Earnings Transcript for AVGR - Q4 Fiscal Year 2023

Operator: Greetings. Welcome to Avinger's Fourth Quarter and Full Year 2023 Results Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Matt Kreps, Investor Relations at Avinger. You may begin.

Matt Kreps: Thank you, Paul, and thank you, everyone, for participating in today's call. I'd like to welcome you to Avinger's fourth quarter and full year 2023 conference call. Joining us today are Avinger's CEO, Jeff Soinski, and Principal Financial Officer, Nabeel Subainati. Earlier today, Avinger released financial results for the quarter and year ended December 31, 2023. 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 fact should be deemed to be forward-looking statements. All forward-looking statements, including without limitation, our future financial expectations and expected timing for commercial launch of products and filings with the FDA, are based on our 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 and description 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. Also, today's presentation will include reference to non-GAAP financial measures, such as adjusted EBITDA. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is available within the earnings release, which can be found on Avinger's website. And with that, I'd like to now turn the call over to Jeff.

Jeff Soinski: Thank you, Matt. Good afternoon, and thank you all for joining us. It's been an exciting time at Avinger since our last earnings call. We recently announced a multi-faceted strategic partnership with Zylox-Tonbridge, a leading company in the interventional vascular space in China. We've advanced commercial activities on two innovative new peripheral devices, Tigereye ST and Pantheris LV. We've expanded our field sales force to broaden our geographic sales footprint and strengthen our presence in key markets. And we've made significant progress towards an IDE filing for our exciting first coronary product application. First, let's discuss our new strategic partnership with Zylox-Tonbridge. Zylox is a fully integrated medical device company and a leader in the peripheral vascular and neurovascular markets in China. They are an innovative company with a well-developed R&D capability. And since their founding in 2012, Zylox has developed and launched 36 products into the Greater China interventional markets. Zylox maintains a state-of-the-art manufacturing facility at their headquarters in Hangzhou, China, not far from Shanghai. They are certified to [ISO 1345

Nabeel Subainati: Thank you, Jeff. Total revenue was $1.9 million for the fourth quarter of 2023, compared with $1.8 million in the third quarter of 2023 and $2.0 million in the fourth quarter of 2022. As Jeff mentioned, we have expanded our sales force by more than 25% since the end of the third quarter to support our revenue growth as we advance through the year. Gross margin for the fourth quarter of 2023 was 20%, compared with 21% in the third quarter of 2023 and 34% in the fourth quarter of 2022. The change in gross margin primarily reflects lower production activity during the fourth quarter of 2023 as we seek to optimize inventory levels as well as increased non-cash stock compensation expense during the quarter. Operating expenses for the fourth quarter of 2023 were $5.0 million compared with $4.4 million in the third quarter of 2023 and $4.5 million in the fourth quarter of 2022. The increase in operating expense primarily relates to the increase in sales headcount, corporate expenses related to the Zylox-Tonbridge transaction and non-cash stock-based compensation expense. Net loss and comprehensive loss for the fourth quarter of 2023 was $5.0 million, compared with $4.5 million in the third quarter of 2023 and $4.2 million in the fourth quarter of 2022. Adjusted EBITDA, as defined under our non-GAAP financial measures provided in today's press release, was a loss of $4.3 million, compared to a loss of $3.7 million in the third quarter of 2023 and a loss of $3.8 million in the fourth quarter of 2022. For more information regarding non-GAAP financial measures, please see non-GAAP financial measures and the reconciliation of non-GAAP measures to the nearest GAAP measure provided in the tables in today's press release. Cash and cash equivalents totaled $5.3 million as of December 31. As Jeff discussed, the company subsequently raised gross proceeds of $7.5 million in March 2024 through the closing of the Zylox-Tonbridge initial equity investment. At this point, I'd like to turn the call back to Jeff for Q&A.

Jeff Soinski: Thanks, Nabeel. We're excited about our new partnership with Zylox-Tonbridge and the progress we're making across the company, building our sales organization and commercial product portfolio to support our growth and advancing our first coronary product application towards IDE filing this year. We remain committed to making a difference in the lives of patients and the physicians who treat them wherever they may be with the most advanced image-guided devices available on the market. At this point, we'd be happy to take your questions.

Operator: Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] And the first question today is coming from RK from H.C. Wainwright. RK, your line is live.

Swayampakula Ramakanth: Thank you. Good afternoon, Jeff.

