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

Thank you for standing by, and welcome to the Visioneering Technologies Q4 2020 Quarterly Investor Conference Call. [Operator Instructions] I would now like to hand the conference over to Dr. Stephen Snowdy, CEO. Please go ahead.

Hello, everyone, and Happy New Year. This is Stephen Snowdy, CEO of Visioneering Technologies, and I'm joined by Brian Lane, our Chief Financial Officer; and our Senior VP of Sales and Marketing, Tony Sommer. We welcome you to our quarterly investor call for the quarter that ended December 2020. We'll open the call today with financial and operational recaps of the business. We'll provide some additional color to the status of operations, and then we'll open the line to answer your questions. All dollar amounts that we will discuss today are in U.S. dollars and VTI's fiscal year is coincident with the calendar year. Investors are also reminded that the financial metrics that we report today and recorded in yesterday's Appendix 4C are not audited. VTI is in the business of correcting vision with contact lenses. Our flagship product is a daily disposable soft contact lens called NaturalVue Multifocal. NaturalVue Multifocal is a revolutionary and patented contact lens targeted at 2 patient populations with high clinical needs. The first being in children with nearsightedness that becomes worse over time, a condition called pediatric myopia progression, which affects about 80% or more of children in many major Asian economies. The other patient population being prescribed for contact lenses are people over the approximate age of 45, who have difficulty seeing things within an arm's reach, a condition called presbyopia, which affects almost everyone over the age of 45 to 50. Our addressable markets in pediatric myopia and presbyopia are large in global, $5 billion in the U.S. and more than $10 billion in Asia as well as other large markets in Europe and elsewhere. VTI has clearances or registrations to sell its products in the U.S., Europe, Australia, New Zealand, Singapore, Hong Kong and now Canada. All right. With that introduction out of the way, Brian, could you recap the quarter's financial metrics for us?

Yes, Stephen. Net revenue in the fourth quarter was $1.4 million, which represents a decrease of 13% from the previous quarter and 2% from the same period in 2019. Now that's excluding the $0.5 million Menicon purchase in the fourth quarter of 2019. Seasonality and special circumstances make these comparisons really difficult. Consistent with the contact lens industry overall, our fourth quarter net revenue generally is lower than our third quarter. This quarter follows that trend and is accentuated somewhat by the strength of our third quarter, followed by weakness in December as COVID-19 cases surged in the U.S. and abroad. Shipments to U.S. ECPs in the fourth quarter were $1.4 million, a decrease of 19% from the previous quarter, but an increase of 1% over the same period in 2019. Cash receipts from customers in the fourth quarter were $1.1 million, a decrease of 41% from the prior quarter and 18% from the same period in the prior year, when excluding the Menicon purchased. We received a large payment from a customer in early January, that we expected to receive in December, which hurt our fourth quarter cash receipts but will help our fourth -- our first quarter of 2021 results. The number of active U.S. accounts, which are accounts in the U.S. that purchased product in the quarter, were 2,074 in the fourth quarter compared to 2,173 accounts in the prior quarter. Gross profit was 45.9% of net revenue in the current quarter compared to 46.1% in the prior quarter and 34.4% in the same quarter of 2019. We continue to sell down the higher cost FIFO layers and to see a small shift in product mix towards more multifocal product, which has a higher product -- higher gross profit margin than our sphere product. Similar to the second and third quarters, we experienced higher direct-to-patient deliveries that increased our shipping costs and offset some of the margin improvements during the quarter. Looking at our annual results. Net revenue was $5.1 million, which represents a decrease of 3% from 2019 when excluding the $0.5 million Menicon purchase in 2019. Shipments to U.S. ECPs in 2020 were $5.6 million, essentially even with the 2019 results. Shipments set a record in the first quarter of 2020 and again in the third quarter. But the decline in the second quarter, as the pandemic took hold and in the fourth quarter as it worsened again, offset the gains from the first and third quarter so that we're basically even with 2019. Cash receipts from customers were $1.1 million in 2020, a decrease of 3% from 2019 when excluding the Menicon purchase. Gross profit was 43.6% of net revenue in 2020 compared to 34.4% in 2019. It averaged 40% in the first half of 2020 and 46% in the second half of 2020. So we expect that, that improvement will continue going into 2021. As far as cash flows, net cash used in operating activity was $1.6 million in the quarter, which included $0.7 million of cash used for inventory purchases. Excluding the inventory purchases, net cash used in operating activities was $0.9 million in the fourth quarter compared to cash provided by operating activities of $0.3 million in the third quarter. This change was due to multiple factors, including the cash received in early January noted earlier that we expected in December, lower net revenue in the fourth quarter compared to the third quarter and higher sales and marketing costs. We expect net cash used in operating activities to be less than $1.0 million in the first quarter of fiscal 2021, an improvement of 40% or more from the level in the fourth quarter of 2020. We expect cash receipts to be higher due to the late collections from the fourth quarter and higher expected revenues in the first quarter. We also expect higher inventory purchases to offset a portion of these gains, netting to the overall 40% projected reduction in net cash used in the first quarter of 2021. For the full year period, net cash used in operating activities was $6.4 million in 2020, an improvement of 49% from the $12.6 million used in 2019. Although net revenue declined between the years, gross profit increased in both dollar and percentage terms, and we curtailed inventory purchases as much as possible. We also decreased our operating expenses in April 2020, primarily in sales and marketing. The improvement in gross profit and the lower inventory purchases and operating costs drove the lower use of cash in 2020. In connection with the placement and security purchase plan we completed in June 2020, we issued 218 million freestanding options to investors with an exercise price of AUD 2.8 that may be exercised in the last day of each month through their expiration in June 2022. Holders exercised 4.8 million options in September 2020 and another 9.5 million options in October 2020. We received an aggregate of $0.3 million in cash in the fourth quarter of 2020 relating to these exercises. These are -- we classify these cash receipts as financing activities so they don't impact the use of cash from operations that we described earlier. We may receive up to an additional $4.4 million if investors exercise all of the remaining options before they're exercised in -- before their expiration in June 2022. So we currently forecast our cash on hand to be sufficient to carry us through the first half of 2021. This forecast obviously assumes that we continue to delay new clinical projects and product launches, and there are no significant changes to the macro environment or other factors that cause us to miss our revenue projections. That's it for the financial update, Stephen, back to you.

