Earnings Transcript for OPSSF - Q4 Fiscal Year 2021

Company Representatives: Louis Laflamme - President, Chief Executive Officer Robin Villeneuve - Chief Financial Officer Robert Blum - Lytham Partners, Investor Relations

Operator: Good morning, and welcome to the OpSens, Fourth Quarter Fiscal Year 2021 Financial Results. All participants will be in listen-only mode. [Operator Instructions]. Please note, this event is being recorded. I would now like now to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

Robert Blum: Alright, thank you very much and thank you all for joining us today for the OpSens fourth quarter and fiscal year 2021 conference call. With us on the call representing the company today are Mr. Louis Laflamme, OpSens’ President and Chief Executive Officer; and Robin Villeneuve, OpSens’ Chief Financial Officer. At the conclusion of today’s prepared remarks, we will open the call for a question-and-answer session. Before we begin with prepared remarks just a couple of comments. Today’s call will contain forward-looking statements that are based on current assumptions and subject to risks and uncertainties that could cause actual results to differ materially from those projected and the company undertakes no obligation to update these statements, except as required by law. Information about these results and uncertainties are included in the company’s filings, as well as periodic filings with regulators in Canada, and the United States, which can be found on SEDAR and the OpSens website. Today’s discussion will include adjusted financial measures which are non-IFRS measures. These should be considered as a supplement to and not a substitute for IFRS financial measures. Finally, today’s event is being recorded and will be available for replay through both the webcast and conference call dial-in information provided in the press release. With that said, let me turn the call over to Louis Laflamme, President and Chief Executive Officer for OpSens. Louis, please proceed.

Louis Laflamme: Thank you, Robert, and good morning to all of you. We are excited to speak with you today for our fourth quarter and fiscal year 2021 conference call. Let me also take a minute to greet the French speaking audience. [Foreign Language]. Let's move into the highlights. From the revenue standpoint, I am pleased with the operating results for the fiscal year 2021 as we reported double digit top line growth across the board, highlighted by record annual revenues of $34.5 million, an increase of 17% compared to last year. The growth in revenues was led by our OptoWire product for coronary artery disease with sales of $22.9 million up 22% from last year. This was a record year for the OptoWire sales, highlighted by strong growth in the U.S. where OptoWire sales grew 42%. During the fourth quarter revenue was $8.1 million, an increase of 7% compared to the fourth quarter a year ago, however below peak sales we delivered in the second and third quarters 2021. I will expand upon some of the drivers on this in a moment, however our indications show that this was pandemic related due to the third waver and supply chain challenges. We believe normal quarterly revenue growth will come back during fiscal year 2022. Transitioning to our pipeline, we made tremendous progress on our TAVR development program, moving us increasingly closer to our goal to commercialize the industry's first ever pressure guidewire designed to both, deliver a valvular prosthesis, while allowing continuous hemodynamic pressure measurement during a TAVR procedure, [inaudible] competitive advantage for our SavvyWire. Importantly a key milestone was achieved this week with the successful completion of our first in-man study with SavvyWire. I will expand upon this, as well as our upcoming expectations and milestones further in a moment. But simply put, we are now closer than ever to entering the massive TAVR market, currently estimated at $5 billion and expected to reach $8 billion by 2025, with what we believe is one of the industry's most innovative product that will drive future revenue for OpSens. I think it's important to remind everyone that OpSens is in the best financial position in the history of the company from a balance sheet perspective. We have the financial flexibility to strategically execute our growth strategy. At the end of August 2021, OpSens had more than $38 million in cash on the balance sheet. So with that as a high level overview, let's jump into more specifics. Let us start with the OptoWire. Sales with our coronary artery disease business are what we refer to as FFR and dPR were $22.9 million during the year, a 22% increase and a $5.3 million during the fourth quarter, a 9% increase as I mentioned a moment ago. We see continued solid adoption in the U.S. with sales increasing 42% for the year and up 25% for the quarter. These results were achieved despite the slightly negative impact from the third wave or Delta Variant wave that came though the U.S. as hospitals slowed down once again during the June to August period. The summer months are traditionally slower in the cath lab in the U.S. So in combination with the COVID related case volumes decrease, we are encouraged by the progress we made in the quarter. For the year our concentrated efforts to expand and enhance our market share in the U.S. by adding new customers, while capitalizing on the recent signing of two significant GPO contracts have been critical. Working with hospital systems and GPO has been a key initiative and we are excited with the progress made to drive market acceptance in the US. As a reminder, we signed our first U.S. GPO agreement in October 2020, providing access to the OptoWire through all their members across the U.S. In April 2021 we singed our second major GPO agreement with Vizient, one of the country's largest GPO to provide our OptoWire III to over 700 cath labs. As a result of singing these two GPO agreements, OpSens products are now an option for more than half of all U.S. cath labs. While still a relatively small amount unit sales through GPOs grew 19% during Q4, 2021 compared to Q2, 2021, when we started with GPO's, with new accounts getting added each quarter due to the GPO’s contracts. We see this as a positive sign to the long term potential these agreements can bring to us. Overall, we are confident that the work we have done during fiscal year 2021 positions us well to begin to build back the organization that will accelerate revenues and create the foundation for a successful SavvyWire product launch, targeted for fiscal year 2023. Outside the U.S., sales performance was solid with annual sales in the EMEA up 21%, Canada was up 18% and Japan was up 12%. Sales for the fourth quarter on the yearly comparable business