Jeff Soinski: Good afternoon, RK.

Swayampakula Ramakanth: A couple of quick questions here. First of all, congratulations on the Zylox deal. So, you were saying that Zylox would need to get approval in China for it to start commercializing your product. So, in general, how long does it take for such products to get approved to start commercialization?

Jeff Soinski: Yeah. So, although it's difficult to put a precise timeline on it, we -- based on our interest in supporting Zylox to make this happen as quickly as possible, we actually started the process with them while we were finalizing the deal. So, we got a bit of a head start. Zylox is anticipating that the clearance process for our products will take somewhere around nine to 15 months. So, we're hopeful that within the first half of 2025 that they will have regulatory clearance for our products and can start selling into the China market. Of course, there's a lot that needs to be done between now and then and a lot out of our control or Zylox's control, but the goal is to launch our products into the China market sometime in '25.

Swayampakula Ramakanth: Okay. So, how big is the Greater China opportunity for peripheral vascular catheters? And what is the competition out there?

Jeff Soinski: It's a good question, because it's a very different dynamic than we have in the U.S. As you know, the atherectomy market in the United States, which in the subset of the larger peripheral vascular market that we compete in, is a large market around $600 million to $700 million market. It is characterized by a lot of competition with all of the big peripheral companies having atherectomy entries. The atherectomy market overall in China is not nearly as well developed. It's more in the early stages. There's only a couple of products approved in China currently and marketed. So, one of the opportunities that both we and Zylox sees is for them as part of their very comprehensive full suite of peripheral products to be an early mover to really help establish and grow this atherectomy market with a highly differentiated device backed up by strong clinical data. So, think of it more like atherectomy -- the atherectomy market years ago in the United States where there's a lot of opportunity and a huge population that's growing significantly of patients suffering from PAD.

Swayampakula Ramakanth: Okay. So, since Zylox may not have the facility approved by then by mid-2025, do you have enough resources and capacity to not only take care of your growing business in the U.S., but also help Zylox with product in China?

Jeff Soinski: Yes, we do. In our current facility, we have the manufacturing capability to not only support our growth, but to support incremental demand from Zylox. And we, obviously, will have time to prepare, but we currently only operate on one shift here in our facility. You may have also noticed we filed an 8-K that we extended our lease in this facility for a year to provide sufficient time to support the Zylox's business prior to them having their manufacturing capability cleared for supplying to the China market.

Swayampakula Ramakanth: Okay. And then here in the U.S., you said you added six new personnel to your sales force. In general, how long would it take for them to be productive? I don't mean it in a negative way, but in a way such that it helps your top-line growth?

Jeff Soinski: Yeah. So, typically, it takes around six months for us to start to see the productivity increase from the folks. We have hired some experienced TSMs, territory sales managers, so they need to build their pipelines. We've also hired new clinical specialists, so they are working to gain clinical proficiency with the devices so that they can independently support cases. But that process typically takes around a six month timeframe. Obviously, we did hire some of these employees in the fourth quarter. We hired some in the first quarter. So, we'll expect over the second and third quarter for them to really start to contribute to our growth as we advance through the year. And also, we will have access hopefully in the second half for the full commercial launch of our Pantheris LV image-guided atherectomy device. So, a couple of things, both our investment in the sales team as well as the expanded product portfolio providing a foundation for that growth as we move throughout the remainder of the year.

Swayampakula Ramakanth: Okay. So, my last question, so you exited '23 with a $1.9 million per quarter. So, for you to get to the $2.5 million per quarter range so that you can get the next tranche from Zylox, roughly, how long would it take you to get there do you think?

Jeff Soinski: Yeah. As we -- really relates to your earlier question, as the new folks come up to speed and start to make more and more contribution as we continue to go a little deeper in our current productive markets and then we have the benefit of the new products coming on board, we look to deliver that kind of growth as we go through the second half of the year and into '25.

Swayampakula Ramakanth: Okay. Perfect. This is very helpful. Thank you very much for taking all my questions.

Jeff Soinski: Thank you very much, RK.

Operator: Thank you. And that does conclude our Q&A session. I will now pass the call back to Jeff Soinski for closing remarks.

Jeff Soinski: Well, thank you very much for joining our call this afternoon. We very much appreciate your interest in our company and look forward to reporting our continued progress on our next call. Thank you so much.

Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.