Caroline Corner - IR Jeff Soinski - CEO Matt Ferguson - CFO.

Josh Jennings - Cowen and Company Jason Mills - Canaccord Genuity.

Welcome to the Avinger Inc. Q1 2017 Earnings conference call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instruction will follow at that time. [Operator Instructions] As a reminder, this call maybe recorded.

I would now like to introduce your host for today's conference, Caroline Corner. Please go ahead..

Thank you, all, for participating in today's call. Joining us today are Avinger's CEO, Jeff Soinski and Chief Financial Officer, Matt Ferguson. Earlier today, Avinger released financial results for the first quarter ended March 31, 2017.

Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. All forward-looking statements, including, without limitation, our future financial expectations, are based upon our current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements.

For a list and description of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission.

Avinger disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. I'd now like to turn the call over to Jeff..

When we held our call a few weeks ago, I outlined some of the changes we would be making to our company and our business priorities. Today, I'd like to update you on our progress and also review some of the exciting plans we have ahead of us.

After that, Matt will then walk you through our first quarter financial results and then we'll be happy to take your questions. As we discussed on our last call, we undertook an organizational restructuring last month in order to reposition our company for growth in 2018.

We anticipate that by the third quarter, the restructuring will enable us to reduce quarterly cash usage by 48% compared with our average quarterly cash usage in 2016. And we believe it will better position us in front of our plan new product introductions late this year and early in 2018 depending upon FDA clearance timelines.

We're very pleased with our team has pulled together following the restructuring and there's a high level of focus and commitment throughout the company on achieving our product and commercial priorities.

Immediately after the restructuring, we pulled our sales team together in Chicago to reinforce priorities and finalize operating plans for the quarter post restructuring. As discussed on our last call, this group is made up of our best performing and for the most part, most experienced reps in our strongest territories.

They are focused on driving utilization within our base of loyal users, bringing on new users and existing accounts and strategically growing within existing territories. All of which we believe is important to maintain a strong commercial presence in advance of our new product offerings.

We're gratified to see a similar level of commitment and support from our key physician customers and we're excited to continue to partner with them to evolve this important technology and fulfill our mission of radically changing the way vascular disease is treated.

From conversations with Pantheris users, it's clear that our positive interim two-year data from our VISION trial and the demonstration of long-term effectiveness and durability of outcomes is resonating with the physician community.

We're excited to follow up with interim data release with the presentation of data from the full cohort of patients available for follow up at two years at the New Cardiovascular Horizons or NCVH annual conference at the end of this month.

We also remain enthusiastic about our two new product offerings, Pantheris 3.0 and Pantheris BTK expected in coming quarters. Our R&D and manufacturing teams remain on track to ready the next generation of Pantheris for 510k submission in the third quarter.

As we've described before, the Pantheris 3.0 device is a true upgrade, which brings a host of additional improvements and important new features and benefits to the Pantheris franchise, including a more robust shaft, an improved handle design, a redesigned single balloon system for both apposition and occlusion as well as an improved nose cone and longer nose cone option.

We believe that the multiple improvements in this next generation device will significantly improve device reliability and usability and will result an increased utilization compared to current levels.

We also continue to make good progress on our sixth franch, Pantheris BTK catheter, and continue to expect to file a 510k application for this device in the fourth quarter of 2017.

To remind you, Pantheris BTK has a lower profile and longer length that are existing Pantheris products and will enable treatment of smaller vessels including those below the knee where we believe our outstanding safety will be key. We believe this new device will expand our available market opportunity by as much as 50%.

And therefore, will also result an increased utilization by our customers. We're also excited that much of the R&D work for this lower profile device would be directly leverageable to the coronaries which represents another future market for us. So, while those products remain on track, we've also had an exciting new development on the clinical front.

Last week, FDA approved our IDE application for out pivotal clinical study for in stent restenosis or ISR. While Pantheris is currently not contraindicated for ISR, this study will support a filing with the FDA to expand the product label to specifically include treatment of ISR and enable us to directly promote Pantheris for this purpose.

We're optimistic about Pantheris's potential role in this challenging area which represents approximately 20% of PAD procedures in the U.S. Our trial is approved for up to 140 patients and up to 20 sites. We're readying the initial site, trial sites now and following IRB approval, we expect to begin enrollment in the third quarter of this year.