All right. Thanks, Brian. Well, obviously, it's been a very interesting year in our industry and most industries given the pandemic. So I'd like to take a moment to have Tony Sommer, our Senior VP of Sales and Marketing, tell us what he's seeing out in the trenches within the industry. Tony?

Well, thanks, Stephen, and good morning and evening, everyone. So by way of update this winter, American eye care practitioners continue to employ physical practices for health and safety. These include, but are not limited to, personal protective equipment, plexiglass installations, no to minimal physical contact with patients, which is interesting to behold in an eye exam, as well as increased sanitation and very rigorous scheduling to control physical flow throughout the offices. This is a very visible reminder of the impact of the pandemic in the United States on the day-to-day business of optometry. Though quarter 4 started off with higher appointment loads than usual, no shows and cancellations grew throughout the quarter as COVID surged throughout the United States, making headlines around the world. Outside the United States, particularly in Europe, we saw increased patients and governmental caution as well impacting behavior. The sales team has continued to adjust while engaging with our customers, whether it is in person, over the phone, e-mail, text or Zoom. Our marketing and professional services teams were busy disseminating our latest data. This is very critical for us from the Global Myopia Symposium as well as launching our shared vision educational initiative of video lectures from key opinion leaders around the world. Both programs have helped establish VTI as a leader in the myopia space. And finally, as a founding member of the Global Myopia Awareness Council, which is focused on consumer education, we leveraged the very successful industry consortium holiday marketing campaign worldwide through our social media and digital efforts. This is very critical for a small company to leverage other people's content and skill. Strategically, we're also pleased with our Asia distributor and Canadian launch, both have been done virtually. As well as the resilience of our partners and ANZ, the United Kingdom and Europe as they put in good performances in the face of the pandemic. We saw much of the year on Zoom together with these folks. And as their teams deploy as best they can in each of their markets, we've been helping them with key learnings and techniques from the American home market as well as best practices from around the world. Back to you, Stephen.

