Nova Eye Medical Limited (EYE) Earnings Call Transcript & Summary

Welcome. Good morning and welcome to Ellex' Extraordinary General Meeting. It is now 10:00 a.m. My name is Victor Previn, Executive Chairman of Ellex and Chairman of today's meeting. Today represents an important milestone in the evolution of your company with Ellex shareholders to vote on the sale of the Ellex Laser & Ultrasound business (sic) [ Lasers & Ultrasound business ] to Lumibird Group SA, known as Lumibird, at today's EGM. The sale of the Ellex Lasers & Ultrasound business has been structured by way of a sale of 100% of the shares of Adele Ellex SPV, Special Purchase Vehicle, Pty Ltd, a wholly owned subsidiary of the company, for a cash consideration of AUD 100 million. The Ellex Board proposes to distribute approximately $61 million of the proceeds of the sale of the Ellex Lasers & Ultrasound business to shareholders by way of a payment of fully franked dividend at a capital reduction through an equal capital reduction, which is also subject to shareholders' approval at today's EGM. The equal capital reduction of $41.5 million equates to approximately $0.29 per Ellex share, while $19.5 million fully franked dividends equates to approximately $0.14 per share. This represents a majority of transaction proceeds to be returned to shareholders. The balance of proceeds received from the sale will be used to fund tax liabilities arising from the transaction, closing adjustments, cost of the transaction and the retention of cash to grow the remaining business segments being, iTrack and 2RT. The Board engaged the Independent Expert to provide an Independent Expert's Report and determine whether the transaction with Lumibird is fair and reasonable to Ellex shareholders. The Independent Expert has determined that the transaction is fair and reasonable and that the advantages outweigh the disadvantages of the transaction from the perspective of shareholders. Since the announcement of the transaction, no superior proposal has emerged. Additionally, today, Ellex seeks the approval of shareholders to change the name of the company to Nova Eye Medical Limited as the Ellex brand will transfer to Lumibird on completion of this transaction. The company has applied for and has been granted approval by ASX for a change to its ticker from ELX to EYEI (sic) [ EYE ], subject to shareholders approving the name change at today's EGM. This new ticker clearly represents our continued focus on eye disease. If approved by shareholders at today's EGM, the primary focus of Nova Eye Medical Limited will be on glaucoma disease by the iTrack business, with manufacturing continuing in Fremont, California, and a sales network across the U.S.A., Europe and Asia Pacific. This segment generated first half product sales of $6.6 million and EBITDA loss of $1.7 million. Nova Eye Medical also retains the proprietary 2RT laser technology as a therapy for patients with an intermediate age-related macular degeneration, which we abbreviate iAMD. This segment generated first half product sales of $0.8 million and an EBITDA loss of $0.2 million. On a post-transaction basis, Nova Eye will be debt-free with approximately $21 million in cash, including $2 million held in escrow account for 12 months as one of the transaction conditions. We continue to assess potential product acquisitions that might provide synergies with our dedicated glaucoma (sic) [ glaucoma device ] sales channel. This activity is expected to result in at least 1 transaction during the 2020 financial year. Our long-term plan, the plan is to build a portfolio of products within the high-growth glaucoma consumable device market while carefully investing into the business to drive revenue growth. Both parties continues to work diligently to finalize the necessary steps for the transactions to complete. There are a number of conditions outstanding, and Ellex is working towards achieving those conditions. But there is no guarantee at this time that they will be achieved. With respect to a ruling from the Australian Tax Office on the matter of equity capital reduction, the directors can report that the progress of engagement with the ATO is underway, and directors expect that the ATO's view should be consistent with the tax comments, which we outlined in Section 48 (sic) [ Section 4.8 ] of the EGM notice. As you will be aware, we have determined that this meeting will be held virtually as a result of the constraints in place in response to the COVID-19 pandemic. The health and safety of our shareholders is paramount to Ellex, and our decision to move this meeting to a virtual platform reflects new directives issued by both the state and federal governments relating to the COVID-19 pandemic and restrictions for nonessential indoor gatherings as well as social distancing measures. With me today in the room is Mr. Rahmon Coupe, Nonexecutive Director of Ellex. Also on the line is Mr. Alex Sundich, Nonexecutive Director and Deputy Chairman of Ellex. Alex is based in Sydney and is unable to travel into Adelaide, owing to significant domestic air travel restrictions that are in place. We also have 2 U.S.-based directors, Nonexec Directors, Mr. Mike Southard and Mr. Mike Mangano, who are also not with me today but are attending this meeting via the virtual platform, also given the significant travel restrictions internationally. So before we start the formal business of the meeting, I have a couple of quick housekeeping points. I wish to draw your addition to the Virtual Meeting Guide, which is set out in the ASX release dated the 14th of April 2020, which is available on our website at https://www.ellex.com/investors/asx-announcements/. Information on how to vote is set out in the Virtual Meeting Guide. Shareholders will be able to vote on all resolutions on their device through the duration of the meeting. You will also be given a couple of minutes at the end of the meeting to complete your votes. You will be able to ask questions by clicking on the Questions icon in the navigation bar. Further information on this is set out in the Virtual Meeting Guide. To ensure the questions are asked reach -- that questions that are asked reach me as we go through the meeting, I ask that shareholders submit their questions as soon as possible, and I will undertake to answer as many questions submitted prior to the meeting. If you require any technical assistance during the meeting, please call Computershare on +61-3-9415-4024 or if you're dialing from Australia, it's (03) 9415-4024. I will now mote -- I'm sorry, I will now move to the formal business of the meeting. Given that this meeting is held remotely, we will be conducting votes on each resolution by way of a poll. When I open polling, you'll be asked to cast your vote by clicking on the Voting icon in the navigation bar. Once we have tallied the poll votes, that will be posted on the ASX Announcements platform following the end of this meeting. Quorum. I advise that in accordance with the company's constitution, a quorum is present, and I declare the Extraordinary General Meeting open. Notice of Meeting. The Notice of Meeting was dispatched to all shareholders on the 24th of March 2020 in accordance with the Corporations Act. If there is no objection, I propose that the Notice of Meeting be taken as read. Voting. I will now move to the formal business of the meeting. Given this meeting is being held remotely, we will be conducting votes on each resolution by way of a poll. When I open polling, you will be able to cast your vote by clicking on the Voting icon in the navigation bar. Please note that only shareholders, proxy holders or authorized shareholder representatives may vote. Any directed proxies given to you by the shareholder will automatically be cast as directed when the poll is closed. Once we have tallied the voting to be conducted by a poll, the voting details will be posted on the ASX Announcements platform following the conclusion of the meeting. Proxies. The proxy votes that have been submitted for each resolution will be set out in the slides that will be shown for each resolution. To give some context to these proxy numbers, the numbers of valid proxy votes lodged represents approximately 58% of the total issued capital of the company. I have been appointed proxy in respect to approximately 83.2 million shares for voting on the resolutions to be put to the meeting today. As indicated in the proxy form, I intend to vote all discretionary proxies where I am appointed proxy in favor of resolutions 1, 2 and 3. I will now open the poll on the resolutions. Your device should now display the 3 resolutions and your vote options. On some devices, to vote, you