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

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

Thank you, Rachel. Good morning and good day and good evening, everyone. My name is Brian Lane. As Rachel said, and 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 Vice President and controller. I'm happy to have this opportunity to speak with you and 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, 2023, our second 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, including 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 second patient 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 U.S., Europe, Australia, New Zealand, Singapore, Hong Kong, Malaysia and Canada. All dollar amounts we 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.

Heather, thanks for that background. Now to our organization. We have myself and Ashley as well as Dr. David Mazzo, and the rest of the Board providing oversight. And then for our management team, we have Mike and Heather that you'll hear from today as well as Pam Pritchard, Layna Mendlinger and Tracy Wentworth. Mike will continue to call today by discussing our sales and marketing activities in the quarter, and then Ashley will update you on the PROTECT clinical study and its significance to VTI and then finally I'll recap with the financial and operational highlights of the business, then we'll open the line to answer your questions. Mike?

Yes. Thank you, Brian. In second quarter 2023, we again achieved record results for our net revenue and gross margin percentage. We had also set records for these 2 metrics in the first quarter. So these results topped last quarter's record results. Net revenue grew 20% over the second quarter of 2022 to $2.4 million. For the first half of 2023, net revenue grew 26% to $4.7 million. Shipments to U.S. eye care professionals or ECPs were up 6% in the quarter and 7% in the first half. We consider shipments to be an important measure for gauging our patient level demand. The increases in net revenue outperformed the growth in shipments for the quarter and year-to-date period. 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 for the new product in that quarter. We initially rolled out the new product to a small number of 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 and second quarters of 2022. Effectively, net revenue was pulled forward to Q4 2021, resulting in a lower net revenue in the first half of 2022 than we normally might expect. Comparing record net revenue in the current quarter and the year-to-date period to unusually low net revenue results in the prior periods resulted in the higher percentage increase in net revenue than in shipments to U.S. ECPs. In addition to impressive sales in the U.S., our international markets also showed strong growth in the quarter and year-to-date period, which was up 27% from the first half of 2022. Menicon relaunched the Menicon Bloom Day private label version of our multifocal product in March of 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. We are now in our third fiscal quarter, which typically is our strongest quarter of the year. We aim to continue to deliver strong revenue growth for the third quarter in a row. Now I'll turn the call over to our Chief Medical Officer, Ashley.

Thanks, Mike. We have shared with you the peer-reviewed publication of a 6-year myopia progression study using NaturalVue multifocal that was published in Clinical Ophthalmology. Since then, 2 of independent studies have published their results using NaturalVue multifocal for myopia progression control. Treehouse Eyes is a group of eye care provider specializing in treating myopia progression in the United States. Their main tool is orthokeratology. However, they do incorporate soft multifocal contact lenses and atropine when needed. Their clinical algorithm for myopia progression study, our CAMP study included NaturalVue multifocal data and it was impressive compared against the overall aggregated results. In addition, Dr. Carolyn Lederman, a pediatric ophthalmologist has been treating her patients with NaturalVue multifocal for myopia progression. She presented her results at the American Association for Pediatric Ophthalmology and strabismus conference recently. When comparing these 3 real-world study results from kids between the age of 8 to 13 years old, 2 clear trends emerged. Since age and ethnicity are the 2 significant variables in myopia progression rate, while the age and ethnicity distribution may not be the same in these studies, we found the average progression each year was all less than 0.25 diopters using NaturalVue multifocal. As the 0.25 diopters is the smallest interval in refraction, that means the majority of these kids had no change in refractive error that year. The ocular [ axial ] data on the right also tells a similar story. Their eyes continue to grow with their body, but the growth magnitude is closely aligned with age-matched kids without myopia, which means their ocular [ axial ] growth was not excessive and does not contribute to myopia progression when they use NaturalVue multifocal. The previous comparisons were between different treatment groups. In this slide, we compared the treatment group increase in the refractive error on the left side of the slide, to the Control group on the right side. Note that these comparisons are between kids with a myopia control treatment and a predicted outcome for myopic kids of the same age and ethnicity without myopia control treatment. The NaturalVue multifocal results after 2 years had progression of 0.25 diopters or less. While 2 of the 3 virtual control group data were around 0.75 diopters of progression. Let's look at axial length links progression data now. Axial length is considered to be a reliable variable for a myopia progression control study comparison. The treatment effect is calculated from the difference between treatment and controlled data. Even though the CAMP study did not have a lot of NaturalVue multifocal monotherapy data. The results of the monotherapy data are closely corroborating with 66 children, for which axial length was tracked in the 6-year publication. Therefore, the result seem reliable. The monotherapy results compared to the entire CAMP aggregated results from various myopia control methods, including combination therapy show that the NaturalVue multifocal results are largely superior. After 2 years of treatment, the NaturalVue multifocal was at least 50% more effective than the CAMP overall performance. The comparison shows that NaturalVue multifocal slowed the progression, the growth of axial lengths by at least 68% after 2 years, while the CAMP overall slowed by 44%. What is the reason our product is performing so well? Optical defocus is a no mode of action for myopia control. The impact is based on 3 factors: First is the dosage. The magnitude of the defocus matters. Second is the location or the area of the retina under the defocus matters. Third, the duration of wear matters, which depends on the visual quality. If the lens give supervision, the children will not stay with the lens. We worked with an optical scientists to conduct rate chasing to look at the image quality of different lens design through a model eye. The defocus [ rays ] resulting from different lens designs, a great friend for controlling myopia progression. However, how it is delivered can significantly impact the visual experience. Defocused optics results in defocused rays from a second focal point, which are concentrated in its distribution and can create a hard spot. The Neurofocus optic technology applying Catenary curve generates a high magnitude of myopic defocus, but is smooth and gentle in intensity. The myopic defocus spreads out evenly to cover greater than plus/minus 30 degrees of the retina because the intensity per unit area is diluted, and there is no hard spot. What the brain sees is a very wide noise that can be filtered out easily. This is the foundation of Neurofocus optics. NaturalVue multifocused Neurofocus optic technology delivers the highest magnitude of defocus on the market. The defocus covers the widest area of the retina and it preserves functional vision. NaturalVue multifocal has the best-in-class performance of every category is needed for a highly effective myopia control design. It is no longer the real-world data has been so impressive. The difference between the smooth continuous power curve of the NaturalVue multifocal and a defocused lens is well represented in the power profile of the 2 lenses. The NaturalVue multifocal starts with the patient's 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 dual focus less starts with the patient's distance power in the center of the lens, then has an abrupt and drastic transition in power between alternating optical zones, which result in visible hills and minimizing amount of relative plus one can tolerate. The graph in the trials are actually measured power profiles of these 2 design in scale. Any differences in smoothness and magnitude of relative plus are dramatic. The NaturalVue multifocal offers more relative plus with less visual disturbance to provide more myopia control with better vision for patients. We initiated the PROTECT clinical study to increase the credibility of the data regarding that effectiveness of NaturalVue multifocal. The study itself is being conducted by independent site. We achieved full enrollment in December 2022. In previous myopia control trials of this type, 1 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. Currently, 40% of the patients in the study have completed their 1-year follow-up. Brian, I'll now turn it back to you.

