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

Thank you for standing by, and welcome to the Visioneering Technologies Q3 FY '23 Investor Call. [Operator Instructions] I would now like to hand the conference over to Mr. Juan Carlos. Please go ahead.

Thanks, Rachel. Good morning, good day, good afternoon, good evening, whatever it might be, everyone. My name is Juan Carlos Aragon. I go by J.C. to make it easier. I am the new Chief Executive Officer and Executive Director at Visioneering Technologies. Pleasure being here. Along with my colleagues, Brian Lane, our Chief Operating and Chief Financial Officer; Dr. Ashley Tuan, our Chief Medical Officer; and Mike Tilleli, our National Sales Director, I'm very happy to have this opportunity to introduce myself, which I'll do a little bit later and explain why I joined VTI, highlight the current rights offering that's in progress and discuss the company's results for the past quarter and year-to-date period. Before we go into those details, though, I'll start with -- we'll start with Brian providing a brief background on the company. Brian, please?

Thanks, J.C. Hello, and welcome to our quarterly investor call for the quarter ended September 2023, which is our third 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 as you use this information to make investment decisions. All dollar amounts that we'll talk about today are in U.S. dollars and our fiscal year coincides with the calendar year. We also remind you that the financial metrics reported today in our Appendix 4C are unaudited. So 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 the daily disposable soft contact lens called NaturalVue Multifocal which is a revolutionary and patented contact lens targeted at 2 patient populations, including 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 and 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 40% of all children in the U.S. The second patient population is persons over the approximate age of 45 who have difficulty seeing things within arm's reach, which is a condition called presbyopia, and it affects almost all older adults. We also sell NaturalVue Sphere contact lenses in the U.S. market for the simple correction of blurry vision and we have clearances or registration to sell our products in the U.S., Europe, Australia, New Zealand, Singapore, Hong Kong, Malaysia and Canada.

Thanks for that background, Brian. Now I'll take a few minutes just to go through the reasons as to why I joined VTI and how excited I am about the future of the company. I joined VTI on October 1. So basically, I'm into my third week. I am a trained optometrist a long time ago. And I've been in the global vision care business for 38 years now, having worked with some of the largest companies within the space, Bausch + Lomb, CIBA Vision, Novartis, which now is Alcon and for the past 23 years with CooperVision. At CooperVision, I was instrumental in developing their pediatric myopia management strategy and in executing it. During the past 5 years at Cooper under my leadership, we started the specialty contact lens business, which included primarily advanced contact lens applications including myopia management. As I left CooperVision in early August to come over to VTI, this business had revenue in excess of $100 million. The largest market for CooperVision within the myopia business was and is China, a country where I have been doing business and for many years going back to my Bausch + Lomb years when the contact lens business was starting. While at CooperVision, I also sat on the Board of Directors of SightGlass Vision, a company dedicated to the development of spectacle lenses for myopia management, which is now a joint venture between CooperVision -- Cooper companies, actually, and EssilorLuxottica, the world's largest optical company. This company, SightGlass Vision, is also now commercializing through their joint venture the product in the Chinese market. With my background in vision care and more specifically in myopia management, I had been evaluating how this market has been growing globally and which companies had interesting technologies and opportunities. I have been monitoring VTI for a few years now. And through my trips around the world have always heard some very good reviews from eye care practitioners on the clinical performance of the NaturalVue Multifocal 1-day contact lens and how good feedback on how it was slowing down the progression of myopia in children. I had multiple conversations with key opinion leaders in North America and Europe, which enhance my interest in the company. And also, I was well aware that VTI had published a couple of years ago, less than 2 years ago, the real live -- real-world 6-year retrospective data, which also seems very promising. And once I found out that VTI was funding the PROTECT study, that is what really brought me to VTI. Although I must say that I did not know about the data of the PROTECT study before I decided to come over to VTI, I found out about this data as basically the entire management team did. So VTI -- as we look at what our priorities are, VTI has been delivering very encouraging results over the past 5 years with compound annual growth of 18%. And I think they've done a great job at controlling our expenses with tremendous discipline and this definitely will continue. VTI has growth opportunities in several geographies, including China, which I've referenced before, and opportunities to strengthen some of the current partnerships that we have. Now with the preliminary PROTECT data, which we released last week at the American Academy of Optometry meeting in the U.S, I strongly believe that we are starting a new phase, a new era for VTI, a truly exciting one. Interest in myopia management has increased dramatically over the past several years. Again, as I mentioned at the beginning, I've been in this space for many years in myopia management for over 15 years, and it's really starting to pick up. The market is growing very nicely. And I believe -- we believe that VTI is very well positioned to address this large and growing need in the marketplace. Ashley, Dr. Tuan, will give us more information of the PROTECT clinical trial, the interim 1-year results and how they are significant to VTI. And Mike will give us some updates on the sales and marketing activities in Q3, looking forward to that part of the presentation. And finally, Brian will recap the financial and operational highlights of the business and our current capital raise. Finally, we will open the line to answer any questions that you might have. With that, I will hand it over to Ashley.

