin disposable catheters.

Gross margin in the first quarter was 22% compared with 20% in the year ago quarter and 36% in the fourth quarter of 2019. Gross margin declined relative to the prior quarter primarily due to lower revenues and manufacturing activity and higher expenses.

Operating expenses for the first quarter were $6 million, up from the first quarter of the prior year and relatively flat with the fourth quarter.

As Jeff mentioned, we continue to invest heavily to accelerate the development of both our Ocellaris next-generation CTO catheter and L300 Lightbox console, both of which are slated for 510(k) submission this year and both of which are expected to contribute strong revenue growth upon clearance and commercial launch.

Net loss was $5.9 million in the first quarter, up from $5.1 million both the first quarter of the prior year and the fourth quarter. The change from the prior quarter was primarily due to lower revenues and gross profits primarily related to the impact of COVID-19.

Adjusted EBITDA, which is a non-GAAP measure that excludes certain excess and obsolete inventory charges, restructuring, stock compensation and other items, as noted in the tables in today's press release, was a loss of $4.8 million. A copy of the reconciliation from net loss to adjusted EBITDA can be found in today's press release, which is also posted on our website at www.avinger.com under the Investors section.

Cash and cash equivalents totaled $9.9 million as of March 31, 2020, compared with $10.9 million as of December 31, 2019. Since April 1, we have raised $3.6 million of gross proceeds from an equity financing and received $2.3 million in loan proceeds pursuant to the Paycheck Protection Program created under the Coronavirus Aid, Relief, and Economic Security Act. These additional proceeds are expected to provide us with the needed capital as we work through the present challenges of the COVID-19 pandemic.

In addition to strengthening the balance sheet, we also undertook aggressive cost reduction measures in early April. This included a company-wide 20% reduction in base compensation for salaried employees, a commensurate reduction in hours for manufacturing employees, a cut in discretionary spending and other measures to reduce cash used in operations. On a run rate basis, we expect these temporary measures to reduce our operating costs by almost $1 million in the second quarter.

Even though we are cutting costs, as I mentioned previously, we are investing heavily in key programs that can change the long-term growth trajectory for Avinger, including R&D projects such as Ocellaris and the L300 and our INSIGHT clinical study.

While we anticipate it will take some time to return to pre-COVID sales volumes, we maintain a position of readiness and responsiveness for our business, all the while advancing our internal programs for future revenue growth drivers.

Now let me turn the call back to Jeff.

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Jeffrey M. Soinski, Avinger, Inc. - President, CEO & Director [5]

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Thanks, Mark. While the first quarter began with strong progress and momentum in cases and in new sites, the disruption that began in March and was carried into the second quarter has significantly impacted our business. In the face of these challenges, we've continued to advance our new product platforms, we've continued to support more urgent cases and expand our outreach efforts and we've raised new capital and made the necessary cost reductions to provide for the sustainability of our business. Most importantly, we are positioned to emerge quickly as demand returns and work closely with our sites to address the need for PAD treatment that has been building in our key markets.

We anticipate filing a 510(k) submission for our next pipeline product, Ocellaris, in the second quarter. And we're excited about the potential for adding this next-generation, image-guided CTO-crossing device to our marketed product portfolio later this year.

Despite the challenges presented by COVID-19, the Avinger team remains focused, determined and committed to advancing our technology platforms, delivering on the growth prospects for our company and, most of all, supporting physicians in their critical work of treating patients with vascular disease.

Before we open to Q&A, I'd like to take a moment to recognize each and every employee of Avinger for their resilience and professionalism during these times. I'm inspired by their efforts and proud to be part of this team.

At this point, we'd be happy to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll go first with Jeffrey Cohen with Ladenburg Thalmann.

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Destiny Alexandra Buch, Ladenburg Thalmann & Co. Inc., Research Division - Research Analyst [2]

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This is actually Destiny on for Jeff. I would like to start just by getting a feel for what percentage of your total procedure volume typically came from some of the urgent procedures like CLI in more normalized quarters?

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Jeffrey M. Soinski, Avinger, Inc. - President, CEO & Director [3]

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Yes. Destiny, thanks for the question. The majority of our procedures typically are for what would be noncritical cases, just similar to how the percentage of claudicants versus CLI breaks out in the market. As we said on the call, our case volume was down a little over 50% in the first weeks of the quarter. We're seeing, of course, more CLI cases at this point with the restrictions that are put in place. We typically would see probably 60%, 65% claudicants and the 35%, 40% more urgent cases and typical case volume. And even our business kind of breaks out more of the Pantheris SV. The below-the-knee device is used for the more urgent cases. We're seeing an uptick in SV utilization relative to Pantheris SV in this quarter so far. In the first quarter, we had more of a typical breakout of about 2/3 of the 7 French device and about 1/3 or a little more than 1/3 of the SV device. So typically, that 60-40, 65-35 split with now, of course, the vast majority being more urgent cases, but we're just starting to see some of the elective procedures come back as states loosen guidelines.

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Destiny Alexandra Buch, Ladenburg Thalmann & Co. Inc., Research Division - Research Analyst [4]

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Okay. Got it. And then just for my follow-up, I'm curious about the size of the sales force currently. I think it was about 28 representatives as of Q4. I'm just curious, with all the COVID things going on, have you cut that predominantly in half?