We continue to believe that our Lumivascular platform including Pantheris will be an important therapy in the treatment of PAD. And our product development, regulatory and operations teams are all working hard to ready our new products, which we anticipate will drive our growth in 2018 and beyond.

At this point, I'd like to Matt to review our Q1 financial results and then we'll open the call for your questions..

Total revenue was $3.5 million for the first quarter ended March 31, 2017, a 23% decrease from the first quarter of 2016 and a 25% decrease from the fourth quarter of 2016.

Revenue from disposable devices was $2.9 million for the first quarter of 2017, a 12% decrease compared to the first quarter of 2016 and a 22% decrease from the fourth quarter of 2016. Revenue related to Lightbox imaging consults was $0.6 million, a 50% decrease compared to the first quarter of 2016 and a 40% decrease from the fourth quarter of 2016.

In the first quarter, we increase our Lumivascular install base by five accounts and ended the quarter with a total of 161 accounts. Gross margin for the first quarter of 2017 was a loss of 17% down from positive 26% in the comparable quarter of 2016 and down from 21% in the fourth quarter of 2016.

The decreased gross margin was primarily attributable to $2.1 million in charges for excess, obsolete and scrapped inventories during the quarter. If we were to exclude those nonrecurring expenses, gross margin would have been approximately 44%.

Operating expenses for the first quarter of 2017 were $13.2 million compared to $16.2 million in the first quarter of 2016. This decrease was primarily attributable to higher sales in marketing expenses in 2016 as the company expanded its commercial organization in conjunction with the commercial launch of Pantheris.

Loss from operations for the first quarter of 2017 was $13.8 million compared to $15.0 million for the first quarter of 2016. And net loss for the first quarter of 2017 was $15.3 million compared to $16.2 million for the first quarter of 2016. Expenses related to our restructuring occurred in April.

So, were not included in the Q1 numbers I just mentioned but they will be recognized in Q2. Loss per share for the first quarter of 2017 was $0.64 compared to $1.28 for the first quarter of 2016. The decreased loss per share includes the impact of the issuance of 9.9 million in the company's follow-on public offering which closed on October 16, 2016.

And 1.1 million shares issued throughout 2016 under the company of ATM program. Adjusted EBITDA, a non-GAAP measure was a loss of $11.9 million for the first quarter of 2017 compared to a loss of $12.7 million for the first quarter of 2016.

Cash and cash equivalence totaled $23.0 million as of March 31, 2017 compared to $36.1 million as of December 31, 2016.

Based on the company's recent organizational restructuring and other expense reduction measures, the company excepts cash utilization to decrease to approximately $7 million per quarter by the second half of 2017 compared to an average of $13.5 million per quarter in 2016 and $13.1 million in the first quarter of 2017.

And with that, I'll turn the call back to Jeff..

Looking ahead, we're focused on readying on the company for the launch of our new products while we drive utilization of our current devices and also expand our clinical program. As a reminder of our key upcoming milestones, we plan to file for 510(k) clearance of a next generation of Pantheris in the third quarter.

We plan to file for 510(k) clearance of our below-the-knee atherectomy device in the fourth quarter of 2017 and we also look forward to beginning enrollment of our ISR trial in the third quarter of this year. We look forward to updating you on our progress on future calls. But at this point, we'd like to open for our questions..

[Operator Instructions] Our first question comes from Josh Jennings of Cowen and Company. Sir, your line open..

Just wanted to start off on some of the comments that you made on the preannouncement call just on strategic initiatives and just see if there's any update, I know it's only been a month, but any updates there?.

Our strategic initiatives are really similar to what we just laid out as our milestones on this call.

Our business priorities, our -- on the commercial side to be much more focused in geographies, strongest performing reps as well as physician customers who are continued to have excellent experience and deliver excellent clinical outcomes with our devices so that we're maintaining a commercial presence in preparation for the launch of our next generation devices either very late this year or early next year.

From a product's standpoint, we focus our R&D efforts on our next generation Pantheris, so our 3.0 device and our lower profile device for below the knee.

And then as we mentioned on the last call, we had filed an IDE application but we now have approval of that application and are getting ready to begin enrollment in the third quarter on our initial sites.

So, really a very focused program and plan, making good progress in all areas and expect that that will result in a return to growth in 2018 and, and certainly improve commercial performance as well..

