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

Good morning, and good evening to all of you. My name is Dr. David Mazzo, and I am the Chairman of Visioneering Technologies, Inc. It is my distinct pleasure to welcome you to this annual meeting of stockholders. This meeting is being held via the Lumi platform, which allows stockholders, proxies and guests to attend virtually while encouraging greater participation and engagement. The platform is designed to allow the meeting to be interactive, so be assured that you will be able to vote, ask questions and/or make comments during the meeting. Stockholders can submit a question at any time. [Operator Instructions] Please note that while you can submit questions at any time during the meeting, I will not address them until the relevant time in the meeting. Please also note that your questions may be moderated for if we receive multiple questions on one topic, consolidated. It is now just past 8 am in Sydney, the nominated time for the meeting, and I have been informed that a quorum is present. I note that the meeting has been validly constituted, and I'm pleased to declare the meeting in session. There may be a slight time delay being experienced with the slides you are viewing and the audio. So again, I encourage stockholders who may have questions to please submit them as soon as possible to avoid any undue delay. Before getting to the formal business of the meeting, I will take this opportunity to introduce my fellow directors who are present online today. Our Chief Executive Officer and Executive Director, Dr. Stephen Snowdy; Mr. Tom Dooley, non-executive director; Ms. Zita Peach, non-executive director; Ms. Christine van Heek, non-executive director; Mr. Andrew Silverberg, non-executive director; and Ms. Jean Franchi, non-executive director. We also have our Chief Financial Officer, Mr. Brian Lane; and our company Secretary, Ms. Leanne Ralph, online as well as representatives from the company's share register, Computershare. There are 2 components to today's meeting. Firstly, a presentation will be provided by our Chief Executive Officer, Dr. Stephen Snowdy. We will allow time for general questions on the business at this time. Following the general business questions, we will progress to the formal business of the meeting, where the resolutions provided in the notice of meeting will be put to stockholders. We will allow time for questions and answers regarding the resolutions before proceeding to vote on them. I'll now turn the meeting over to Dr. Snowdy for the CEO presentation.

Thank you, Dr. Mazzo, and welcome VTI shareholders. Just as a quick reminder, what we do at VTI, we are a vision-correction company. Our flagship product is something called NaturalView Multifocal, which is a contact lens with revolutionary optics that are targeted at 2 high-need and underserved populations. The first population that is prescribed our contact lenses is composed of children who are nearsighted or what we call pediatric myopia. Children who are nearsighted can see things up close, but they cannot see things at a distance. Unfortunately, this describes about 1/3 or 1/4 of children in the United States, and up to 80% to 90% of children in many Asian nations, with 2 billion people worldwide affected by myopia. Quarantine for the coronavirus pandemic has not helped this situation. The Journal of the American Medical Association earlier this year in an article that said that the incidence of children with nearsightedness has likely tripled in the United States in 2020 compared to 2019. The unfortunate thing about nearsightedness in children is that it's a progressive disease, and the worse the vision becomes in the child, the higher at risk the child is for a lifetime risk of blindness, cataracts, glaucoma and other serious ocular diseases. This translates to approximately $2 billion of addressable market in the U.S. alone, with an additional USD 10 billion of market opportunity in China and other large opportunities outside the United States and China. We also prescribe our lenses or practitioners also prescribe our lenses for another population that is large and growing and of high medical need. These are people called presbyopic. Presbyopic people are people over the age of 45 to 50 who are losing their ability to see things up close. We use exactly the same contact lens for this patient population, the dual use of which being in presbyopic patients and in myopic children represents a strategic advantage for Visioning Technologies. This population, presbyopic patients, represents an approximately $3 billion opportunity in the United States and an $8 billion addressable market worldwide. Next slide, please. 2020 was obviously an exciting year for all of us with the pandemic. Certainly, no exception in the optometric space. Back in the first quarter of the year, we had a fairly normal quarter, and please do recall that our calendar year is with the -- well, our fiscal year is with calendar year. So in the first quarter of 2020, which ended in March, of course, we had a fairly normal quarter. And then in the second quarters where we really started to feel the impacts of the pandemic, we responded decisively and quickly to the upcoming pandemic by reducing our headcount by half. We reduced our sales force by 75%. The remaining staff took cash salary reductions. We delayed new product launches, clinical products and drew down inventory, all to save cash for the year for what was going to be a long-term pandemic that we were dealing with. And certainly, second quarter of 2020 was the maker of the business. Our revenue was down 42%, almost all optometrists around the world were closed, which obviously was a very difficult time for everyone. And we also saw the delay of the launch of Menicon Bloom Day, which, as you recall, is Visioneering's private label product that Menicon is to sell in Europe. But we got into third quarter of 2020 and what -- that was a profound turnaround that we saw. We had record cash receipts of $1.9 million in the third quarter that ended up September, record shipments at $1.7 million, a record number of active accounts. And due to the changes that we had made, we had a record net cash use at a bottom of about $100,000. And excluding inventory, we have actually cash flow broke even that quarter. We finished 2020 in a really good position despite the pandemic, accelerating around most of the world. Our fiscal '20 net revenue was $5.1 million. Our cash used for the year was down by half compared to the prior year $5.4 million or AUD 7.2 million cash receipts from customers and $5.6 million in shipments. And even though we trimmed down our sales force by 75% in April of 2020, we continued to grow active accounts through the year, ending with 2,074 accounts at the end of the year. Gross margins also improved throughout the year from 34% to around 44%. Other operational achievements in 2020, we released 5-year data in September, which showed in a series of 153 children prolonged benefit of using our NaturalView Multifocal to slow or stop myopia progression in those children. We received a key patent in the United States for the use of NaturalView Multifocal's optical designs and contact lenses and treating myopia progression. And we've received clearance to market NaturalView Multifocal in yet another country, Canada, for myopia progression control in children and for presbyopia. Next slide, please. And the strength with which we finished 2020 has continued into 2021 despite the peak virus count in the United States occurring in the first quarter and despite many countries still being closed for business. First quarter 2021 key performance indicators were strong with net revenue being $1.6 million, which was up 18% year-over-year. And it's important to point out that, that year-over-year comparison was the last normal quarter of 2020 when we were still fully staffed. Record shipments in the U.S. of $1.7 million cash receipts from customers were up 39% quarter-over-quarter. We've also raised AUD 23 million at a placement in SPP, and we expect that cash to be sufficient to reach cash flow breakeven or nearly cash flow breakeven, and we affirm our net revenue guidance of $7 million for 2021. Next slide, please. It's also been an exciting time in general for pediatric myopia in myopic area. A couple of things worth pointing out of late is that in 2020, VTI attended and presented at the first global myopia symposium. That's an inaugural meeting. And then just the fact that we had a global myopia symposium should tell you a lot about how rapidly expanding the interest in myopia is among the major players in the vision care space. We saw at the end of 2009 Coopervision get approval in the United States for their myopia progression control lens, and they have committed to spending tens of millions of dollars in the United States for expanding patient education and practitioner education, which, we think, will rise the tide for the entire myopia space. We also saw the world's largest contact lens company jump into the space, J&J Vision Care just a few weeks ago, announced that they've teamed up with our partner, Menicon, to launch orthokeratology lenses in the United States and potentially global. J&J Vision Care see so much potential in the pediatric myopia space that they have now created an entire brand around the space called ability. So this also is a move that we think rises the tide for all boats and will increase maybe dramatically the awareness and willingness of practitioners to treat myopia in children, not as just a vision and convenience, but actually the progressive disease that it is. And again, Global Myopia Awareness Coalition, VTI was a founding member of this organization to help increase awareness and education among practitioners and parents about the payrolls of nearsightedness in children. So overall, lots of evidence of a rapidly expanding interest in myopia inside the industry, which is well-timed for VTI. Next slide, please. And we have an exciting 2021 and 2022, still in front of us. Again, we will plan on starting a couple of clinical trials around midyear, more likely in third quarter. We do plan on doing a clinical trial for approval in China. Again, that's a $10 billion market that we'd like to get into, and we'll start our clinical trial for that territory in the second half of the year. And also, we expect to start a data trial in North America and perhaps, including Hong Kong. That we expect to start right around midyear. Preparations for that are going quite smoothly, inhibited only by some shutdowns in Canada that slowed down starting of the sites in that country. And again, we're calling for a $7 million 2021, that's around 40% increase over the prior year. We have 2 product launches that we're planning for late in the year. In the third quarter, we plan on launching the NaturalView Multifocal second-generation lens. And in the fourth quarter, we'll look to launch the Multifocal toric lens, NaturalView Multifocal toric. In 2022, as we look ahead, we'll look to see some data coming out of these clinical trials that we are starting in the second half of 2021. We expect the data from those trials to not only encourage use of the products by practitioners, but also to accelerate some business development activities. And what we've been signaling for quite a while now with regard to business development is that we do have discussions that are ongoing with regard to selling our product through other organizations or bringing in other organizations' products into VTI to sell or even potentially mergers. Those talks are ongoing, and we expect those discussions to keep going through 2021 and perhaps additional opportunities in 2022. And with that, Dave, we could shift over to you.

