Visioneering Technologies, Inc. (VTI) Earnings Call Transcript & Summary

Greetings, and welcome to the Visioneering Technologies webinar. It is now my pleasure to introduce your host, Stephen Snowdy. Thank you, sir. You may begin.

And thank you, and good morning, everyone, or good evening if you're over in the Pacific. This is Stephen Snowdy, Chief Executive, Visioneering Technologies, and thanks for joining. Not much to add to the legal disclaimers here, other than here in Atlanta, Georgia, we are work from home at the current time during -- due to the pandemic. So if there are any dogs or children or other feral wildlife that comes through the background, my apologies for that. I've been with the company since 2008, that's about when the venture firm I was at invested in Visioneering. I served as Chairman from 2009 to 2013 and joined the company, operationally, 2013 as CEO. I am a scientist by training, PhD in Neuroscience; MBA, Finance. I've been working in health care, finance and health care executive management for the past 15 years. Tony Sommer is our Senior VP of Sales and Marketing. Before coming to VTI, Tony ran vision care in the United States for one of the very large vision care companies that I'm sure you've heard of. That would have been Bausch, now called Bausch Health. And so we're very lucky to have Tony at Visioneering doing what he's done before in his career, which is build and manage outstanding sales teams. Brian Lane is our CFO. Brian has a long history as the Chief Accounting Officer and Chief Financial Officer in several public and private companies. Just a quick snapshot of the capital stock of the company. We are traded on the ASX under the ticker symbol VTI, in public since 2017. Current market cap is actually less than 2x our revenue despite 74% growth in that revenue last year. We had about just under 1 billion of shares outstanding at this time. And just worth noting that, that is not at all unusual in Australia. Penny stocks are not unusual in Australia, a little bit different from the U.S. in that regard. We have around USD 4 million cash on the books right now, that's enough to get us into the fourth quarter of 2021. So pretty healthy cash position at this point. It's also worth noting that there is a foreign ownership restriction on our stock, which means that U.S.-domiciled citizens and entities cannot buy the stock on ASX at this time. The stock, if somebody wants to own it, has to be purchased through a private placement directly from the company. But once purchased, can be disposed of on ASX without any restriction. So what the financial history of the company has looked like is 2016, we were a U.S.-based company, U.S.-only sales, no international clearances. And that was a $200,000 year for us, just a test launch that we did in 2016. 2017, the year we went public, was $1 million a year for us. 2018 was a $3.3 million year for us. 2019 saw just shy of $6 million in revenue for us, which included first revenue from our first strategic partner, one of the multinational contact lens companies that came in the fourth quarter of 2019. First quarter of 2020 started off still pretty strong, not quite affected by the pandemic yet. So very end of March, we still saw 19% growth in the shipment of products in the U.S. and really didn't start to feel the pandemic until second quarter. As you can imagine, almost all optometrists in the United States were shut down by April, which had an impact on us. We're very fortunate that our product, which we will talk about in a moment, can be shipped to patients' homes. So there is a base of business that even with all the practitioners closed, we're able to ship product. It was notable, as we came out of the second quarter, out of the June quarter, that in June our average weekly shipment of product was back to really where it was in the November, December, January time frame. So quite a bit of strength as we came out of the quarter, but still not quite enough to make up for very poor April and May, still down 42%. But we continue to see the strength and very happy to see that given how poor April and May were. Just a quick note on what shipments actually is, two metrics here: Net revenue, which is what you'd expect to see in any GAAP-compliant financials; and shipments to US ECPs. ECPs are eye care professionals. These are the optometrists who actually use our product, fit the product on to the patient and sell the product to the patient. Because the optometrist does not carry inventory, shipments is a much cleaner, more real-time view of the business. So we sell our product to a distributor, distributor sells the product to the ECP and the eye care professional then sells product to the patient. But because the practitioner generally doesn't hold inventory, shipments are not affected like net revenue is by shifting inventory at the distributor level. So a little bit cleaner, more real-time view of the business. And what is it that we do? Well, we sell contact lenses. And these are special contact lenses. Our flagship product is called NaturalVue Multifocal. NaturalVue Multifocal lenses are used around the world for 2 patient populations. The first one are