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

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

Thank you. Good morning, good day, and good evening, everyone. As Wendy said, this is Brian Lane, and I am COO and CFO of Visioneering Technologies; along with my colleagues, Dr. Ashley Tuan, our Chief Medical Officer; and Mike Tilleli, our National Sales Director; and Heather Hale, our Vice President and Controller. I'm happy to have this opportunity to speak to 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 March 31, 2023. 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 soft contact lens called NaturalVue Multifocal, a revolutionary and patented contact lens targeted at 2 patient populations. The first is children with nearsightedness that becomes worse over time, a condition called pediatric myopia progression. This condition has become much 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 second population is persons 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 in the U.S. market for the simple correction of blurry vision. VTI has clearances or registrations 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 Smart Chairman, Dr. David Mazzo, along with the rest of the Board. Rounding out our leadership team are Mike and Heather, who are on the call; along with Pam Pritchard, our Executive Director of Sales Operations; Layna Mendlinger, our Global Head of Marketing; and Tracy Wentworth, our Director of Quality and Regulatory. Mike will 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 VT. And then finally, I'll recap the financial and operational highlights of the business, and then we'll open the line to your questions. Mike?

Thank you, Brian. In first quarter of 2023, we achieved record results for our net revenue shipments to U.S. eye care practitioners and gross margin percentage. Net revenue grew 32% over the first quarter of 2022 to $2.3 million. Shipments to U.S. eye care professionals, or ECPs, were up 9% in the same period. We consider shipments to be an important measure for gauging our patient level demand. The 32% increase in net revenue outperformed the 9% growth in shipments for the quarter. Shipments represent true patient level demand for our product while net revenue is impacted by changes in inventory levels at our distributors. We launched our enhanced multifocal product in the fourth quarter of 2021 and our distributors placed large initial stocking orders of the new product in that quarter. We initially rolled out the new product to a small number of our ECPs and continued to sell our original multifocal product. So there wasn't enough demand for the new product to cause the distributors to order normal volumes of it in the first quarter of 2022. Effectively, net revenue was pulled forward from Q1 2022 to Q4 2021, resulting in a lower net revenue in Q1 2022 than we normally would have expected. Comparing record net revenue in the current quarter to an unusually low net revenue quarter resulted in a higher percentage increase in net revenue than in shipments to U.S. eye care practitioners. In addition to impressive sales in the U.S., our international markets also showed strong growth in the quarter. Menicon relaunched the Menicon Bloom Day private label version of our multifocal product in March 2022. And we're seeing encouraging growth in their demand as Menicon expands from their initial market in the Netherlands to include the United Kingdom, France, Spain, Italy, Austria, Australia and Singapore. Q1 2023 was truly a bounce-back quarter for us over Q4 2022 when inflation, recession and other concerns had a negative impact on shipments and revenue alike. In Q1 2023, office traffic was back to normal as economic fear subsided. Again, this resulted in our strongest quarter in our history and sets the tone for us for the rest of the year. Now I'll turn the call over to our Chief Medical Officer, Ashley.