Thank you, Ashley. So Mike updated you on our record net revenue performance, and I'm very pleased with these results as well as with the other metrics that I'll share right now. Cash receipt from customers in the first quarter of 2023 were up 3% from the same quarter last year. Now this increase is a little below the 20% increase in net revenue due to the timing of our net revenue in the current quarter. A high percentage of our net revenue for the quarter came in June, and we should collect the payments in July. We expect that cash receipts will exceed net revenue in the third quarter as a result. The number of U.S. active accounts, which are accounts in the U.S. that purchased product in the quarter was 2,157 in the second quarter, which is down 4% from the second quarter of 2022, while shipments to U.S. ECPs per active account was 943, which was an increase of 11% from the same period last year. Our repeat customer rate remained high at 92.4%. Gross margin was a record 54.9% of net revenue in the current quarter compared to 45.4% last year. This quarter was our second quarter with gross margins over 50% and we believe we'll stay above 50% for the remaining quarters of 2023, with margins growing hopefully in the second half of the year. Turning to cash flows. Our net cash used in operating activities was $1.2 million in the current quarter compared to $1.9 million in the second quarter of 2022, which was an improvement of 36%. Year-to-date, net cash outflows improved 59%. Quarterly operating expenses declined in the second quarter of 2022 and have remained low since then despite elevated expenses related to the PROTECT clinical study that Ashley just told you now. In Q4 of 2022 in conjunction with the reaching the full enrollment in PROTECT, our clinical expenses increased, driving an increase in our quarterly operating expenses overall. These costs declined in the first quarter of 2023, and we expect them to remain low for the remainder of this year and 2024. We've increased our sales and marketing expenses recently, which we believe has helped generate the 2 consecutive record net revenue quarters we had to start 2023. We also plan to keep inventory purchasing low. Inventories increased in fiscal 2021 and then again in the first quarter of 2022, that had a net decline since that time. We plan to keep our inventory levels lower in fiscal 2023 than we held in 2022, although inventory balances vary on a quarterly basis due to the timing of purchases. As we've noted previously, we applied for employee retention tax credits in the use in September of 2021. We should receive over $500,000 from this program. We've received notice that the payments were approved and are expecting the checks to be in the mail any day now, but have not yet received them. We finished the second quarter of 2023 with $3.3 million of cash. We believe this amount is sufficient for us to operate until the remaining $1.2 million of convertible notes come due in June of 2024. We plan to explore additional financing later this year. So with that, we appreciate your support, and we ask that you continue this journey with us as we continue to improve our operating results, expand our reach of products to more and more patients across the globe. With that, I'll now turn it back to Rachel and open the line for questions.

[Operator Instructions] There are no phone questions at this time. I'll now hand over to Brian for any webcast questions.

Thanks, Rachel, and 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.