children who are nearsighted or myopic. And what this means is that these kids can see things up close, but they can't see things that are far away, such as in a classroom looking at the board or when they're playing sport. That describes about 1/4 to 1/3 of children in the United States, which results in a $2 billion addressable market for products in the United States. Outside the United States, the problem is even bigger. Around 80% to 90% of children in many of the industrialized Asian nations are nearsighted, which is obviously just a massive problem. That results about a $10 billion addressable market opportunity in just China, with additional markets that are large in Singapore, Hong Kong, Korea, Japan, Canada and, of course, Europe has this issue as well. The nearsightedness in the child is not actually the problem. The problem is that the worst the nearsightedness or the myopia gets in the child by progressing year-over-year, the higher at risk that child is throughout their entire lifetime. Some pretty serious ocular events that include retinal detachments, which can cause blindness, glaucoma, cataracts and all sorts of other serious ocular problems in the adults who are nearsighted and were nearsighted as kids so it's pretty important to not only correct the vision in a kid, it's equally important as we're starting to see to slow down or stop the progression of the nearsightedness in the children and to limit the severity of the nearsightedness that the child develops. The exact same contact lenses, the NaturalVue Multifocal contact lenses, we don't have adult and children, they're all the same, are also used in a group of patients called presbyope. Presbyopes are people over the age of 40 to 45 who have trouble seeing up close. Typical patient care would be somebody who's been wearing contact lenses for their entire life since they were kids to correct their distance vision. And they get to 45, 50 years old, and now they're using the light on the back of their iPhones to light up the menu in a restaurant, holding things further away to be able to see them. This is called presbyopia. And unfortunately, it affects almost everyone who is over the age of 45 to 50. It's a progressive disease, very large market here. It's about a $3 billion market, addressable market in just the United States. And obviously, since it affects everyone, other large markets around the world as well. If you know somebody who's nearsighted or have a nearsighted child, there are some options for addressing their myopia progression. Again, the myopia means nearsighted progression just means it's getting worse and worse every year, that progression being a very important thing to treat versus just the nearsightedness itself. Atropine is an antidote for nerve agent exposure, mostly a military drug. It's not approved for use in the eye yet. There are some clinical trials of atropine as an eye drop, but right now not approved. But despite it not being approved, it can be used off-label for myopia progression control often used in the United States. Outside the United States, the way to get that is to have a compounding pharmacy mix the stuff up. Long-term effects of this stuff aren't known. You have to find somebody to actually mix it up for you, like the compounding pharmacy. And actually in Australia so many mistakes have been made with compounding pharmacies mixing up this drug and damaging kid's eyes, that the PDO, which is the Pharmacist Association, has said don't supply this stuff anymore. Ortho-K is orthokeratology. These are hard lenses placed on a child's eye at night when they go to bed, reshapes the front surface of their eyeball. These are labeled and used on label for the correction of nearsightedness. But there's a side effect with these lenses and that they can reduce the progression of nearsightedness, which is obviously helpful. So they are used quite a bit for that purpose in and out of the United States. They're expensive. They are -- they do require sanitation every day, sterilization. If you have a kid between 5 and -- I don't know, maybe 25, you know that kids don't tend to do well with things that require a lot of hygiene. So there is a slight risk of -- increased risk of complications in wearing these lenses overnight. And if a kid loses them, drops them, feeds them to an animal, that can be a pretty expensive proposition for the parent. But they do work to some extent. Due to the limitations of Atropine and Ortho-K, there's been a clamor in the industry for quite a long time for a soft, daily-disposable contact lens, that does the dual-purpose of not only correcting vision in a child so that they can see the boards, so that they can play sport, but also contains within it the optics that are necessary to slow down the progression of the nearsightedness. And that's what NaturalVue Multifocal does. In a peer review journal back in 2017, practitioners who were using the lenses compiled their data. Multisite, multi-practitioner retrospective study showed that children wearing NaturalVue Multifocal saw a 94% decrease in the rate of progression of their nearsightedness. That was later -- that data was later updated to include 141 children