Robin Villeneuve : Thank you, Louis, and thanks to everyone joining us on the call. As we hit on a few of these items, I would try to add some addition details where I can. The company reported record annual sales of $34.5 million in fiscal 2021, compared to $29.5 million in fiscal 2020. This was broken down as $22.9 million in our coronary artery disease lines of business or FFR and dPR. $8.1 million in our optical medical systems which is mainly our agreement with Abiomed for integration of our pressure sensor into the Impella pump and $3.4 million in our industrial or OpSens Solution segment. For the fourth quarter of fiscal 2021, revenue was $8.1 million compared to $7.6 million. This was broken down as $5.3 million in our coronary artery disease line of business, $2 million in our optical medical systems and $700,000 in our industrial segment. As Louise stated, the year ago quarterly revenues was certainly impacted by procedure slow down due to the ongoing pandemic. While we were back to more normalized levels throughout much of our fiscal 2021, we did see an impact again during the fourth quarter as the delta variant or third wave rolled [ph] too. We are once again seeing procedures increase here in the first quarter. On an annual basis, we did see growth in all four of our key markets, including the U.S., EMEA, Japan and of course Canada. Our OpSens Solutions business continues to see an increase of orders, particularly from the nuclear segment. Our OEM revenues should maintain constant growth. I mention this last quarter, but one important item to note, the company revenues are generated in U.S. dollars, Canadian dollars, Euros and British pounds. Fluctuation in the exchange rate affects revenues. For the three month period ended August 31, 2021, revenues were negatively affected by about $450,000 compared to the same period last year. In contrast, sales were positively impacted by $10,000 for the three month period ended August 31, 2020. When you look at gross margin, they were up 100 basis points for the year to 54% compared to 52%, plus for the quarter they were flat at 50%. We continue to believe we will see year-over-year increase in gross margin percentage due to higher sales volume and the related economies of scale combined with, and productivity and by lower cost of goods sold for OptoWire III compared to OptoWire II. From an operating expenses standpoint, as planned overall operating expenses increased by $1.5 million during the fourth quarter of fiscal 2021 compared to the fourth quarter of fiscal 2020. The increase is largely explained by our investments in sales and marketing as we are ramping up our sales efforts to continue growing market share in the U.S., along with increases in our general and administrative costs pertaining to higher headcount and professional fees. As we explained, we are making additional investments in sales and marketing and research and development over the coming quarters, to capitalize on the opportunities we have to accelerate growth of OptoWire and development of our SavvyWire. For the year, operating expenses were relatively flat as the first half of 2021 saw a reduction in expenses due to the reduced travel, etc. However, the back half saw the increases I just mentioned. EBITDA which we define as net income loss, plus financial expenses, depreciation of PPME and right of use assets, amortization of intangible assets and stock based compensation costs was a negative $0.7 million in the fourth quarter of 2021, compared to a positive $1.4 million in the fourth quarter of 2020. The decrease in the fourth quarter is mainly due to higher sales of marketing and administrative expenses and a higher amount of CEWS, Canadian Grant received last year. Looking at net income, we are reporting a net loss of $1.2 million in the fourth quarter of 2021 compared with a net income of $0.6 million in the year ago fourth quarter. The net loss is due to our investment to capitalize on business opportunities with additional spending in sales and marketing, R&D and others where operating expense is increasing $1.5 million as I mentioned. We also had a $900,000 Canadian Grant last year which was not recognized in this year’s fourth quarter. For the year net sales was also $1.2 million, compared to a loss of $2.2 million, an improvement of $1.4 million. Finally, on the balance sheet we ended August with $38.6 million of cash and cash equivalents. Subsequently to the end of our 2021 fiscal year in September 2021, the company prepaid the entire balance of the term loan in the amount of $5.8 million, which will provide an annualized savings of approximately $250,000. With that, I will turn the call over to Louis.

Louis Laflamme: Thank you, Robin. Thank you to all our investors for their continued interest and support of OpSens. We are working hard every day to capitalize on the opportunities ahead of us, to position ourselves for a long term success. Operator, let me now turn the call over to any questions.

Operator: [Operator Instructions] Our first question today comes from Rahul Sarugaser with Raymond James.

Rahul Sarugaser : Good morning, Louis and Robin. Thanks so much for taking my questions. Congratulations on completion of the TAVR trail and also congratulations on finishing 2021 strong. So I just wanted to follow-up a little bit more on the TAVR trial now that you've completed fleet recruitment. Can you give us a little more clarity if possible on when we expect to see data and then assuming that that data is partly strong safe – you know what the timelines look like around EL Canada [inaudible].

Louis Laflamme: Okay, good morning Rahul. Thanks for your question. First, I want to mention that at the last TCT conference there was a presentation from Dr. Rodés-Cabau from IUCPQ, where he presented one-patient one-case that was performed during the study regarding the results of the study. I mean for us, and I want to be very clear about this, the study is completed. There was no, let’s say the, in terms of the goal, the endpoint of the study, there is no follow-up required. So we are now blipping together all the data and we should get a final report on the study hopefully somewhere next week. So it means that OpSens is expecting to be able to file for regulatory approval for Canada and U.S. somewhere next week, which is in advance to and what we mentioned in the last call. And regarding the results of the study, I'm sure there would be different publications down the road by the doctors. This being said, it was a safety study where the end point was about, does the SavvyWire was able to deliver the valve in the procedure? Does the SavvyWire was able to do what we call [inaudible] or rapid pacing and does the SavvyWire was able to show accurate measurement during the procedure? So on all those three topics, even if we have not received the final report yet, we feel that it was very successful. So this has been giving an increased confidence to us that I mean there would be a place for the SavvyWire in the TAVR market. So I don't know if this answers your question.

Rahul Sarugaser : I think it absolutely did answer my questions. Congratulations on the anticipated results! So assuming these timelines continue to be – you continue to hit these timelines, we would guesstimate that approvals would likely come through sometime middle of next year. Now looking forward to a commercial plan, have you started to put this together given the competitive landscape with primarily electronic, about the scientific being too heavy weight players in this space. Can you give us any color in terms of your forward thinking on that commercial plan?

A - Louis Laflamme: Well, sure. So first on the approval, obviously there is a part of the timing that is out of our control, so it will be in the hands of EL Canada and the FDA to analyze our file and to potentially clear us for commercialization. We are very confident that we've done all the proper validation work. So thinking that we should get, you know end of the summer you know the approval in U.S. is certainly a reasonable assumption. We think there is a probability to get this earlier for Canada, since the EL Canada had the opportunity to review before renting out the go-ahead for the first 10 months study. So they had the opportunity to review a good number of our validation testing and our validation plan. So once this is completed, once we get clearance for commercialization, I mean right now we are increasing the size of our sales team to be able to properly support the launch of the SavvyWire. So we expect to double the size of our sales team from what we are having today and regarding the higher level in term of the marketing strategy, we are adding some resources to the team. We are also having multiple discussions with key opinion leaders in the field to make sure that we come with the proper value proposition messaging, and we think that again, we are going after a very significant market opportunity, and the feedback that we are getting right now following the first 10-month study, following multiple presentation at TCT is giving us a great confidence that it will be – I mean the launch of the SavvyWire will be transformational even for ourselves, because we’ll move from a single product company that we sell directly to the hospital, to having a second product in our bag. So this will make us more relevant for our customers, more relevant for doctors, more relevant for GPO’s and it will help us also to make our sales force much more efficient.