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Jeffrey M. Soinski, Avinger, Inc. - President, CEO & Director [5]

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Yes. So we were, I think, about 25, 26 in the -- at the end of the fourth quarter. We are -- our sales force is now at 23. We did take the opportunity with COVID to trim a little bit in the sales force and streamline our management structure. Our focus as an organization is on driving efficiency and improvement in revenue per head. We feel like we have a very strong team. We have a few open positions that we're looking to add in the latter part of the year when the more normalized case volumes come back. And we've also been using this time very effectively, the sales leadership in partnership with our marketing group and our medical group, in conducting training sessions and just keeping that group strong and improving them so that they're really ready for when case volumes come back. But to clearly answer your question, we're at about 23 in the sales force now, which is down a bit from the fourth quarter but primarily through our action to trim the force and really be lean and ready for when the business comes back.

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Operator [6]

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And next, we'll move on to Nathan Weinstein with Aegis Capital.

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Nathan S. Weinstein, Aegis Capital Corporation, Research Division - Analyst [7]

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It looked like a really nice increase in disposable sales in the quarter, and so maybe you could touch on how that might trend ahead and then also what could it mean for future margin expansion.

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Jeffrey M. Soinski, Avinger, Inc. - President, CEO & Director [8]

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Great. So I'll take the first part of that question and then turn it over to Mark for the gross margin discussion. Our focus and the strategic focus as a company is on driving case volume, disposable sales and gaining access to new sites with significant atherectomy volume. And so you'll -- I think you'll continue to see that shift towards disposable sales and less reliance on the large capital sales. That's strategic and directed on our part as we go throughout the rest of this year and into 2021. Does that answer your question on the first part, Nathan?

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Nathan S. Weinstein, Aegis Capital Corporation, Research Division - Analyst [9]

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Yes.

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Jeffrey M. Soinski, Avinger, Inc. - President, CEO & Director [10]

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Okay. Great.

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Mark B. Weinswig, Avinger, Inc. - CFO [11]

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And then on the margin question, just real quickly. We have very high margins on our disposable products, our catheters. As we're able to increase revenues of those products, we would expect there to be a significant amount of operating leverage on the gross margin line just as we are able to increase volume and also get some economies of scale.

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Nathan S. Weinstein, Aegis Capital Corporation, Research Division - Analyst [12]

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Great. I suppose just a follow-up question, if I may. I think you touched on this in your prepared remarks, but if you could perhaps discuss for a moment. Given that a lot of things have been virtualized, can you just discuss your virtual sales and marketing capability?

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Jeffrey M. Soinski, Avinger, Inc. - President, CEO & Director [13]

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Yes. It's interesting. First of all, we are supporting cases every day. Our reps are being asked in and provided access for treating these more urgent cases and as the elective procedures come back. So don't think of us as not having access or being present in cases literally every day. So that's good news. However, we are learning and using technology to be able to keep these strong connections with our physicians, either on a one-on-one basis and even continuing our outreach programs to new accounts and providing sales presentations via Zoom, et cetera.

But I'm really pleased with how the team has worked together, the sales and marketing group, to come up with programs to take advantage of a little more time that some of our physicians have as they are doing fewer procedures during the COVID-19 restrictions. And one of the specific examples is we've kicked off a regular program of virtual webinars. One of the really lead KOLs in this space in the country, Dr. Tom Davis, out of Michigan, led a below-the-knee webinar with interactive Q&A, et cetera. That was hosted by our Chief Medical Officer, Dr. Jaafer Golzar, where we had over 70 physicians actively participate in that call. We'll have our next call next week, the end of next week. And we're going to continue on this every 2- to 3-week virtual webinar program. The result is -- or the response has been so positive that I think this is something we'll continue after COVID. It's a very efficient way to provide good, useful clinical information, peer-to-peer discussion and teaching without asking people to get on an airplane and travel. So that's one example.

Another example is we are partnering with physicians to do referral meetings with their referring physicians or prospective referring physicians where the physician -- Lumivascular physician can present our technology, talk about his practice and help guide these referring physicians to recognize PAD and send, hopefully, case volume to them. So this is again something that we've been really pleased with. Our first referral meeting had over 30 physicians engaged. And this is something that we'll continue to do, I think, even after COVID-19.

And finally, we're taking advantage of this time and some more availability of our sales team to have very proactive and regular training programs, both in small groups and for the sales force overall, to just keep getting better, for all of us to keep getting better as we prepare for the volume to come back. So again, taking advantage of the technology, some of it's just by need because of the restrictions on travel and being able to be present. But I think it's a very efficient way in forcing us, and I'm sure we're not the only company that's learning to be more efficient through some of the restrictions that are being placed on us.

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Operator [14]

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And that does conclude our question-and-answer session for today. So I'll turn it back over to Jeff Soinski for any closing remarks.

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Jeffrey M. Soinski, Avinger, Inc. - President, CEO & Director [15]

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Well, thank you, and thank you all for joining our call today. We very much appreciate your interest in our company and your support during these unprecedented times and look forward to updating you on our continued progress on our next quarterly call. Thank you.

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Operator [16]

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And that does conclude today's teleconference. We appreciate your patience. You may now disconnect your lines, and have a great day.