versus the 32 that were in the original study. And many more sites, many more children and -- still showed around 90% slowing of progression of nearsightedness in those kids, while providing vision that is at the same level as spectacles. And spectacles, of course, glasses are the gold standard for vision. There, over the past couple of years, has been a tremendous upswell in the interest of myopia. If you've not heard about myopia by now, you probably will be pretty soon. The largest multinational companies are all jumping into this space. Over the past couple of years, 3 years that we've been doing this around the world, we were pretty lonely voice talking about myopia control, except for maybe in Asia where there's a lot more awareness. There's been an increasing amount of awareness and interest from the large companies. For some of them, they're just talking about it and recognizing myopia in children as not only a -- very important medically, but a very large market opportunity. We've gotten together with all the large companies in an organization called the Global Myopia Awareness Coalition where we are a founding member, where we are getting together with the largest companies and trying to communicate to patients and practitioners the importance of managing myopia in children. So if you haven't heard of that as an area, I'm sure you will pretty soon. And I think most people are probably familiar with a child who's wearing glasses for distance correction. And so everybody knows somebody. There's also been a lot of activity in the early stage, basically we've got a cupful of companies that, again, have clinical trials going for Atropine. There are some spectacle companies that are trying out some special glasses to slow down myopia. I think what this probably tells us, in a longer-term view of the industry, is that there are going to be multiple solutions to myopia progression in children that include drugs, glasses, contact lenses and orthokeratology. Many of the large companies are already taking a portfolio approach. Like our partner, Menicon in Europe is -- has a product available that we'll talk about in orthokeratology. And the reason they took us on was because of the soft contact lenses. Other companies like CooperVision, taking the same approach, portfolio approach to myopia in children with both an orthokeratology product and a soft contact lens product. To give you a sense of what we've been up to. This slide has all of the market sizes where we are approved and the partners that we have in those areas to go after myopia. So Europe, we got approval in 2017 in Europe, specifically for myopia progression control in children and for correcting vision myopia and for presbyopia. We then took that clearance and parlayed that into Australia, New Zealand, got registered in Hong Kong and Singapore. And also received clearance recently in Canada, all of those with myopia progression control in children on the label and the correction of the myopia itself in the presbyopia. Market still remaining. China 2024 is when we would expect to go into China, are looking for a partner in China. Obviously, the trade tensions and pandemic have slowed that down a bit for us. In the United States, the lenses are approved for the correction of myopia. And for presbyopia, that was our first clearance quite a while ago. But the rest of these have just been in the last couple of years, and we're just getting to the point of starting to develop these markets to get clearances and worldwide, of course, the massive market in the myopia control space. In Europe, our partner is, as I said earlier, a company called Menicon. Menicon is Japan's largest contact lens company. They launched a product that received approval for an orthokeratology product in Europe last year and have developed an entire brand just around myopia in children. That brand is called Bloom. Bloom Night is what they call their orthokeratology end product. And we signed a private label deal with Menicon last year that's just really starting to kick off now, in which we private label, we put their labeling onto our contact lenses. That product is called Menicon Bloom Day. And that's just getting launched across Europe. We're pretty excited about that strategic opportunity for the company. And again, the lenses NaturalVue Multifocal are also used in the presbyopic population, this 45-and-over population who are losing their ability to see things up close. The whole purpose of Visioneering getting started back in 2008 was that the multifocal contact lenses were the contact lenses that provide dual functionality in the over 45 patients, dual meaning correcting their distance vision, while at the same time giving them the ability to read, see things up close. Contact lenses were available back then, but they just weren't right. They required some compromise between near and distant vision. All the companies had essentially the same design. And Visioneering's start, we got started by trying to solve that problem, provide a completely different contact lens that didn't require as much of a compromise between distance and near vision. And we've been very successful with that. So we -- of