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

Hello, and welcome to the Annual Meeting of Stockholders of Visioneering Technologies, Inc. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Dr. David Mazzo. Dr. Mazzo, the floor is yours.

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 pleasure to welcome you to our 2022 Annual Meeting of Stockholders. This meeting is being held via the Computershare virtual meeting services 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 this meeting. Stockholders can submit a question at any time. To ask a question, simply click on the Q&A icon, type your question into the field and click Send. 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 or, if we receive multiple questions on one topic, consolidated. It is now just past 8 a.m. 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 experienced between 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 company management and my fellow directors who are present online today: our Chief Operating and Chief Financial Officer, Mr. Brian Lane, Dr. Ashley Tuan , Chief Medical Officer; Ms. Zita Peach, Non-Executive Director; Christine van Heek, Non-Executive Director; Mr. Andrew Silverberg, Non-Executive Director; Ms. Jean Franchi, Non-Executive Director; and Dr. Dwight Akerman, Non-Executive Director. And we also have several other parties online, including Ms. Leanne Ralph, our company secretary; representatives from Computershare, the company's share register; and representatives from Johnson Winter & Slattery, the company's Australian legal counsel. There are 2 components to today's meeting. We will start with a business update from our Chief Operating and Chief Financial Officer, Mr. Brian Lane. We will allow time for general questions on the business at the conclusion of his presentation. Following the general business questions, we will then 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. So without further ado, allow me to introduce our COO, CFO, Brian Lane. Brian?