I'm sorry; I didn't word the question correctly, Jeff, but thank you for that download. But I would just estimate in terms of the corporate strategic plan, you guys have laid some options on the table about distribution agreements, etcetera. And I don't think you addressed that in your prepared remarks. So this was --..

No, that's right. And so, we do -- we are actively engaged in discussions, both on the strategic side as well as in the standalone financing side and pursuing both concurrently.

You know, I believe we're making good progress over the last month and of course, as things develop further and we have more clarity, we'll share publicly but it's pretty immature to discuss at this time..

And it sounds like you have this sales meeting and you still have your core base of the community.

But has there been any physician feedback just in terms of the awareness of these corporate initiatives? And you know, what is -- what are you doing just to -- if there are any concerns out there to alleviate those amongst your users?.

Our users and especially those that are continuing to drive and have been driving great clinical outcomes and continued usage and volume are very interested in continuing -- for us to continue to evolve this technology. Most of the changes, as, are based upon direct input that we receive from our physician customers.

And so we are in active dialogue with them, we -- they have their same reps in their same territories supporting them especially in those areas that have higher volumes and more actively engaged users.And I think there's a highly [Indiscernible] confidence in the physician community that we're doing the right things, that we'll continue to fund this company and that we will continue to be a good partner with them as we develop and as we pursue these different strategic opportunities..

Thanks. And just my last question, congratulations on the approval for the IDE design for in stent restenosis. You mentioned 20 sites.

I was just wondering, are those 20 sites going to consist of your current user base? Are you looking to get new centers involved and exposed to the Pantheris platform? And then also, what is -- what do you expect the cost of this trial to be?.

As it relates to the sites, we are focused on the existing users of Pantheris, not bringing in new sites into the trial. And we will start with our principle investigator sites and then expand through the back half of this year with further expansion early in 2018. I don't, Matt, if you want to provide some color on the cost..

Yes. On the cost of the trial first of all, it will extend beyond 2017, we expect, in terms of both the enrollment and follow up. But the overall cost, we approximate just a little bit over a million dollars for the entire trial. So it would be relatively light level expenditure during the current year..

One thing that's really exciting to us as it relates to this study as well is, as you know, we are not currently -- we are not contraindicated for ISR. So, while we cannot and do not promote the usage of Pantheris in ISR cases, physicians have access to the device for that purpose.

And we've had a number of very strong cases and that's an important part of our post market surveillance, which actually was reported to FDA as part of our IDE application with an extraordinarily high success rate and very, very positive safety profile.

So, I think we are in a unique position to go into this study with a very good visibility on strong clinical outcomes and very, very confident that we'll deliver those strong clinical outcomes both in terms of restoring patency as well as extremely safety device with good long-term results in the study..

[Operator Instructions] Our next question comes from Jason Mills of Canaccord Genuity. Your line is open..

This is actually Cecilia Furlong on for Jason.

I just wanted to ask how we should be thinking about the revenue run rate for the balance of 2017? And does relatively flat with Q1 levels continue to seem reasonable based on what you've seen productivity wise out of the reduced sales force so far? And do you see potential for upside as you focus on going deeper in those kind of strategic higher volume accounts?.

Cecilia, we made the decision to not provide guidance given the number of changes that we are making in the company and given the focus here on our R&D milestones, clinical milestones and maintaining a strong commercial presence.

As we said on the last call that the -- both the reps and the territories where we're still focused make up a large percentage of our previous volume on a quarterly basis. So we feel like we are going to bring increased efficiency and productivity but we're not providing guidance. At this point, really don't plan to through the balance of this year..

And then, I guess, just looking out to 2018 when you have both the next gen Pantheris platform as well as the BTK device approved, how involved do you anticipate your sales strategy will change?.

As it relates to our sales strategy we believe that developing strong physician champions, developing confidence and confidence with the device and our sales rep's ability to effectively support cases, we'll continue to always be a core of what we do.

We will launch these products into our existing territories, existing sites, get experience and then expand from our success.

And I'm not sure if this is what your question is getting at, but we don't plan on significantly expanding our sales force in advance of the launch of those products but instead, the launch into our geographies and current sites and then expand from there..

I am not showing any further questions at this time. I would now like to turn the call back over to Jeff Soinski for closing remarks..

I just want to thank you, all, again for joining our call today, for your interesting questions, and we look forward to updating you on our progress on our second quarter call. Thank you very much..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect..