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

Thank you for standing by, and welcome to the Visioneering Technologies Q2 2022 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, Ashley. Good morning, good day, and good evening, everyone. My name is Brian Lane, and I am the Chief Operating and Chief Financial Officer of Visioneering Technologies. Along with my colleagues, Dr. Ashley Tuan, our Chief Medical Officer; and Heather Hale, our Vice President and 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.

Hello, and welcome to our quarterly investor call for the quarter ended June 30, 2022, our second fiscal quarter of the year. We remind you that we may be making forward-looking statements during the call and 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 an innovative product to serve high-need patients. Our flagship product is a daily disposable soft contact lens called NaturalVue Multifocal, a revolutionary and patented contact lens targeted to 2 patient populations. The first group is children with near sight index 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 this 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 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 registration to sell its products in the United States, Europe, Australia, New Zealand, Singapore, Hong Kong, Malaysia and Canada. All dollar amounts we will discuss today are in U.S. dollars, and VTI's fiscal year coincides with the calendar year. We also remind you that the financial metrics reported today and in our Appendix 4C are unaudited.

Thanks for that background, Heather. Now to our organization. Our executive team includes Dr. Tuan and me with oversight from our Chairman, Dr. David Mazzo along with the rest of the Board. The remainder of our leadership team includes Mike Tilleli, who's our National Sales Director; Pam Pritchard, our Executive Director of Sales Operations; Layna Mendlinger, our Global Head of Marketing; and Heather, who you just heard from, who is our Vice President and Controller. I'll continue the call today by discussing our sales and marketing activities in the quarter. Ashley then will update you on the PROTECT clinical 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 your questions. So in 2Q '22, we drove a 30% increase in net revenue over the second quarter of 2021, coming in just under $2 million for the quarter. This was the second highest quarterly net revenue in the company's history and is only exceeded by the fourth quarter of fiscal '21, that included initial stocking orders for a new product launch. So it was our sixth consecutive quarter of increased revenues on a year-over-year basis. Shipments to U.S. eye care professionals, or ECPs, were $1.9 million, which was an increase of 18% over the second quarter of 2021. We consider shipments to be an important measure for gauging our patient level demand. Shipments were down about 7% from the first quarter of this year, which follows a trend that started when the COVID-19 pandemic started in March 2020 in the U.S. Prior to 2020, we generally saw shipments increase in the first 3 quarters of the year and then declined slightly in the fourth quarter, in line with what the contact lens industry does as a whole. With ECPs closing offices and shortening hours in April and May of 2020, we saw a shift of patient appointments from the second quarter to the third quarter, which caused the decline in shipments from the first quarter to the second quarter. As you can see in the shipments chart, the third quarter has been our best quarter of the year for shipments in the previous 4 years. We believe this trend will continue this year and expect third quarter shipments to exceed the record $2.1 million we achieved in the first quarter of this year. We also continued the rollout of our NaturalVue enhanced multifocal lens in the second quarter by opening it up to all accounts in the U.S. This product is the next generation of 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. We launched EMF in the U.K. in March, and in June and July, launched in all of the remaining eligible markets. Now I'll turn the call over to our Chief Medical Officer. Ashley?