may need to minimize the webcast to access these voting options by selecting the arrow in the Broadcast bar. Simply select either For, Against or Abstain on each of these resolutions. There is no need to press the Submit button. You can also change your selection as many times as you like up until the close of the poll. When voting is closed, your final voting selection will be recorded. Okay, on to resolution 1. This is for the disposal of the main undertaking. Now turning to the first resolution to consider and, if thought fit, pass the following ordinary resolution, which seeks to approve the disposal of the Ellex Lasers & Ultrasound businesses. The main undertaking of Ellex for the purpose of ASX Listing Rule 11.2, Ellex is proposing to sell all its shares in its subsidiary, Ellex -- I'm sorry, Adele Ellex SPV Pty Ltd to Lumibird SA of France on terms set out in the share sale agreement entered into by the parties. A comprehensive summary of the terms is set out in the explanatory statement to the Notice of Meeting. I will now display the proxy votes received for this resolution. So on the first resolution -- for -- okay. On the first resolution, for, 82,452,769; against, 185,351; open, 571,767; abstained, 29,952; and excluded is 0. So that represents 99.1% for, 0.22% against, 0.68% open. So that represents a strong vote in favor. So if you'd like to ask a question on this resolution, please do so by using the app and ensure that the questions -- question references the resolution so we can address the question in order towards the conclusion of the meeting. I will now put this resolution to a vote by conducting a poll. I appoint Nigel Bulling of Computershare Investor Services as the returning officer. If you haven't done so already, please now cast your vote on this resolution. [Voting]

Okay. On to resolution 2, change of name. We now will turn to the second resolution to consider and, if thought fit, pass the following special resolution re the proposed change of company's name from Ellex Medical Lasers Limited to Nova Eye Medical Limited for the purposes of section 157(1) of the Corporations Act. Ellex is also seeking an amendment to the constitution to reflect the change of the company's name for the purposes of section 136 section 2 of the Corporations Act. Please note that the passing of this resolution is subject to the approval of the resolution 1 by the requisite majority and completion of the share sale agreement. I will now display the proxy votes received for this resolution. Okay, so for, 82,504,402, representing 99.16%; against, 129,468, representing 0.16%; open, 571,767, representing 0.68%; and 26,202 have abstained. Okay. I would like to ask -- if you'd like to ask a question on this resolution, please do so now using the app and ensure that the question references the resolution so we can address the question in order towards the conclusion of the meeting. I will now put this resolution to a vote by conducting a poll. If you haven't already done so, please now cast your vote on that resolution. [Voting]

Okay. On to resolution 3, the final resolution, capital reduction. We now turn to the third resolution to consider and, if thought fit, pass the following ordinary resolution, which seeks to approve a reduction in the issued share capital of Ellex of up to $41.5 million by returning to shareholders on a pro rata basis approximately $0.29 for each share for the purposes of Sections 256B and 256C of the Corporations Act. Please note that passing of this resolution is subject to the approval of resolution 1 by the requisite majority and completion of the share sale agreement. I will now display the proxy votes received for this resolution. For, 82,522,997, representing 99.26% of votes; against, 46,955, representing 0.06% of votes; open, 571,767, representing 0.68%; and 90,120 have abstained. If you'd like to ask a question on this resolution, please do so now using the app and ensure the question references the resolution so we can address the questions in order towards the conclusion of the meeting. I will now put this resolution to a vote by conducting a poll. If you haven't already done so, please now cast your vote for this resolution. [Voting]

Conclusion. Okay. So I will now address the questions received thus far during the meeting. Please give me a moment to sequence these.

