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

Thank you for standing by, and welcome to the Visioneering Technologies Q4 2021 Quarterly Investor Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Brian Lane, CFO. Please go ahead.

Thank you, Melanie. Good morning, good day, and good evening, everyone. My name is Brian Lane. I am the CFO of Visioneering Technologies. Along with my colleagues, Tony Sommer, our Senior Vice President of Sales and Marketing; and Dr. Ashley Tuan, our Chief Medical Officer, I'm happy to have this opportunity to speak with you and to communicate the progress we are making. This past quarter and in fact, last fiscal year has been an exciting and productive time for VTI. We have again set a net revenue record in the fourth quarter of fiscal 2021, which culminated in a record net revenue for the full fiscal year, exceeding our projections. Before we get into those details, I'll start by providing a brief background on the company and an update on our organization. Again, we welcome you to the quarterly investor call for the quarter ended December 31, 2021, our fourth fiscal quarter of the year. And we remind you that we may be making forward-looking statements during the call and ask that you keep this in mind if we use this information to make investment decisions. VTI is in the business of providing better vision to our customers by using innovative products to serve high-need patients. Our flagship product is a daily disposable soft contact lens called NaturalVue Multifocal, which is a revolutionary and patented contact lens, targeted 2 patient populations. The first group is children with nearsightedness that become worse over time, a condition called pediatric myopia progression. This condition has become more prevalent over the past whole year and has accelerated during the COVID-19 pandemic and is estimated to affect 80% to 90% of all children in parts of Asia and up to 1/3 of all children in the U.S. The other patient population includes people over the approximate age of 45 who have difficulty seeing things within arm's reach, a condition called presbyopia, which affects almost all older adults. We also sell the NaturalVue Sphere Contact Lenses for the simple correction of blurry vision. VTI has clearances or registration to sell these products in the U.S., Europe, Australia, New Zealand, Singapore, Hong Kong and Canada. Regarding our executive team, as we announced on December 8, 2021, Stephen Snowdy resigned his position as CEO of VTI to pursue an opportunity in oncology. Stephen and his wife both are cancer survivors, and oncology is an area of great personal interest and passion for him and his family. In his 13 years being affiliated with VTI, Stephen has helped lead us from an R&D company to an ASX-listed company with international regulatory clearances and product launches in 11 countries. Stephen remains a friend of the company and is available to assist us through this transition period. We look forward to building on his legacy by continuing to grow Visioneering and have it prosper. Upon Stephen's departure, the Board of Directors originally planned to launch a search for his replacement. After careful consideration of several factors, [indiscernible] domain for the replacement of the CEO, the Board has decided to present -- to not presently pursue the recruitment of someone to fill this position. The Board believes that the expertise and operational continuity provided by the existing executive team in combination with the increased managerial involvement of the Chairman, Dr. David Mazzo, is providing adequate and appropriate overall executive management for the company. The company fully expects to achieve its operational and strategic goals going forward, which include growing the NaturalVue brand worldwide, completing the PROTECT clinical study that we'll describe in more detail shortly, and importantly, managing cash flow to ensure VTI reaches approximately breakeven cash flow without the need for additional equity financing. The Board will review this arrangement periodically and we'll make adjustments as needed. Here's a brief background on Dr. Mazzo and the executive team. Dave Mazzo joined VTI as Chairman in February 2020 and has led us for the better part of 2 years. He has nearly 40 years of experience in managing companies in the healthcare space, both as an executive and a board member. Dave currently is President and CEO and an Executive Director of Caladrius Biosciences, which is a clinical-stage biopharmaceutical company. Going forward, Dave will be intimately involved in strategic initiatives, business development and investor outreach for VTI as appropriate. I will assist Dave as the operations leader with great help from Tony and Ashley, who together with me comprise our executive leadership team. I joined VTI as CFO in mid-2018 and have as much as it hurts to say, nearly 40 years of experience in finance and accounting for companies in a variety of industries, including 11 years alone from great leaders at Ernst & Young, one of the big 4 accounting firms in their Atlanta office. Tony Sommer joined VTI in September of 2016 and built our sales and marketing team. He has led our growth from $200,000 of revenue in 2016 to over $7 million in 2021. He is a veteran contact lens and eye care industry leader with far-reaching connections across the globe, which is evidenced by his position as a Board member of the Global Myopia Awareness Commission, or GMAC. VTI is a founding member of GMAC, which includes most of the largest and best-known companies in the eye care industry. Tony's membership on the GMAC Board exemplifies his reputation in the industry and VTI is positioned as a leader in myopia management. Dr. Tuan joined us in November 2021 as our Chief Medical Officer. We're especially pleased to have Ashley on the team as we embark upon a landmark global clinical study, the data from which we believe will be a major value driver for our product. Ashley graduated from the Ohio State University College of Optometry and worked as an optometrist for 9 years. She then earned her Ph.D. in Vision Science from the University of California at Berkeley School of Optometry, and has nearly 27 years of experience in clinical studies, research and product development in the vision and contact lens industry. We'll continue the call today with Tony discussing our record net revenue in the quarter and our new product launch. Ashley then will discuss the PROTECT study and its significance to VTI. Finally, I'll recap the financial and operational highlights of the business, and we'll open the line to answer your questions. All dollar amounts we will discuss today are in U.S. dollars, VTI's fiscal year is coincident with the calendar year. Investors are also reminded that the financial metrics reported today in our Appendix 4C are unaudited. Tony, if you could tell us about our record quarter.

