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

Thank you for standing by, and welcome to the Visionary Technologies (sic) [ Visioneering Technologies ] Q1 2021 (sic) [ Q1 2022 ] Quarterly Investor Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Brian Lane, Chief Operating and Chief Executive Officer. Please go ahead.

Good morning, good day, and good evening, everyone. My name is Brian Lane. I'm the Chief Operating and Chief Financial Officer of Visioneering Technologies. Along with my colleagues, Dr. Ashley Tuan, our Chief Medical Officer; Mike Tilleli, our National Sales Director; and Heather Hale, our Controller, I'm happy to have this opportunity to speak with you and to communicate the progress our company is making. Before we get into those details, though, we'll start with Heather providing a brief background on the company, and then I'll give an update on our organization. Heather?

Hello, and welcome to our quarterly investor call for the quarter ending March 31, 2022, our first fiscal quarter of the year. We remind you that we may be making forward-looking statements during the call, and we ask that you keep this in mind if you 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 contact lens called NaturalVue Multifocal, a revolutionary and patented contact lens targeted at 2 patient populations. The first group is children with nearsightedness that becomes worse over time, a condition called pediatric myopia progression. This condition has become more prevalent over the past 40 years, 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 United States. The other patient population includes people over the approximate age of 40 who have difficulty seeing things within arm's reach, a condition called presbyopia, which affects almost all older adults. We also sell NaturalVue Sphere contact lenses for the simple correction of blurry vision. VTI has clearances or registration to sell its products in the United States, Europe, Australia, New Zealand, Singapore, Hong Kong and Canada. In the first quarter, we also received registration in Malaysia for all of our existing products.

Thanks for that background, Heather. Now to our organization. Our current executive team includes Dr. Tuan and me, with oversight from our Chairman, Dr. David Mazzo, along with the rest of the Board. Tony Sommer, our former VP of Sales and Marketing, left VTI in March to pursue another opportunity. Fortunately, we have an excellent sales and marketing team at VTI, and I'm pleased to announce 3 well-deserved promotions that enable us to continue our growth with our existing leaders. Mike Tilleli is now our National Sales Director. He leads our field sales team for North America. Mike has over 40 years' experience in the optical industry, including 5 with VTI. Pam Pritchard is our Executive Director of Sales Operations, leading our inside sales team and managing all sales operations. Pam has spent nearly 30 years with CIBA VISION and has been the backbone of VTI sales organization for the past 5 years. Layna Mendlinger is our Global Head of Marketing. Layna joined VTI 8 years ago and is our longest-tenured associate. In addition to her marketing leadership, Layna now manages our international sales and marketing operations. I'm also happy to introduce Heather Hale that you just heard from, who has been our Controller for nearly 5 years. In addition to finance and accounting, Heather leads our HR, logistics and IT functions and has continued to expand her role as I have added the Chief Operating Officer role to my responsibilities. We'll continue the call today with Mike discussing our sales and marketing activities in the quarter. Actually then, we'll update you on the PROTECT study and its significance to VTI. And then finally, I'll recap the financial and operational highlights of the business, and then we'll open the line to answer your questions. All dollar amounts we will discuss today are in U.S. dollars and VTI's fiscal year is coincident with the calendar year. We also remind you that the financial metrics reported today and in our Appendix 4C are unaudited. Mike, can you tell us about the first quarter sales metrics?