Rahul Sarugaser : Okay, thanks. And I have just one quick follow-up question. In terms of when you get to that commercial stage, do you anticipate running any additional clinical studies to illustrate the benefits of SavvyWire over standard of care? And if so, do you have any sense of what those trials may cost?

A - Louis Laflamme: The answer is absolutely, yes. We have not finalized yet our clinical plan. Once we will do this, we’ll share this in greater detail with the financial market. But for sure – I mean right now we are gathering all the learning that we get from the first in-man. We are having multiple discussions with key opinion leaders in the field, because here – I mean it’s obviously different than when we came with the OptoWire. So the OptoWire is under our opinion the best product in the market, achieving the similar function than competitors, while in the case of the SavvyWire, we are coming with a completely new concept. So there is opportunities to do clinical work that will really make more tangible the benefits, the potential benefits that we could have for doctors, patients and hospitals. So what would be the amount of this? We are certainly talking about you know, probably in the range of the $3 million to $5 million that would be spent once the product is commercialized. But again, this decision has not been made and it will be influenced by the feedback that we get from the most influential doctors in the TAVR field.

Rahul Sarugaser : Great! Thanks Louis and Robin for taking our questions. Congratulations again on the strong year and we’ll get back in the queue.

Louis Laflamme: Thank you very much Rahul.

Operator: Our next question comes from Justin Keywood with GMP Securities.

Justin Keywood : Hi, good morning. Thanks for taking my call. Just question on the OptoWire. There is comments in your opening remarks that there was less procedures in the quarter due to the variance in the spread of COVID-19 and I know there is a large backlog of procedures that still need to be done. So is the way to look at the quarter and the lower growth as just a temporary blip just due to the spread and the increased cases to what has been pretty good growth resuming, coming out of the early days of the pandemic. And if that's true, should we see the current quarter we are in, having a rebound to what the rates were subsequent to the results.

Louis Laflamme: I mean, for sure we are expecting to see a certain rebound in Q1, 2022. So I’m talking about the period from September 1, 2021 to November 30, 2021. So the Street should expect some growth. This being said, there would be still be a certain impact to from COVID. So we don't expect Q1 to be what we would say a more normal quarter. This being said, when we are looking for the fiscal year 2022, we expect to record good growth and obviously stronger growth than what we've seen in Q4, 2021.

Justin Keywood : Okay, that's helpful context. And for that outlook, would that include material traction with the recent GPOs that were signed or does that take a little while to penetrate those relationships?

Louis Laflamme: I mean, no, there would be a positive impact from the relationships that we built with a Group Purchasing Organizations and this will be combined also with, I mean a broader team to really capitalize on the benefits of the OptoWire, because I mean coming back from TCT this year, again we got very good intervention around the OptoWire. So OpSens is putting in place the right team to be able to reach more physicians that would benefit from having the OptoWire in their hands.

Justin Keywood : Okay, thank you. And then, I just had a couple of questions on the SavvyWire. Just to clarify the Health Canada submission could come next week, in conjunction with data around the trial being disclosed. Is that correct?

Louis Laflamme: Well, regarding the filing for EL Canada and the FDA, yes we expect to complete this next week. Regarding data, I mean I don’t expect OpSens to release any specific data on this study that was mostly a safety study. If you want to look at some interesting data around the SavvyWire, you can refer to two presentations that were made at TCT this year by Dr. Philippe Genereux from Morristown regarding the interests of the pressure measurement that we are going to provide with the SavvyWire and once we get the approval on the product, we’ll do as I mentioned in the first set of set of question, we’ll do multiple clinical studies to further demonstrate the value proposition of the SavvyWire.

Justin Keywood : Okay, just on the endpoints you mentioned earlier in the call, you know that the SavvyWire does have the ability to do the rapid pacing and successfully delivering the valve. I assume if there's the submission to the FDA and Health Canada next week that those endpoints would be met, if I'm reading that correctly.

Louis Laflamme: That's our understanding. OpSens has been attending to all cases performed during this first in-man study, so that's our opinion on the subject. As I mentioned, we have not received the official report yet from the principal investigator, but we are confident that all endpoints have been met.

Justin Keywood : Okay, great! We’ll look forward to those developments and thank you for taking my questions.

Louis Laflamme: Thank you, Justin.

Operator: [Operator Instructions]. Our next question comes from Brian [inaudible] Securities.

Unidentified Analyst : Good morning, Loui. I have a couple questions for you. You had some recent changes in your sales force, and I know you said on the call that you were planning to double the size of the sales force. Can you give us a little more idea as to how the sales force is going to be expanding in the U.S., and what particular markets they are going to be going into?

Louis Laflamme: Yeah, I mean if you recall when COVID first hit OpSens adjust, its seems like a decision to do more work at distance and reaching out to doctors using technology. Now that – I mean, we are hoping that this is period will somehow evolve to a more normal situation. There is various markets where OpSens is not actively present, and I mean those markets are in different states and U.S. So we will expand the sales force with a graphical approach, driven by data that PCI number and so on. So also, I mean as I mentioned we feel we are building right now a stronger, broader organization with the new leadership in sales and we are confident that the early, positive result as we are seeing will also be transmitted into a stronger growth for the fiscal year 2022.

Unidentified Analyst : Great! How do you guys think about sales productivity? Is there specific metrics that you guys are using, do you have quarters installed at this point? What’s the overall thought process for sales productivity for the company?

Louis Laflamme: It’s certainly – I mean sales per territory manager is a key indicator for us, and even, I mean when we compare to figure that we got before in the last year, the productivity from our sales people doubled, more than doubled. So we see still the opportunity to do better. In addition, we think that once we will add a second product like the SavvyWire to our portfolio, we’ll be able to sell this product to the same customer than what we have to date. So again, this will be another enhancement on the productivity that we get from our sales representative. So I would say, high level key indicators are sales per person, and you know with certain clear targets to be bring those 13 manager to profitability, because once we do this, it's allowing us to add more people.

Unidentified Analyst : Excellent! Last question for me. During the trial and I know it's only 20 patients, and congrats on hitting the end point, did you see any time savings and not necessarily overall, but as the docs were using it, you know the first case always takes longer. By the time they were progressing and getting more comfortable using it, did the doctors see any real time savings by using the SavvyWire versus the traditional methods? Anything anecdotal will be fine.

A - Louis Laflamme: Yeah, well Brian, we saw an improvement, let’s say from patient number one to patient number 20 under the protocol that we were running for the first 10 months. The protocol that we were running was not exactly, let’s say the standard of care that we will have in a normal procedure down the road, but certainly I mean we – when we think about the value proposition of this SavvyWire, the fact that we can eliminate some steps, that we can eliminate some insertion. I'll just take the example of the rapid pacing. This is potential direct time saving. So in summary what I would say is after seeing the 20 patients, our confidence that the time savings will be relevant for our customers increase over those 20 patients.

Unidentified Analyst : Terrific! Thank you. Look forward to that.

A - Louis Laflamme: Thank you, Brian.

[End of Q&A]:

Operator: This concludes our question-and-answer session. I'd like to turn the call back over to management for some closing remarks.

Louis Laflamme: Okay, well again I want to thank everybody that attended this conference call. OpSens is incredibly excited about its future, both with the OptoWire, the SavvyWire, but also the OEM business that we have with customers that are growing, also with the industrial business that is going to transform the world regarding the fuel monitoring for aerospace. So in summary, I want to thank all the support from the shareholders. I also want to thank all the employees that are devoting a great effort to develop great products to meet the needs of the market. And with that, I wish you a Happy Thanksgiving to all of our American listeners.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.