Thank you, Stephen. I will now open the meeting to general questions on the business, which Stephen will take the lead in addressing. You will have the opportunity to ask questions pertaining to each resolution when we get to the formal business of the meeting. A reminder that this is a stockholder meeting, and therefore, only stockholders are able to ask questions at this meeting. Brian, have we received any general business questions?

We don't have any questions at this time, Dave.

Okay. That sounds fine. Thank you, Brian. So we will now progress to the formal business of the meeting. The notice of meeting was sent to all registered stockholders within the notice period required, and I will take that the notice convening this meeting has been read. I set out in the notice of meeting, voting on all resolutions will be decided on a poll. In order to provide everyone with an opportunity to vote, and in case anyone cannot stay for the whole meeting, I will now formally declare the poll open. Stockholders can now cast their vote using the electronic voting system. Selecting the polling icon at the top of your screen will bring up a list of resolutions and present you with voting options. To cast your vote, simply select for, against or abstain. There is no need to hit a submit or enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time I declare voting closed. The results of the polls will be released to the ASX shortly after the close of the meeting. I have been advised that proxies received for the meeting have been checked, and I declare them valid for voting. I will now -- I will disclose proxy votes on your screen prior to the vote being taken for each item. These figures are as of the closing time for receipt of proxies, which was 6 a.m. Australian Eastern standard time, Tuesday, the 8th of June 2021. Resolution 3 has a voting exclusion, which was outlined in the notice of meeting. As Chair of the meeting and as detailed in the notice of meeting, I will vote where authorized all undirected proxies in favor of each resolution. The first 2 items of notified business concern the election of directors, Ms. Jean Franchi and Mr. Andrew Silverberg. Each of these will be put to the meeting as separate resolutions. I put the first of these resolutions to the meeting as displayed on your screen. I now open this item for discussion. Are there any questions online?

No questions at this time, Dave.

Okay. Details of votes received for this item are on the screen. If you have not already done so, please now select either for or withhold for Resolution 1.1 on your electronic voting card. [Voting]

Thank you. I now put the second director election resolution to the meeting as displayed on your screen. I now open this item for discussion. Brian, are there any questions online?

No questions, Dave.

Thank you, Brian. Details of votes received for this item are on the screen. If you've not already done so, please now select either for or withhold for Resolution 1.2 on your electronic voting card. [Voting]

Thank you. Moving to Resolution 2. This item concerns a reverse stock split of shares of Class A common stock. I put the resolution to the meeting as displayed on your screen. And I now open this item for discussion. Are there any online questions, Brian?

No, Dave.

Thank you. Details of votes received for this item are on the screen. If you have not already done so, please now select either for, against or abstain for Resolution 2 on your electronic voting card. [Voting]

Thank you, and we'll proceed now to Resolution 3. The next resolution concerns the approval of a 10% placement facility. I put the resolution to the meeting as displayed on your screen. And I now open this item for discussions. Once again, Brian, are there any online questions?

There are not, Dave.

Details of votes received for this item are on the screen. If you have not already done so, please now select either for, against or abstain for Resolution 3 on your electronic voting card. [Voting]

Ladies and gentlemen, this concludes the formalities of the meeting. If you haven't done so already, please complete your electronic votes as I will be closing the poll in the next 1 minute. As I mentioned earlier, the results of this meeting will be announced to the ASX as soon as they have been counted and verified. I now declare the poll for this meeting closed. I also now declare the meeting closed. On behalf of the Board of Directors and Executive Management of VTI, I thank you for your attendance and participation today. I look forward to meeting with you at our next annual meeting of stockholders. Good day.