Thanks, Brian. Good morning and good evening, everyone. In first quarter 2022, we had a record quarter for shipments to U.S. eye care providers, or ECPs, if you will. We consider shipments to be the most important measure for gauging our patient level demand. Shipments were $2.1 million, which was the first quarter in our history in which shipments exceeded $2 million. And it's a significant milestone for VTI. Additionally, we successfully launched the enhanced multifocal NaturalVue lens in the fourth quarter of 2021 with our top 300 accounts and continued in the first quarter of 2022 by rolling out to another 500 accounts. This product is the next generation of our flagship multifocal contact lens for managing myopia and presbyopia. NaturalVue Enhanced Multifocal features the triple-tier lubrication system and ultra-tapered edge designed for optimal fit and comfort for all day wear. By early May, all of our U.S. accounts will be able to purchase this new product. We also launched in the U.K. in March and plan to launch in our remaining markets throughout the balance of 2022. Now net revenue for the first quarter of 2022 was up 9% over first quarter of 2021, and shipments to U.S. eye care practitioners were up 21% in the same periods. In the fourth quarter of 2021, our distributors purchased their initial stocking orders of the enhanced multifocal product, driving a 46% increase in net revenue compared to a 25% increase in shipments. Our growth in shipments remain fairly constant from fourth quarter to first while net revenue growth slowed as the distributors rebalance their inventories in January, February before normalizing again in March. Our international revenues grew 46% over first quarter of 2021 as marketing and sales activities through our sales and distribution partners continue to build our international revenues. We obtained a medical device registration certificate to sell our products in Malaysia and are working with our local distributor to expand into this new country over the next several months. Our U.S. sales team continues to utilize a hybrid approach in the marketplace. It has resulted in a greater number of accounts being managed by each of our sales staff and a smarter and more efficient deployment of resources that continues to produce good results for VTI. We've expanded our inside sales team in the first quarter and promoted [ JP Racek ] to a newly formed role as our inside sales manager. JP, Pam Pritchard and I are working toward an even more effective collaboration between our field sales and our inside sales teams to best serve all of our accounts. So now I'll turn the call over to our Chief Medical Officer. Ashley?

Thanks, Mike. I introduced the PROTECT clinical study on our last quarterly call, and I'm pleased to report that we've made significant progress in the past 3 months. First, however, allow me to provide a brief reminder that we already have demonstrated very impressive performance. Based on our 6-year real-world data, the average myopia progression over a 3-year period in a subgroup analysis of children aged 8 to 12 while wearing NaturalVue Multifocal averaged only 0.04 diopters of absolute change in spherical equivalent refractive error. That is 3 years' cumulative change close to 0. By comparison, 2 randomized control studies in this same age group showing that the patients wearing competitor contact lenses averaged 0.6 diopter and more of absolute change over 3 years. And on the other hand, with the control lens, subjects wearing the traditional single vision content lens averaged a full diopter, 1.0 diopter or more over 3 years. Based on the evidence-based medicine pyramid of real-world data with a virtual control group is a cohort study and is quite credible. However, we decided the PROTECT study to increase the credibility of this data not only because it will be executed by a third-party contract research organization, but by having a standardized study protocol designed to avoid potential artifacts in the study results. That includes a randomized control group for benchmarking, examiners who are left from which group the subject is seen to avoid biases. That means that they don't know -- the examiner when they are conducting the exam do not know the kid is wearing traditional single-vision lenses or our multifocal lenses. And the enrollment criteria, testing methods, equipment and subject intervals that are all standardized to ensure consistency in the data. It is also worth mentioning that our protocol is designed similarly to the other 2 contact lens-based myopia progression control studies, which are also randomized controlled trials. So we can have a basic head-to-head comparison when data is complete. On our last call, we had just 1 site contracted and 1 patient enrolled in PROTECT. We now have 7 sites contracted and expected to finalize 2 other contracts in the next few weeks. 4 of the 7 sites are actively recruiting subjects today. These sites are in New York city, Chicago, Houston and Toronto, Canada. Our goal is to complete enrollment in the study by midyear 2022, and we expect to release interim first year data in mid-2023. One year follow-up data have been shown to be a strong predictor of the overall outcome in adult myopia progression studies, making the 1-year data an important milestone for the PROTECT clinical trial. I look forward to keeping you up to date on our progress on future costs and to share the PROTECT results as they become available. Brian, I will now turn it back to you.

Thanks, Ashley. Mike already updated you on our net revenue and shipments performance, which increased 9% and 21% when comparing the first quarter of '22 to the first quarter of '21. Other metrics are cash receipts from customers. They in the first quarter of '22 were up 16% over the first quarter, increasing from $1.6 million to $1.8 million. The number of active U.S. accounts, which are accounts that -- in the U.S. that purchased product within the quarter, was 2,327 in the first quarter, up 7% from the first quarter of 2021. Our repeat customer rate was 97.7%. Gross profit was 42.0% of net revenue in the current quarter compared to 44.1% in the same quarter of 2021. Gross profit dropped from the 44% in the first quarter to 40.4% in the second quarter of 2021 and then to 40.1% in the third quarter, dropped 3 quarters in a row before it finally increased again to the 41.5% in the fourth quarter and then to 42% this quarter. And that's all got to do with global shipping issues. They continue to raise -- cause higher prices for moving our products from a manufacturer in Taiwan to the U.S., and that increases our cost per unit. To counteract this, we implemented a sales price increase at the beginning of 2022 that drove the increase in gross margins from the fourth quarter of '21 to the current quarter. We also began shipping product from Taiwan, primarily using boat freight rather than airfreight in the first quarter and put limits on direct-to-patient delivery reimbursements. We expect that the boat shipments will have a positive impact on gross margins in the second quarter and to have an even greater impact in the second half of 2022 when we forecast gross margins will approximate 50% as we sell off existing inventories and begin selling newer products with a lower cost of goods. Now turning to cash flows. Our net cash used in operating activities was $2.2 million in the quarter compared to $1.9 million in the first quarter of 2021. This quarter had elevated net cash used due to the investment in inventory needed for the enhanced multifocal product launch that Mike talked about, as did the fourth quarter of 2021. We completed the payments for the inventory build in the first quarter, and we are forecasting lower cash -- net cash used for the remaining 3 quarters of the year, even though we will be spending more cash for the execution of the PROTECT study that Ashley just mentioned. 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're forecasting net cash use overall to decline by approximately $3 million in fiscal 2022 compared to fiscal 2021 due to savings in the inventory, improvement in operations and expected receipt of over $500,000 in employee retention tax credits that we should receive under the CARES Act in the U.S. We finished the first quarter of 2022 with $8.7 million of cash. We will continue to carefully manage our net cash use going forward as we are committed to achieving approximately breakeven cash flow without the need for a heavily diluted equity cash raise being necessary. I'll close our prepared remarks by addressing the changes in our leadership team. Our CEO left in January and our Senior VP of Sales and Marketing left in March. Both of their departures were for personal reasons and both remain significant shareholders in VTI, fully believing that the NaturalVue Multifocal is a unique and highly effective product. I believe that we all expect to be supported by the results of the PROTECT clinical study. Stephen and Tony led VTI through its initial commercialization, its IPO and its growth to over $7 million in revenue in 2021, and they left the company in very capable hands, having hired a team of highly qualified people to support and ultimately succeed them. Ashley joined us in November 2021 as Chief Medical Officer with truly impressive credentials in the clinical research area. Mike, Pam, Layna and Heather are all highly qualified and experienced professionals who've been with VTI for roughly 5 years or more. In addition, we're fortunate that our Chairman, Dave Mazzo, has the ability to work closely with our leadership team to keep us moving forward and continuing our growth while reducing costs by not replacing Stephen and Tony directly. We miss their leadership, obviously, and the passion for the product. We believe that we can continue to grow our revenues and reach cash flow breakeven even sooner with the cost savings afforded by their departures. We remain committed to achieving this target without a heavily dilutive equity capital raise being necessary. Our first quarter results are in line with our projections, solidifying our results to deliver on this significant goal. We appreciate your support and ask that you continue this journey with us as we continue to improve our operating results and expand the reach of our products to more and more patients across the globe. With that, I'll now turn it back to Lexi and open the line for questions.

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

Okay. Thank you, everyone, for your attendance and your interest in VTI. We appreciate your support and 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.