Thanks, J.C. We have shared with you the peer-reviewed publication on a 6-year myopia progression study using NaturalVue Multifocal. That was published in clinical ophthalmology. Since then, 2 other independent studies have published their results using NaturalVue Multifocal for myopia progression control. Treehouse Eyes is a group of eyecare providers, specializing in treating myopia progression in the U.S. Their main tool is orthokeratology. However, they do incorporate soft multifocal contact lenses and atropine when needed. Their clinical algorithm for myopia progression, our CAMP study, included NaturalVue Multifocal data and was impressive compared against their own aggregated results. In addition, Dr. Carolyn Lederman, a pediatric ophthalmologist, has been treating for patients with NaturalVue Multifocal for myopia progression for the last 3 years. She presented her results at the American Association for Pediatric Ophthalmology and Strabismus conference lately. We initiated the PROTECT clinical trial which met the highest clinical trial design standard. That is a randomized controlled trial, or RCT, to increase the credibility of the data regarding the effectiveness of NaturalVue Multifocal. The study itself is being conducted by 8 independent sites in 4 countries. We achieved full enrollment in December 2022. PROTECT is being executed by a third-party contract research organization 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 in to avoid biases. And enrollment criteria, testing method, equipment and subject visit intervals that are standardized to ensure consistency in the data. 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 outcome, making the 1-year data another important milestone for the PROTECT clinical study. The interim results show that NaturalVue Multifocal is both safe and effective in slowing the progression of myopia in children. We compared the PROTECT clinical trial interim 1-year results to those of other myopia management products based on their published 1-year RCT results. There are 2 measures of effectiveness tested for myopia progression control. The first one is the change of refractive error. Myopia is a type of refractive error, in which the eye cannot focus distance images onto the back of the eye to see well. Because the eyeball is too long, the lens power needed to move the focal point from the furthest point an eye can focus to the back of the eye that is represented in diopters or D. Axial length is the length of the eyeball and is measured in millimeters. Children's eyes grow with their bodies, but too much eye growth can increase their risk of developing vision issues later in life. That is why we need to control myopia progression. NaturalVue Multifocal had the greatest reduction compared to all other the myopia controlled content lens products, RCT results for both the change of myopia progression and in axial length. CooperVision's MiSight is the only treatment approved by the FDA for myopia progression control and NaturalVue Multifocal outperformed MiSight in the first year of testing. We are very pleased with these results, which reflects 93% of the study subjects completing their first year of the clinical trial. We plan to report a full 1-year results in January 2024 after all study subjects have completed their first year visits. One of the reasons our product is performing so well. Our lenses have generated 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 depth of focus generated from the 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, the dosage. The magnitude of NaturalVue Multifocal's Neurofocus optic technology delivers the highest magnitude of defocus on the market. The defocus covers the widest area of the retina to treat excessive eye growth and it preserves functional vision. NaturalVue Multifocal has the best-in-class performance of every category needed for a highly effective myopia control design. So Mike, I will now turn it back to you.

Thank you, Ashley. So results year-to-date through the third quarter, we've achieved record results for net revenue, shipments to U.S. eye care practitioners, cash receipts from customers and also gross margin percentage. And for the quarter, net revenue grew 1% over the third quarter of 2022 to $2.1 million. Year-to-date, net revenue grew 17% to $6.7 million. Shipments to the U.S. eye care professionals, or ECPs, were up slightly in the quarter and 5% in the year-to-date period. And we consider shipments to be an important measure for gauging our patient level demand. We started to see some weakness in demand about halfway through the third quarter. Anecdotally, we heard from our competitors that they've experienced the same issue. With the positive interim 1-year PROTECT results now being available, we plan to share those results with our customers and expect to return to much better sales growth as a result. Our international markets combined were up 15% for the year-to-date period. Menicon relaunched the Menicon Bloom day, private label version of our multifocal product, in March 2022, and we are 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're currently working with them to expand to additional markets in the near future. And Brian, back to you.

Okay, Mike, thanks for that. So I'll continue on the same slide. The cash receipts from customers in the third quarter of '23 were up 17% from the same quarter last year, and that's due to a high percentage of our net revenue in the second quarter coming in June, in which we collected in July. And so cash receipts were exceeded net revenue in the third quarter. The number of U.S. active accounts, which are accounts in the U.S. that purchased product in the quarter, was 2,303, up 1% from the third quarter of 2022. And then shipments to U.S. ECPs per active account were $929 which was a decrease of 1% from the same period in '22. Our repeat customer rate was an impressive 99.4%. Gross margin was a record 57.0% of net revenue in the current quarter compared to 47.5% in the same quarter of 2022. This quarter was our third quarter with gross margin of 50%, and we believe we'll stay about 50% in the fourth quarter and into 2024. Net cash used in operating activities was a low $397,000 in the quarter compared to $733,000 in the third quarter of '22 which was an improvement of 46%. Year-to-date, net cash used in operating activities was $2.1 million compared to $4.8 million in the comparable prior year period, which is an improvement of 57%. We've grown our revenue and kept our expenses low, which is allowing us to improve the net cash used in operating activities. We also plan to keep inventory purchasing low. Inventories increased in fiscal '21 and again, in the first quarter of '22, then we've had a decline since that time. We plan to keep our inventories lower in fiscal '23 than we did in '22 and the same in '24. Of course, inventory balances may vary on a quarterly basis just due to the timing of purchases. Now to the capital raise that we're in the middle of at this point. We finished third quarter of '23 with $2.8 million of cash, and we stated earlier that we expect to raise more capital in late 2023, and so we just, last week, announced a capital raise. It consists of a 5 for 9 non-renounceable entitlement offer to raise up to approximately USD 2.5 million, which is about AUD 3.9 million at USD 0.22 per CDI. This offer includes a top-up facility to allow eligible holders to purchase more than their pro rata share. We're also going to do a share placement to U.S. directors totaling $120,000 and the conversion of the remaining outstanding $1.1 million of convertible notes. Now both the direct replacement and the note conversion are subject to shareholder approval and we plan to hold a special meeting of shareholders a week from now, 8 a.m. Sydney Time, on Thursday, the 26th of October, which is 5:00 p.m. U.S. Eastern daylight time on Wednesday, October 25. So we obviously encourage you to participate in the rights offering and to vote in favor of the resolutions being voted on during the special meeting of shareholders.

Thank you, Brian. Again, just to summarize, a lot going on at VTI. I'm very excited to be here, the tremendous opportunity for the organization and everyone associated with you with it. We appreciate your support and ask for you to continue through this journey as we continue to improve our operating results, expand the reach of our products to more and more patients across the globe. With that, I'll now turn it back to Rachel and open the line for any questions. Thank you.

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

Okay. Well, thanks, everyone. I'm glad to have our first quarter with our new CEO. I'm very excited about the future of VTI. The PROTECT results were very positive and look forward to finishing the year strong. And hopefully, we'll speak to you in the shareholder call next week.

That does conclude our conference for today. Thank you for participating. You may now disconnect.