Thanks, Mike, on the exciting numbers. On July 8, 2022, we announced the publication of peer-reviewed data from our 6-year myopia progression study in Clinical Ophthalmology. The article is entitled Reduction of Myopic Progression Using a Multifocal Soft Contact Lens: A Retrospective Cohort Study. VTI has announced the results of this real-world data for several years. In terms of the evidence-based medicine data credibility, a cohort study is right behind a randomized controlled study. Having this article published in a peer-reviewed journal like Clinical Ophthalmology, a journal with good general impact factor is further validation of the value of the data, and the effectiveness of NaturalVue Multifocal in myopia progression control. What are the reasons our product is performing so well? Our lenses generate an excellent extended depth-of-focus, or EDOF, for presbyopic correction using a patented power profile to maximize the amount of relative plus power. The optical defocus generated from relative plus power is a proven mode of action for myopia control. Research has shown the treatment effect of myopia control from optical defocus is based on 3 factors. First, dosage, the magnitude of the defocus matters; second is the location, are the area of the retina under defocus matters; third, the duration of where, that matters, which depends on the visual quality. If the lens gives subpar vision, the children will not stay with the lens for long. The defocus rays resulting from different lens designs are great friends for progressing [myopia]. However, how it is delivered can significantly impact the visual experience. An ideal optical design only has 2 focal points. The defocused rays for the second focal points are concentrated in their distribution and create a hot spot on the retina, which can be distracting by creating glare and halos that are visible to the wearer, especially at night. Our Neurofocus optic technology has a long and narrow EDOF channel, which can effectively provide uninterrupted functional vision from distance to near for presbyopia and myopia alike. The defocus rays spread out evenly to cover greater than plus/minus 30 degrees of retina since the intensity per unit area is significantly diluted, and there is no hotspot. What the brain sees is barely white noise, which can be ignored and adapted easily. This is the foundation of our Neurofocus optics and the reason it works so well. NaturalVue Multifocal -- Neurofocus at the design delivered the highest magnitude of defocus on the market. The defocus covers the widest range of retina and it preserve functional vision. NaturalVue Multifocal has the best-in-class performance of every category needed for highly effective myopia control design. It is no wonder the real-world data has been so impressive. The difference between the smooth continued super curve of NaturalVue Multifocal and a defocused lens is well represented in the power profile of the 2 lenses. The NaturalVue Multifocal starts with the patient distance power in the center of the lens, then adds relative plus power in a rapid and continuous manner for uninterrupted power progression to minimize visual disturbance. By contrast, a competing defocused lens starts with the patient's distance power in the center of the lands that has abrupt and drastic transition in power between alternating optical zones, which results in visual halos and minimize amount of relative plus one can tolerate. The graph in the chart are actual measured power profiles of these 2 designs in scale. And the differences in smoothness and magnitude of the [indiscernible] are dramatic. NaturalVue Multifocal offers more relative plus with less visual disturbance to provide more myopia control with better vision for patients. Although we believe that peer review data is both credible and compelling, we know that a randomized controlled trial is a high-quality study. We initiated PROTECT clinical study to increase the credibility of the data regarding the effectiveness of NaturalVue Multifocal. The study itself is being conducted by independent sites. We achieved full enrollment in December 2022. I want to thank the principal investigators at these sites for their commitment to providing the highest quality evidence of the effectiveness of this outstanding product. PROTECT is being execute via a third-party contract research organization, [indiscernible], and includes a standardized study protocol, designed to avoid potential artifacts in the study results. That includes a randomized control group for benchmarking, extenders that are masked from which group the subject is aimed to avid biases and enrollment criteria, testing methods, equipment and subject busy intervals that are standardized to ensure consistency in the data. It is also worth mentioning that our protocol is designed similar to 2 other soft contact lens-based myopia progression control randomized controlled trials. So we can have an easy head-to-head comparison when the 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 date another important milestone for the PROTECT clinical study. I look forward to keeping you up-to-date on our progress on future costs and to ensure the protest results as they become available. Brian, I will now return it back to you.

Thanks, Ashley. So Mike updated everybody on our record net revenue and our shipments performance. I'm pleased -- I'm really pleased with these results as well as the other metrics that I'll share now. Cash receipts from customers in the first quarter of 2023 were up 26% from the same quarter last year. which is relatively consistent with the 32% increase in net revenue. The number of active U.S. accounts, which are accounts in the U.S. that purchased product within the quarter was 2,276, which is down slightly at 2% from the first quarter of 2022. Shipments to U.S. ECP's per active account was $986 which was another record for VTI. Our repeat customer rate was 103.6%. A repeat customer rate over 100% means that accounts purchased in the current quarter and in the quarter prior to the previous quarter, but not in the previous quarter. We call these recovered accounts. This happened once before in third quarter of 2020, which followed the quarter with significant numbers of accounts that were closed due to COVID restrictions. As Mike mentioned, the recession fears, inflation fears and other issues in the U.S. in the fourth quarter kind of depressed things, and we're glad to see the bounce back that he referenced. Turning to gross margin. It was a record 51.2% of net revenue in the current quarter compared to 42% in the same quarter of 2021. This was our first quarter over 50% gross margin. So we're very excited about that. We believe we will stay above 50% in the remaining quarters of 2023, with margins growing in the second half of the year. Turning to cash flows. Our net cash used in operating activities was $492,000 in the quarter compared to $2.2 million in the first quarter of 2022, which is an improvement of 78%. Quarterly operating expenses declined in the second quarter and have remained relative -- our second quarter of 2022 a year ago, and they remain relatively low since then despite elevated expenses related to the PROTECT clinical study that Ashley just talked about. In Q4, in conjunction with reaching full enrollment in PROTECT of clinical expenses increased, which drove an increase in our quarterly operating expenses. These costs declined in the first quarter of 2023, and we expect them to remain low for the remainder of this year and next year. We also plan to keep inventory grow. Inventories increased in 2021 and again in the first quarter of 2022, then had a net decline since that time. We had -- we plan to keep our inventory levels lower in fiscal 2023 than we did in 2022, although inventory balances may vary on a quarterly basis, basically just based on the timing of the purchases. Ashley have talked about previously, we applied for employee retention tax credits in the -- in September of 2021. We should receive over $500,000 if the payments are approved. Recently, the U.S. government began auditing these types of filings more vigorously. But we believe we qualify the credit -- for the credits and then our submissions will stand up under audit. We learned that the first 1/3 of the money were mailed to us. But because we changed our office address, the check was returned to the IRS. We're working to get a replacement check and they get the remaining 2/3 paid as well. We finished the first quarter of 2023 with $4.5 million of cash. We believe this amount is sufficient for us to operate until our remaining $1.2 million of convertible notes come due in June of 2024. So in conclusion, we appreciate your support, and we ask that we 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 Wendy and open the line for questions.

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

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