Thanks, Brian. I'm excited to share that we have had 2 significant announcements in the past several weeks. On July 8, we announced the peer-reviewed publication of our 6-year myopia progression study in clinical ophthalmology. The article is titled Reduction of Myopic Progression Using a Multifocal Soft Contact Lens, a retrospective cohort study. VTI has announced the results of its real-world myopia progression study for the past few years. In terms of evidence-based medicine data credibility, a cohort study like this is right behind a randomized controlled study. Having this article published in a peer-reviewed journal like Clinical Ophthalmology, a journal with good impact factor, is further validating the value of our data and the effectiveness of NaturalVue Multifocal in myopia progression control. Next slide, please. We also announced last week that we achieved an important milestone in the PROTECT clinical study, reaching 50% enrollment. The study itself is being conducted by independent sites. We currently have 7 sites enrolling patients. We expect to complete enrollment by the end of September this year. I want to thank the principal investigators at the site for their commitment to provide the highest quality evidence of the effectiveness of this outstanding product. As I mentioned on the last slide, a randomized clinical trial, or RCT, is superior to a cohort study. We initiated the PROTECT study to increase the credibility of effectiveness data and can have easy head-to-head comparison to other competitive products. Contact is being executed by a third-party contract research organization and a standardized study protocol designed to avoid potential artifacts in the study results. That includes a randomized control group for benchmarking and standards that are met from which group the subject is in to avid biases. And enrollment criteria, testing methods, equipment and subject busy intervals that are all standardized to ensure consistency in the data. It is also worth mentioning that our protocol is designed similarly to 2 other soft contact lens based myopia progression control RCT. So we can have that easy head-to-head comparison when data is complete. In previous myopia control trials of this type, one year follow-up data has been shown to be a strong predictor of the overall trial outcomes, making the 1-year data another important milestone for the PROTECT clinical study. I look forward to keeping you up-to-date on our progress on future calls and to share the PROTECT results as they become available. Brian, I will now turn it back to you.

Thanks, Ashley. I recently -- I already updated you on our net revenue and shipments performance, which increased 30% and 18% comparing the second quarter of 2022 to the second quarter of 2021. Other metrics include cash receipts from customers, which in the second quarter of this year were up 19% over the same quarter last year. There was an increase from $1.6 million to $1.9 million. The number of active U.S. accounts, which are accounts in the U.S. that purchased product within the quarter, was 2,249, up slightly from the same quarter last year. Our repeat customer rate was 93.5%. Gross profit was 45.4% of net revenue in the current quarter compared to only 40.4% in the same quarter last year. Global shipping issues began to cause higher prices for moving our products from our manufacturer in Taiwan to the U.S., starting in the second quarter of last year. This obviously increased our cost per unit. This year, we began shipping our product from Taiwan, primarily using boat freight rather than airfreight. The positive impact from this change on gross margin was delayed as we continue to sell through product that we purchased last year. We saw some of the benefit in the second quarter of this year and expect an even greater impact in the second half of the year. We forecast that our second half gross margins will approximate 50% as we sell off existing inventories and are selling a greater percentage of newer products with a lower cost of goods sold. Turning to cash flows. Our net cash used in operating activities was $1.9 million in the quarter compared to $2.1 million in the second quarter of last year, which was an improvement of 12%. Net cash used in operating activities was over $2.2 million in the first quarter of this year and the decrease from that quarter is due to higher cash receipts from customers combined with a 16% lower operating expenses. Both quarters though had elevated inventory purchases. For the third and fourth quarters of this year, we expect net cash used in operating activities to be less than $1 million in each quarter. As I noted earlier, the third quarter historically has been our highest revenue quarter in the year, and we should generate higher cash receipts from our customers. We also expect operating expenses to remain low as we continue with our current headcount and reduce expenses in other areas. Finally, we recently lowered our inventory purchasing and plan to decrease our inventory levels in each of the next 2 quarters. In addition, we expect to receive over $500,000 in the second half of this year in employee retention tax credits. Those are funding from the U.S. government under the CARES Act. While we expect those in second half of this year, we're uncertain of the timing of actually collecting these cash tax credits. We finished the second quarter of 2022 with $6.9 million of cash. We will continue to carefully manage our net cash going forward as we are committed to achieving approximately breakeven cash flow without the need for a heavily diluted equity raise being necessary. 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 patients across the globe. With that, I'll turn it back to Ashley and open the line for questions.

[Operator Instructions] There are no questions on the phone line at this time. I'll now hand back to Mr. Lane.

Okay. Thanks, Ashley. Thank you, everyone, for your attendance and 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.