course, like all companies, we had a lot of questions around what -- how has the COVID-19 pandemic affected the company, and what have you done to stabilize the company? Back in April, we -- immediately, when we saw this coming, took some cash conservation actions. We reduced our headcount from 42 to 20 people. We reduced cash salaries across the company. We paused new product development and we paused our clinical programs and slowed down our international expansion a little bit. But we did retain a core sales team. We kept all the people, all the systems necessary to keep our regulatory compliance in the United States and worldwide and the ability to keep manufacturing, keep serving our partners, Menicon in Europe and Oculus, as they get started up over in Hong Kong and Singapore. We brought in some PPP money, about $1 million, most of which is going to be forgivable from the United States government, and we raised around USD 4 million in Australia between a placement and a offering to shareholders there. The cash that's on hand right now, the $4 million, again, is enough to get us into third quarter 2021. Sales coming out of the June quarter were pretty strong. So right now, the company is on pretty strong financial footing. And we'll keep doing what we're doing for the time being. We'll keep servicing our U.S.-based accounts. Again, we did maintain a core sales team here that's very, very good at that. We'll continue to support our partners over in Europe and Asia. We'll do some development towards our next gen product and other products we'd like to get launched as the pandemic recedes. And of course, we're keeping an eye, just like everybody else on a macro environment, waiting for the right time to reinvest in growth. And that's all I had for you about Visioneering. Obviously, we have been successful over delivering what we said we're going to do for the past couple of years with regard to international clearances. We're very well poised with international clearances to develop the company and to achieve future growth. And with that, I'll go to the Q&A.

Okay. So somebody wants to know what the main inflection point are, moving forward. I think we're right in the middle of the biggest inflection point for the company. It's been slowed down by the pandemic, but it's not been stopped. And really, that inflection point is the increase and more widespread recognition of myopia in a child as being a disease that has to be treated, not just providing them good vision. So that myopia progression piece is something that people haven't really talked about much in the past. There hasn't been any widespread solutions available. And I think we're just at the moment now where that is starting to flip over. You have Alcon following myopia, a pillar of growth for the company since its IPO out of Novartis. We have Essilor, the largest eye care company in the world, recently forming a group to look at myopia group composed of key opinion leaders around the world. You got CooperVision that has received approval in the United States. They're having to run a clinical trial, but still they did get approval to sell the product while they're running a clinical trial for a product in the United States. A lot of investment coming in from the big companies, a lot of investment from all of us in the industry to increase awareness and practitioners and in families in the importance of treating myopian kids. So I think that's a really big inflection point as we go forward, and we're just getting over the curve of that right now. Somebody asked why we're not on the OTC, that's certainly something that any company in our position would consider and it is something that we'll continue to look into. The ASX has been a fantastic place to raise money. We have very supportive investors over there. I think one of the challenges we have is the ASX does not -- you don't get a lot of liquidity out of ASX, and that is something we could potentially address through getting listed on additional markets, and that's something we're looking at. Give me just a moment. We'll go through some more of the questions. How many common shares is one of the questions. As I said before, there's about 1 billion shares outstanding right now. That does not include management options. It also does not include $3 million of convertible debt. If you look at the company on a fully diluted basis, including all of the options that are outstanding and the convertible debt, it's around 1.5 billion shares. And that is all the questions at this time. And again, I really appreciate you taking the time to learn about Visioneering Technologies. I think we have a very bright future in front of us. We've done a very good job of managing ourselves in a pandemic to make sure that we're on very healthy footing as we move forward and are going to be around to see the end of this and to take advantage of the very large markets around the world that we're operating in. So thank you very much. And if you have any additional questions, please feel free to reach out to me directly.

Thank you, Mr. Snowdy. This does conclude today's webinar. You may disconnect your lines at this time, and have a great day.