I'd be happy to, Brian. Thank you. Good morning and good evening, everyone. We are very, very proud of our results for quarter 4 2021 as well as the full year. We had a record revenue quarter and successfully launched the NaturalVue Enhanced Multifocal Lens. This product is the next generation of our flagship multifocal contact lens for managing myopia as well as managing presbyopia. Our shipments to U.S. eye care providers or ECP, as we refer to them, is a measure of patient level demand, and it was up 25% over the fourth quarter of 2020. Initial stocking orders to support our launch combined with strong shipments, propelled our revenue to over USD 2 million in the quarter. This is the first for VTI and a significant milestone for the company. NaturalVue Enhanced Multifocal features the TripleTear Lubrication System and Ultra-Tapered Edge designed for optimal comfort and fit for all-day wear. We launched in the United States market in early November at the American Academy of Optometry Show in Boston, which was the final major trade show for 2021. Our presbyopic wearers who may have issues with dryer eyes, have given us great feedback on how much more comfortable the lens is. This includes myself since I'm a man of a certain age. Overall, in the United States, the eye care industry has returned to near 2019 levels, pre-pandemic levels. Seasonal retail traffic remained brisk in the fourth quarter. One item that we are watching as an industry is the impact of the latest COVID variant on retail staffing. The final weeks of quarter 4 saw throughput constrained in offices and staff tested positive for COVID-19 and had to miss days at work. Outside the United States, our marketing and sales activities through our sales and distribution partners continue to build our international revenues and presence. We had record revenues from our sales through distributors in the United Kingdom, Australia, New Zealand, Singapore and Hong Kong. Major new customers are coming online in Canada as well as in Nordics, and we expect significant growth in these areas in 2022. Our U.S. sales team continues to utilize a hybrid approach in the marketplace, and we were one of the first in our industry to do so. It has resulted in a greater number of accounts being managed by each of our sales staff and smarter deployment of company resources, and these continue to produce good results for VTI. Also part of our return in normal trade shows is an important source of sales lead generation, interaction with ECPs, academics and potential strategic partners. We attended Academy in Boston for our enhanced multifocal product launch and just attended the Global Specialty Lens symposium in Las Vegas, where we launched our MyPath to myopia management success program. MyPath will include a practice management and online hub for practitioners with education, communication resources and practice support materials to inform parents and children about their journey with myopia. This launch was well received by our ECPs. Overall, it was an excellent quarter for our commercial efforts, and we are pleased with our results for the entire year. Now I take great pleasure in introducing our Chief Medical Officer, my friend and colleague, and I'd ask Ashley to describe our recently initiated clinical trial, the PROTECT study.

Thanks, Tony, and good day, everyone. I am excited to join VTI at such an exciting and important time. Myopia management is the hottest topic in the eye care industry, and PROTECT study represents a significant commitment by VTI, in myopia research and development. I appreciate the opportunity to lead this important clinical study and I'm looking forward to reporting essential results in the coming years. So why is PROTECT needed. Let's go back a few months and start here. At November 2021, AAO meeting in Boston, VTI's real-world data on 196 children followed for up to 6 years. This data showed that myopia progression while very naturally multifocal, averaged only 0.04 diopter of absolute change in spherical equivalent refractive error over a 3-year period in a subgroup age 8 to 12. The children in this study were progressing nearly 1 diopter per year before wearing our multifocal lens. Note that a smaller progression, a smaller negative change in diopter is the desired outcome when treating myopia progression, and we have 0.04. Zero diopter of change means that children's myopia has not worsened at all. In other words, they have been stabilized. By comparison, 2 randomized controlled studies in the same age group have been completed recently with results that were similar to each other, but not like ours. One was conducted by a competitor with their MiSight Lens, and the other was conducted by 2 large research institutions in the United States, using a marketed multifocal contact lens for presbyopia. Latest study was supported by U.S. National Eye Institute and is called the BLINK study. This result -- this study measures the absolute change in spherical equivalent refractive error over a 3-year period for the children's age between 8 to 12, same criteria as us. The study shows that the children wearing MiSight [indiscernible], averaged 0.6 diopters or more of absolute change. The subjects wearing the contact lens, which was a single vision contact lens averaged 4 diopters or more. Even in this cross-study comparison, the relative performance of the NaturalVue Multifocal is extremely impressive. For average, children wearing NaturalVue Multifocal, have barely any worsening of their myopia over the same 3-year period. Children in the other studies using other products slowed their myopia progression by about a half, but still experiencing more than half diopter change in the 3 years. Next slide, please. Now back to why PROTECT is needed. At the Global Specialty Lens Symposium this past weekend, I shared my insights on this topic. Clinical science, users and evidence-based pyramid to judge the quality of clinical information. Higher quality means higher certainties that information is without artifact and such is generalizable to a large and diverse population. Case theories [indiscernible] on the quality spectrum. [indiscernible] methodology is not standardized and no contra growth to benchmark this. VTI's large-scale multicentered real-world retrospective study compared with published data in control group is considered a cohort study. It gives a healthy amount of certainty regarding the treatment effect in a broad population. However, it could still be criticized for the lack of a standardized protocol during treatment. Randomized control trials like PROTECT are considered the most rigorous clinical study design on the evidence-based quality spectrum. Next slide, please. The real-world data is the cohort study and is quite credible. The PROTECT study will increase the credibility of the data. Not only it will be executed via a third-party contract research organization, but by having a standardized study protocol designed to avoid potential artifact in the study results. That includes a randomized control group for benchmarking, double-matched design so that the subject assemblers will be [ matched ] from which group the subject is aiming to avoid [ bias ]. It will also include standardized enrollment criteria, testing methods, equipment and subject intervals. It is also worth mentioning that our protocol is designed similarly to the other 2 soft contact lens based RCT studies, namely MiSight and BLINK. So we can have an easy head-to-head comparison when the data comes up. As we announced a few days ago, we had our first subject completed the initial visits in the PROTECT study at a site in Toronto, Canada. Toronto has one of the highest [indiscernible] in their history earlier this week or last week. So we are happy that this subject was able to complete the visit. Our goal is to complete enrollment in the study by mid-year 2022, and we're expected to release interim first year data in mid-2023. 1 year follow-up data have been shown to be a strong predictor of the overall outcome in other myopia progression studies, making the 1-year data an important milestone for the PROTECT study. I look forward to keeping you up to date on our progress on future calls and be sharing the contact results that they become available. Brian, back to you.

Thanks, Ashley. I realize we've shared a lot of information already, so I'll just provide a summary of our finances, and then we'll open the line for questions. Net revenue in the fourth quarter was a record $2.1 million, up 46% over the fourth quarter of 2020 and up 7% from the previous record we set in the third quarter. For the full year, net revenue was a record $7.2 million, which was up 40% over 2020 and $0.2 million over the forecast we provided for the year. Shipments to U.S. ECPs in the fourth quarter were $1.7 million, up 25% over the fourth quarter of 2020 and down 13% from our record third quarter performance due to seasonal trends. Shipments were $7.0 million for fiscal 2021, up 24% over fiscal 2020. Cash received from customers in the fourth quarter were a record $2.6 million, more than double the fourth quarter of 2020 and up 34% over the third quarter. The number of active U.S. accounts, which are accounts in the U.S. that purchased product within the quarter, was 2,305 in the fourth quarter, which was down slightly from the record 2,316 active U.S. accounts from the prior quarter. Our repeat customer rate was 96.0%. Gross profit was 41.5% of net revenue in the current quarter compared to 40.1% in the prior quarter and 45.9% in the same quarter of 2020. We continue to experience higher direct-to-patient deliveries that increase our shipping costs and lower our gross margins. In addition, the global shipping issues continue to cause higher shipping prices for moving our products from manufacturing in Taiwan to the U.S., which increases our cost per unit. We implemented a sales price increase at the beginning of 2022. We began shipping product from Taiwan, primarily using boat freight rather than airfreight, and we put limits on our direct-to-patient delivery reimbursements. We think these measures will have some impact in the first quarter and that the impact will build during the year as we sell off existing inventories and begin selling newer products with the lower cost of goods. Turning to cash flows. Our net cash used in operating activities was $2.1 million in the quarter compared to $1.9 million in the third quarter. Both fourth and third quarter had elevated net cash used to the investment in inventory needed for the enhanced multifocal product launch. Excluding these costs, net cash used was $1.2 million in the fourth quarter and $1.5 million in the third quarter of 2021. Looking ahead, we will complete the inventory build for our new product in the fourth quarter and the first quarter of 2022. But we will be spending more cash for the execution of the PROTECT study. Still, we expect net cash used in operating activities to begin decreasing in the first quarter of 2022 and to decline further in the second and third quarters of the year. For the full year 2022, we expect net cash used for the PROTECT study to increase by approximately $1 million from 2021 levels, yet we are forecasting net cash used overall to decline by approximately $3 million in fiscal 2022 compared to fiscal 2021, due to savings in inventory and improvements in operations. We finished 2021 with $11 million of cash. We will continue to carefully manage our net cash use going forward as we are focused on achieving approximately breakeven cash flow without the need for additional capital. Finally, one other item of note relates to our agreement with Innovatus Technology to sell their orthokeratology product. We recently learned that a third-party supplier critical to the arrangement would not deliver with raw materials essential to the production of the contact lenses. Consequently, we will not be able to perform under the agreement, and we expect to terminate the contract. Neither our fiscal 2021 net revenue nor our business plan for fiscal 2022 includes any net revenue from this contract. In summary, the third quarter of 2021 was the best net revenue quarter in our history, and we followed it with record net revenues and a new product launch in the fourth quarter. Additionally, 2021 was our best net revenue year ever, and our company fundamentals have never been stronger. We are growing revenues at an impressive rate, we are well funded, we continue to demonstrate fiscal prudence as we invest in new products, and we are recognized early leader in a dynamic segment of the industry that has a major focus for ECPs and strategic partners. We see the future as very bright for VTI. With that, I'll now turn it back to Melanie and open the line for questions.

[Operator Instructions] There are no questions at this time. I'll now hand back to Mr. Lane for some closing remarks.

Thanks, Melanie, and thank you, everyone, for your attendance and interest in VTI. We do appreciate your support, and we look forward to speaking with you on our next quarterly call. Stay safe and well, and have a great rest of your day.

That does conclude our conference for today. Thank you for participating. You may now disconnect.