Thanks, Dave. Good morning and good evening to everyone. I'll 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. Unless otherwise noted, dollar amounts quoted are in U.S. dollars. 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 becomes worse over time, which is a condition called pediatric myopia progression. This condition has become much more prevalent over the past 40 years. It's accelerated during the COVID-19 pandemic, and it's estimated to affect 80% to 90% of all children in parts of Asia and up to 1/3 of 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 NaturalVue Sphere contact lenses for the simple correction of blurry vision. VTI has clearances or registrations to sell its products in the U.S., the U.K. Europe, Australia, New Zealand, Singapore, Hong Kong and Canada. And then in the first quarter of this year, we also received registration in Malaysia for all of our existing products. For those who have been with us or following us for some time, recall that we started 2021 with an important financing in which we raised $16.7 million, which is equivalent to AUD 23.3 million. Thank you again to all who participated in the capital raise, which is now even more important to us as the financial markets have become increasingly challenging over the past year. With the cost of capital generally much higher than at the time of our financing if it is even possible to acquire new capital, our fundraising in 2021 has put us in the enviable position of not requiring a capital raise in these market conditions. In that capital raise, we identified 4 purposes for the financing, and I'll briefly summarize each of them and our progress toward their achievement. First is the conduct of clinical trials, including a trial for approval in China. We began the PROTECT clinical study in 2021, and we designed it to allow a head-to-head comparison with other myopia management clinical studies. We're confident that PROTECT will corroborate the 6-year data we released at a global iConference earlier this year, which compared our product very favorably to the competitive products that were the subject of 2 large studies announced in the past few years. The PROTECT protocol is similar to the protocols of those studies, and it's been approved by an independent review board. LabCorp Drug Development, one of the largest contract research organizations in the U.S., is managing the study for us. We had our first patient complete the initial visit in January of 2022, and we now have 7 of 9 planned sites enrolling patients. We expect the other 2 sites to be enrolling in June. We also may add a 10th site in Melbourne, Australia. Two of the sites are in Hong Kong, which are -- we are hopeful will be useful as we seek approval for NaturalVue Multifocal in China. We expect to complete enrollment this summer and to have 1-year follow-up data in the second half of 2023. For this type of study, 1-year data have been shown to be a strong predictor of overall outcomes in other myopia management studies. So we expect this first year data readout to be as definitive by the optometry community. The second purpose of the capital raise was the continued expansion of domestic and international sales. VTI recorded net revenue of $7.2 million, equivalent to AUD 9.9 million in 2021. The increase was approximately 40% over 2020 net revenue and was consistent across both our North America and our Europe, Asia Pacific segments. We also delivered our first quarter with shipments to U.S. ECPs over $2 million in the first quarter of this year, which was up 21% from the same period in the prior year. We recently received approval to sell in Malaysia and are working with our local distributor to launch in that country by the end of this quarter. And then in early March of 2022, Menicon announced its launch of the Menicon Bloom Day product in the U.K., France, Spain, Italy, Austria, Australia and Singapore. Bloom Day is a private label version of the NaturalVue Multifocal. Menicon purchased a large initial stocking order in 2019 that enables them to begin this launch without another immediate large purchase from us. While we expect our near-term sales to Menicon to be minimal, we are really excited about the potential growth in this area. The third purpose of the capital raise was to fund new product launches. We successfully launched the NaturalVue Enhanced Multifocal 1-day contact lenses in November of 2021. The lens includes added lubricants and a new edge design that's especially suited for older adult presbyopia wearers that have issues with dry eyes. The fourth purpose of the capital raise is an extremely important one, which is for general working capital and to fund the company through to or close to breakeven cash flow. Our progress towards this goal has been a challenge to date. Our cash balance has declined from $16.5 million in March of 2021 to $8.7 million in March of 2022. Over the past 5 quarters, net cash used in operating activities has averaged just over $2 million per quarter. If one were to extrapolate the use of cash at this rate, we would need additional financing in just 4 quarters. However, we don't believe that a linear extrapolation takes into account the impact of recent events or near-term changes we anticipate, and therefore, it's not indicative of our expectations. Allow me to explain in more detail. A significant use of cash for VTI has been the buildup of inventory. We sold down our inventory in 2020 to manage through the COVID-19 pandemic, and we finished that year with $550,000 of finished product. That was a decrease of nearly $1.7 million during 2020. This level of inventory is not sustainable, so we began building inventory in early 2021, eventually increasing to $2.1 million at the end of March 2022. This level is higher than we anticipated for 2 reasons. First, the new product launch required that we build a full inventory of the new product while continuing to carry inventory of the existing product. We also had to build a full complement of trial lenses that we expense on purchase, which further increased the cost of the new product launch. These added expenses were anticipated, and we planned for them in our budgeting process. The second reason for the increase in the inventory relates to the global shipping issues caused by the COVID-19 pandemic, which impacted VTI in a significant way. Shipping costs more than doubled during 2021. To save money, we began shipping by cargo ship rather than by airplane. While this change helped contain costs, the longer shipping times for shipping by boat instead of by plane have worsened due to delays in ports. Time from order to delivery nearly doubled compared to pre-pandemic periods, which caused us to order and pay for inventory several months sooner than what's customary in the past. This affected our cash flow in an unpredicted and unpredictable manner. We believe that we now can begin lowering our inventory levels for 3 reasons. Primarily, we expect to sell out of the inventory of our original multifocal through the remainder of this year. We are fully stocking enhanced multifocal, so selling down the original multifocal is expected to reduce our inventory levels. Also, as production of our enhanced multifocal has matured, our manufacturer has been able to reduce the time from order to shipment by several weeks. And finally, global shipping issues and port delays are starting to dissipate. As these problems improve, we should be able to decrease the lead time necessary to obtain our products. We pay a deposit when we place an order with our manufacturer, and we pay the full amount of the order prior to their shipping the product to us. Reducing production and shipping time lowers the investment we have in our inventory, and therefore, lowers our net cash use in the near term. Of course, newest reported surges of infection in Asia and elsewhere in the world may provoke a repeat of the supply chain challenges that we currently seem to be abating. Despite these unexpected challenges, we continue to improve our operating results. Net revenue increased 40% in 2021. Part of this increase resulted from the recovery of the worst of the COVID-19 pandemic in 2020. Also, the new product launch in the fourth quarter of 2021 contributed to these results as we filled initial stocking orders from our distributors. Net revenue increased 9% in the first quarter of 2022 over the same period in the prior year. We expect net revenue in the remainder of the year to increase at this level or more, although performance from quarter-to-quarter likely will show significant variations. We are projecting that the benefits of the savings and shipping costs will begin impacting our financial statements in the second quarter of this year this quarter and will increase in the second half of the year. We also are implementing a small price increase in our enhanced multifocal product effective July 1 of this year, consistent with what our competitor is doing. We believe the combination of continued increases in net revenue and lower shipping costs will enable us to achieve gross margins of nearly 50% in the second half of 2022 compared to less than 42% in the first quarter of the year. These changes should drive increases in gross profit of approximately $200,000 per quarter through the remainder of this year. Personnel costs are another contributor to our variable quarterly use of cash, and therefore, another reason why simple linear extrapolation of our operating results result in incorrect assumptions. Specifically, our operating expenses increased in the fourth quarter of last year as we hired Dr. Ashley Tuan to be our Chief Medical Officer. We see this position as critical to the achievement of our strategic goals. Ashley oversees the strategy behind and the execution of the PROTECT clinical study to expand our professional affairs capabilities in support of our products, and she's guiding our strategy for future R&D. Second personnel changes earlier this year acted as a counter to this increase in payroll costs. As we announced previously, our CEO and our Senior Vice President of Sales and Marketing both left VTI in the first quarter of the year. We currently have no plans and, importantly, no need to replace these positions and instead are managing these roles with our existing personnel. We expect the net savings from these and other personnel changes to exceed $200,000 per quarter compared to our 2021 exit rate. We're also limiting our marketing to essential product support, and our R&D expenses are squarely focused on activities associated with the PROTECT clinical study. Overall, we are forecasting our nonpersonnel cost savings to exceed $200,000 per quarter as well through the remainder of this year. Altogether, we're forecasting that the higher gross profit, lower personnel and other operating expenses will result in improvements in our operating results of approximately $600,000 per quarter through the remainder of this year. Combined with the completion of our inventory build and the potential to lower inventory balances, we expect to drive significant reductions in our net cash used in operating activities. We also expect to receive approximately $500,000 in 2022 from the employee retention tax credit program established under the CARES Act in the U.S. While it's our policy not to publish forecasts, we once again confirm that we are projecting that VTI will achieve approximate cash flow breakeven without the need for heavily dilutive equity raise. I want to be very clear on this point, so please indulge me while I repeat it. It is not accurate to use linear extrapolation models of expenses and/or revenues to project our cash balance at any time in the coming quarters. We remain on plan to achieve approximate cash flow breakeven without the need or plan for our dilutive capital rates. It is true that we will invest heavily in the PROTECT clinical study in 2022, but these costs will decrease in 2023 as we will have completed initial site initiation activities subject to enrollment and initial follow-up. As I mentioned previously, we expect to announce 1-year interim data in the second half of 2023. At that time, we're projecting that VTI will be nearing cash flow breakeven while enjoying double-digit revenue growth and continued improvements in gross margins and operating expenses. Now clearly, we have about 18 months of hard work ahead of us to achieve this objective. And like all businesses, we need the macroeconomic climate to cooperate. That said, we're confident in our direction and our abilities and are laser-focused on achieving that goal. I'll now turn the meeting back to Dave.