Well, thank you, Tony. And I'll just provide some quick commentary on what you've heard so far. So as we've flagged many times before, most recently in the business activity report and investor call in October, the December quarter is the slowest quarter of the year in our industry in terms of quarter-over-quarter performance. And as Brian intimated, this year, we had to layer on a pandemic and the severe impact that it's had on our markets. To give you some perspective of the challenge we've had here in the United States, we are now averaging 218,000 new cases a day of COVID-19, a total of 400,000 deaths and adding about 3,000 deaths per day with large swaps of the U.S. economy on some level of restriction. And of course, many parts of Europe look similar in their surge of cases and deaths. However, we are pleased that despite a deadly pandemic, the business closures, the consumer caution and having halved our headcount at VTI to save cash during the pandemic, we managed to hold 2020 shipments in the U.S. constant compared to 2019, while reducing our cash used during the year by almost half. Now normally in the month of December, we would have paddled our way through the fourth quarter doldrums of October, November and would have started to catch some wind in the sales. 2020 was a bit different as one might expect with business picking up more slowly towards the end of the quarter than we are used to seeing, despite the fourth quarter being the best December quarter that we've had. However, while December was a slow end to a slow quarter that capped a slow year, we are encouraged by the start of the new year. The first 2 full weeks of the new year have come very close to setting all-time records for the company, averaging 150,000 in shipments for each of the first full weeks of the year compared to an average of around 110,000 per week in the December quarter. And of course, this is very encouraging for us. While a small snapshot like that doesn't predict the rest of the quarter or the year for that matter, the U.S. seems to have reached peak infections and distribution of the vaccine is picking up steam, which provides us with further encouragement as we start 2021. Going forward, operationally in the U.S., we'll hold the company at its approximate current size and grow as efficiently as possible through deeper penetration in existing accounts and perhaps a new product or 2. Internationally, the industry contends -- continues to be impeded by the pandemic, but planning seems to be steering towards expectations of improved conditions. We've developed great business partners, as Tony said, for Europe and Asia, and those partners are positioning to broaden their footprints in 2021 as the pandemic recedes. We expect that our strategic partner, Menicon, will expand Europe-wide in the first half of 2021, something that was planned for 2020 but was not possible due to the pandemic. Likewise, in Canada, where VTI recently received approval and where we sell directly without a sales and distribution partner, we are adding new practices and expect business there to accelerate as the economy in North America spends back up. With regard to business development, we, of course, get a lot of questions that go beyond what we've disclosed in our business activity reports. At this time, we will not be providing information that goes beyond what we have previously stated, that interactions with other companies and potential partners as part of our ongoing strategy and the conversations across a broad range of potential collaboration types, including strong interest and partnering for China. In closing, like most people and companies, we are very glad to have 2020 behind us. Despite the incredible challenges of the pandemic and cost-saving measures that dramatically reduced our workforce, we held our shipments in the U.S. steady compared to 2019 and also held revenue relatively stable. We did this while nearly having our cash use. Additionally, we received approval and launched in Canada, got a key new patent in the United States, signed up a new partner for Singapore and Hong Kong. And we've sprinted off the blocks in 2021 and are looking forward to a bright year. And with that, Amanda, we could open up for questions.

[Operator Instructions] Your first question comes from Jason [ Air ], a private investor.

I'm a private investor from Melbourne, Australia. My question is, what is VTI's footprint in Australia? How many ECPs do you have here? My interest is somewhat self-interest because I've been a contact lens wearer for 40 years-plus. I'd love to get a script and try out your product.

Tony, you want to swing at that one and talk a little bit about our footprint there?

Yes. So Jason, so we have approximately 200 accounts within ANZ across all the major population centers. In fact, one of our best accounts and an excellent fitter for not only our lens, but several others is located in Melbourne. So we have about 200, concentrated in the places that you would expect, Sydney, Melbourne, Brisbane and some in Western Australia as well.

That's great to hear. How could I find out how to contact them?

What I'd love to do is -- so I don't give an endorsement over the phone or over the airways is let me reach out to you post this call. And I will get you 2 or 3 options within Melbourne.

Your next question comes from Martyn Jacobs from Canaccord Genuity.

I was just interested in the capacity of optometrists as we stand. I think in the September quarter, optometrists have been opening up and were operating at 50% capacity. I was wondering what change had occurred in the December quarter, given that conditions have deteriorated? And following that, how you think the progression of that capacity utilization will be as we go through the March and June quarters as the vaccine rolls out in the new administration?

Tony, given that your familiarity with the Jobson data, do you want to go with that one as well?

Absolutely. So I think the capacity and throughput has remained the same. And what we've observed, and not only our team but industry -- other industry teams have noted, is that rigorous scheduling. So entry is very limited physically into the practice. So they are booking their appointment slots maybe 2 an hour. The difference in throughput throughout the December quarter is primarily due to cancellations, last minute cancellations and no shows. So some of our better practices are booked out into February and March of this year. And that was the same thing coming out of the September quarter. Many of the best practices were booked into November, but then they start having the cancellations as different jurisdictions to different measures to face the surge as well as patient confidence in going outside of their homes. So what many of us are seeing in the industry data and amongst ourselves is that the practice for the next few months will remain the same as far as rigorous scheduling and limited physical access until your appointment time. But as confidence in the vaccinations grows and the caseload starts to decrease in the United States, we believe that there will be fewer cancellations and no shows at the last moment. Does that make sense?

Yes. Yes, it does. And do you see things tracking the same way in Europe as in the U.S.? Or do you see particular geographical differences in the way things may unfold in the next 3 to 6 months?

I don't think -- we don't have data -- I'm sorry, go ahead, Tony. I haven't seen any data specific for Europe, but we can certainly comment on our partners' plans to the best we can. Tony?

Exactly. And I was about to mention that. It's a good add, Stephen. So what we're seeing in the United Kingdom through our partners' discussions is that -- and it's very worldwide headlines that the United Kingdom entered a second lockdown. But it was a little bit more refined at the at-care practitioner level, and that they are deemed essential and allowed to be open for commerce and exams. Again, though, it comes down to patient confidence. And that varies across different parts of the United Kingdom, just as it does in the United States. We're also experiencing with our partners and the Nordics is a similar situation, where it all comes down to patient confidence in going into a medical setting, small and closed space and the ventilation that, that implies. Does that make sense, Martyn?

Yes.

[Operator Instructions] There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.