Okay. So we have the first question from a shareholder, if this is a good deal for Ellex shareholders, why did the price of Lumibird shares increase by 25% in the 2 days after the announcement of the deal? Well, clearly, it was a good deal for both parties, a deal which is a good deal for both parties, the best sort of deal to have. So I'm glad the share price went up. I would have been [ riled ] if the share price went down. Next question. Okay. So next question, the shareholders received $0.50 in grossed-up dividend and capital return compared with the 61% undistributed share price. To make any financial sense of this [ ramped ] business, that would have to be worth $0.11 a share. However, the iTrack business lost $5 million EBITDA in FY '19. At that rate, the retained cash would only last 4 years. The business case for buying iTrack is that Ellex could offer a great -- greater range of ophthalmic therapies, and iTrack business could use the same sales force. With the sales of the L&U business to iTrack at the future, is there any logic in what is primarily a U.S.-based business having an ASX listing in an Adelaide-based Board? Okay. Well, there's a lot in there. We strongly believe that the iTrack business is a good business. It is in the hottest area in ophthalmology seen this century. The iTrack sales fit into the glaucoma segment, which is a rapidly growing segment. And yes, there are a number of players there. However, we have an extremely strong product. And yes, it does take money to penetrate that market, but we are confident that it is a good bet for shareholders that we can build value in that business. And frankly speaking, 4 years of runway is a huge amount of runway for any med tech company. So I believe that we will make that business a success. So yes, I believe the business does have a future. Does it make sense for an Australian company to be running this? Well, we are an Australian company. We've got it, and we intend to make the most of this asset. Next question. Yes. Okay. This comes from the Australian Shareholders' Association, and the Committee of Volunteers have considered the information the Board and the Independent Expert have put forward and have determined that the Australian Shareholders' Association proxies will be directed in favor of each resolution. So the next one comes from the Shareholders' Association, and they're asking, is it possible to get an update on how COVID-19 has affected sales and profitability of iTrack in various provinces globally? Again, that's a very good question. I'm sure shareholders are dying to know what's happening in this environment. It's a very tough environment to operate in, and we have had to close down our manufacturing facility in California. We did that more than 3 weeks ago. And we are waiting with bated breath for that facility to be reopened shortly. And we believe that there is movement afoot in the U.S. to reopen the economy. However, the government has provided a stimulus package, which we are endeavoring to access. In terms of business interruption, business has been interrupted by the ability of sales guys to go on these accounts. However, we are contacting our customers via electronic media. We have new apps that are being developed that are being used to contact customers. And we have sufficient inventory in-house to cause no supply discontinuity. So we have sufficient inventory, actually in multiple locations in the U.S., and we have spread our risks by placing inventory in different locations so that we can provide that inventory at a drop of a hat once it's required. However, the temporary shutdown of the factory has not impacted sales per se as we have sufficient inventory to come. But the lack of the ability to call on doctors is definitely affecting sales. Okay. Next question. This shareholder says that the information memorandum says very little about the prospects of the remaining business. What are the revenue and cash flow profiles? Another very good question. But given this pandemic situation and the mess the global economies are in, we would be a very great company to make some forward predictions. Nevertheless, we strongly believe that both the 2RT and iTrack are extremely good, high-value assets. And given that we will have cash in the bank, albeit we will have a runway to run the business until that cash runs out, we believe that we will be able to exploit both of those product lines and return value to shareholders. Okay. Next question. 2RT is still in the development stage, and it's difficult to ascribe any value to it. So pending FDA -- its pending FDA approval, 2RT is critically dependent on services to be provided by Lumibird under the TSA. Has the TSA been agreed? If so, how long will it last for? And what happens after that? What if Lumibird wants to consolidate manufacturing in France? Okay. So yes, 2RT indeed is a development -- at development stage, and it is currently undergoing final-stage planning of FDA approval. So we expect to be running a study. The study probably won't start until next year because of all of the business interruption and ability to access clinics. Nevertheless, if we are able to get the FDA study through and trials up, I believe that there should be a value inflection in the business. And I believe that 2RT is going to be a very valuable asset that we and shareholders will enjoy the benefits of in the future. And to date, nothing else has emerged in that space which competes with 2RT as a treatment for intermediate AMD. And hence, I believe that it's a good investment of the company's funds. Okay. We've run out of time, and we have -- we need to return back to the program. So I won't be taking any additional questions. And I will now address the questions -- sorry. Okay. So we will now -- so this concludes the resolutions to be presented at the meeting. We will leave the vote open for a couple of minutes for shareholders to complete their voting on resolutions. The poll will, therefore, formally close shortly. [Voting]

And -- are we done? Voting closed? Okay. I now declare voting closed. As mentioned earlier, the votes will be tallied, and the results will be available on the ASX Announcements platform following the conclusion of this meeting. Thank you for attending Ellex' Extraordinary General Meeting, and I now declare the meeting closed. Thank you.