Thank you, Brian. I would now like to open the meeting to general questions on the business. You will have opportunities 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 have not, Dave.

Are there any other general business questions?

No, Dave.

Okay. Thank you. 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 the notice convening this meeting as read. As 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. [Voting]

Stockholders can now cast their vote using the electronic voting system. Select the Vote icon at the top of your screen to 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 the voting closed. The result of the polls will be released to the ASX shortly after the close of the meeting. I have been advised that all proxies received for the meeting have been checked, and I declare them valid for voting. 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 proxy, which was 6 a.m. Australian Eastern Time, Thursday, 26th May 2022. Resolutions 2, 3 and 4 have 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 item of notified business concerns the election of a director, Dr. David J. Mazzo. As this resolution concerns myself, I will pass the meeting over to Mr. Lane to act as Chairman for this resolution.

Thank you, Dave. I will -- I put this resolution to the meeting as displayed on your screen. We will not be reading you the resolutions. I now open this item for discussion. I'll check to see if there are any questions online, and I do not see any questions. Details of votes received for this item are on the screen. If you have not already done so, please now select either for or withheld for Resolution 1.1 on your electric voting card. [Voting]

Thank you. I will now hand the meeting back to Dave.

Thanks, Brian. We'll move on to Resolution 2. This item concerns a grant of shares to Dr. Stephen Snowdy, our former CEO. Dr. Snowdy earned a short-term incentive bonus for fiscal 2021. Ordinarily, the STI is paid in cash. To assist with the company's cash conservation management policy, we prefer to pay the bonus in shares and are asking your approval to do so. I put the resolution to the meeting as displayed on your screen. And I now open this item for discussion. Are there any questions online, Brian?

I have 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, against or abstain for Resolution 2 on your electronic voting card. [Voting]

We'll now move to Resolution 3. The next resolution concerns the approval of an increase in shares reserved under the 2017 equity incentive plan. I put the resolution to the meeting as displayed on your screen, and I now open this resolution for discussion. Are there any questions online, Brian?

I have no questions, Dave.

Thank you. Details of votes received for this item are also 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]

Moving to Resolution 4. This 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 discussion. Are there any questions online, Brian?

No, sir. No questions.

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 4 on your electronic voting card. [Voting]

Ladies and gentlemen, this concludes the formalities of the meeting. If you haven't already done so, please complete your electronic votes as I will be closing the poll in the next 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, and 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. This concludes the meeting, and you may now disconnect.