Mark Klausner - Westwicke Partners Jeff Soinski - CEO Matt Ferguson - CFO.

Analysts:.

Good day, Ladies and Gentlemen, and welcome to the Second Quarter 2017 Avinger Inc. 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, Mr. Mark Klausner of Westwicke Partners. Please go ahead..

Thank you, and thank you all for joining us on today's call. On todays call are Avinger's CEO, Jeff Soinski and Chief Financial Officer, Matt Ferguson. Earlier today, Avinger released financial results for the second quarter ended June 30, 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..

Thanks, Mark. Good afternoon and thank you all for joining us. Following our strategic reorganization in April, I am very pleased that the company has pulled together and made good progress on the objectives we laid out on our last call related to the advancement of Lumivascular platform for the treatment of peripheral artery disease.

Our sales team has been increasing utilization of our image guided catheters within key accounts in our installed base and we’ve seen solid progress with re-order trends within our loyal user base. Our R&D efforts are proceeding well and as we laid out before, we expect to have two new products fuelling our growth in 2018.

Before I update you on our various growth initiatives, I mentioned on our last earnings call that we had the goal of reducing quarterly cash usage by approximately 50% in the second half of this year compared with our average quarterly cash usage in 2016. Our results today show we are well on our way there.

With our cash usage in line with our plan and a cash balance of $14 million at the end of the second quarter, we believe we have sufficient cash to fund their operations through year-end.

We’re also continuing our process of evaluating various financial and strategic alternatives and we are looking forward to updating you on these initiatives when appropriate. I’m now going to provide a bit more color on our progress and also review some of the growth drivers we have ahead of us.

After that Matt will walk you through our second quarter financial results and then we’ll be happy to take your questions. As we mentioned on our last earnings call, our sales teams focus is on driving utilization in the hands of our most committed users.

While we are continuing to strategically add new accounts, during the transition period, we are also taking the opportunity to clean up our installed base, allowing us to focus our resources on more productive accounts in our most productive sales territories.

After accounting for these adjustments, we ended the second quarter with an installed base of 157 Lumivascular vascular accounts.

Our current team of 25 sales reps is focused on utilization and reorders, moving beyond the stocking orders we’ve seen in prior quarters and we are pleased with the $2 million in disposable sales they brought in last quarter.

We continue to hear great reports from physicians about the positive outcomes they are seeing in their Lumivascular cases and the unique value this technology brings to their practices.

We had many positive conversations with physicians and significant podium presence such as the CBC meeting in Chicago in July, with our product featured in life cases.

Over the next few days, our technology will be featured at the AMP meeting also in Chicago and we are also looking forward to engaging with thought leading physicians at Viva in September.

At these conferences we are building awareness of the many benefits provided by our Lumivascular technology and continuing to gain physician feedback on our next-generation products and future growth opportunity. Now turning to our product development and pipeline products.

As we discussed our last call, our R&D team is working hard to complete verification and validation testing and prepare our 510 (k) filing for Pantheris 3.0, our next-generation image guided atherectomy cathether.

As we’ve discussed in past calls, we’ve been making a series of incremental improvements to the current version of Pantheris over the past several months with most of these changes made under a letter to file regulatory pathway.

In the second quarter, we filed a 510 (k) application that rolls up these multiple improvements into a single filing and hope to receive clearance of that filing in the next few weeks. Our goal is that this interim clearance might streamline the FDA review process for Pantheris 3.0.

As you may remember, Pantheris 3.0 involves a number of meaningful changes compared the improved current version of Pantheris, including a redesigned single balloon system for both apposition and occlusion, a stiffer shaft for better pushability or more robust nose cone with two length options and an enhanced cutter design to name just a few.

We plan to file for 510 (k) clearance of Pantheris 3.0 in early fourth quarter, which is slightly later than previously planned, but we believe this is the right strategy, given the number of improvements in our next-generation Pantheris device.

Our Pantheris BTK program is also tracking well and we recently completed our GLP animal safety studies for this device, as well as incorporated additional improvements from our Pantheris 3.0 program.

To remind you, the six French version of Pantheris has a lower profile and longer length than are existing Pantheris products and will enable treatment of vessels down to 2 mm which can be found below the knee where we believe our outstanding safety profile will be key.

Given the small side of the vessels being treated, this product design also eliminates the need for an inflation system to provide apposition and occlusion, which we believe will make the product even easier to use and result in a more streamlined procedure.

We believe, this new device will expand our available market opportunity by as much as 50%, and therefore will also result in increased utilization by our customers.

We are also excited that much of the R&D work for this lower profile will be directly leverageable when we begin discussions with the FDA about devices that can be used in the coronaries which represents another future market for us. We now expect the first quarter of 2018, 510 (k) filing for this product.

We’re extremely pleased with the unique features and benefits provided by this catheter and believe it’s addressing a real unmet need in the peripheral vascular space. Over the past few months, we’ve also made important progress on our in stent restenosis or ISR pivotal study for Pantheris.

As you may recall, 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 are optimistic about Pantheris potential role in this challenging area, which represents approximately 20% of PAD procedures in the U.S. Our trial was approved for upto 140 patients at up to 20 sites. We filed for IRB approval at our two initial trial sites and pending approval we expect to begin enrolment in both sites during this quarter.

We plan to expand to additional sites in the fourth quarter and will seek clearance to incorporate our Pantheris 3.0 catheter into the trial once we file for 510 (k) clearance of that device. Our current plan is to complete enrolment in the ISR trial in the first half of 2018.

As a final update, we’ve been engaged with our reimbursement consultants and are making good progress on finalizing our CPT application strategy and defining our clinical programs to pursue incremental reimbursement for OCT diagnostic imaging for our devices in the peripheral arteries.

Similar to the reimbursement currently provided for the use of Intravascular ultrasound IVUS in this setting. Needless to say, this could be extremely compelling from a clinical and economic standpoint.

While this is still work in progress the team is executing well against the program and we expect to be in a position to share more details related to our plans and anticipated timing on our next quarterly earnings call.

In summary, we are pleased with the progress our more focused commercial team is making in the field and continue to believe that our Lumivascular platform including Pantheris will prove to be an important therapy in the treatment of vascular disease.

To that end, our product development, regulatory and operations teams are all working hard to ready our new products and indications for launch, which we anticipate will drive our growth in 2018 and beyond. I now like to ask Matt to review our Q2 financial results and then we’ll open up the call for your questions.

Matt?.

Okay, thanks Jeff. Total revenue was $2.5 million for the second quarter ended June 30, 2017, a 47% decrease from the second quarter of 2016. Revenue from disposable devices was $2 million, a 46% decrease compared to the second quarter of 2016.

Revenue related to Lightbox imaging consoles was $0.5 million, a 50% decrease compared to the second quarter of 2016. In the second quarter, our Lumivascular install base decreased to 157 accounts. Gross margin for the second quarter of 2017 was negative 59%, which was down from 22% in the comparable quarter of 2016.

The decreased gross margin was primarily attributable to $2.3 million in charges for excess and obsolete inventories, which were primarily related to reduce expectations for the opening of new Lumivascular accounts through 2018.

Without this charge, gross margin for the quarter would have been positive 35% Operating expenses for the second quarter of 2017 were $9.8 million, compared to $13.3 million in the second quarter of 2016.

This decrease was primarily attributable to higher sales and marketing expenses in 2016 when the Company expanded its commercial organization in conjunction with the commercial launch of Pantheris.

Loss from operations for the second quarter of 2017 was $11.3 million, compared to $12.3 million for the second quarter of 2016, and net loss for the second quarter of 2017 was $12.8 million, compared to $13.5 million for the second quarter of 2016.

As we mentioned before, expenses related to our April restructuring were recognized in Q2 in the amount of $05 million. Loss per share for the second quarter of 2017 was $0.54, compared to $1.06 for the second quarter of 2016.

Adjusted EBITDA, a non-GAAP measure, was a loss of $9.0 million for the second quarter of 2017, compared to a loss of $10.3 million for the second quarter of 2016. Cash and cash equivalents totaled $14.0 million as of June 30, 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 expects cash utilization to decrease to approximately $7 million per quarter during the second half of 2017, compared to an average of $13.4 million per quarter in 2016 and $9.1 million in the second quarter of 2017.

At this point, I’d like to turn the call back to Jeff..

Thanks, Matt. Looking ahead we are focussed on readying 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 our next-generation of Pantheris in October and plan to file for 510 (k) clearance of our six-French atherectomy device in the first quarter of 2018.

We also look forward to beginning enrolment of our ISR trial later this quarter and on our next call plan to share more details related to our program to seek incremental OCT diagnostic reimbursement for our current devices. We look forward to updating you on our progress on future calls and with that, we’d like to open the call to your questions..

Thank you.[Operator Instructions] And our first question comes from the line of Jason Mills with Canaccord. Your line is open..

Hey, it’s David [Indiscernible] for Jason Mills. Thanks for taking my question.

Can you guys hear me alright?.

Yes, we can David..

Kind of the factors that you saw contributing to the decreased cash in the quarter and kind of really with $14 million left on the balance sheet and looking forward you know $7 million a quarter, how you really see that tracking forward?.

Sure. So as you know we conducted a pretty major reorganization of the company in April just a few months ago and so that was during the first part of the second quarter but we did incur expenses related to that restructuring during the quarter.

So we saw cash burn during Q2 come down to just about $9 million and that’s very much inline with what we are expecting and we believe we are on track to have that come down even further now that, that reorganization is behind us.

So we are pleased with both with the way the organization is responding after going through that, that relatively difficult process, but we are also very pleased that, that we’ve been able to bring down our cash burn that significantly already and that we believe we’ll be able to bring it down further from that point.

So, and we are tracking we believe to about $7 million as we go through the second half of the year here and you know given the $14 million that we had on the balance sheet at the end of the quarter that would take us right upto about year end..

And the only thing I would add to that is you know the big driver of savings of course is the reduction in headcount, but we are looking for every opportunity to operate more efficiently as an organization while not sacrificing progress on our important milestones related to new product development, new clinical data and importantly making our sales organization more efficient and driving utilization in our current accounts.

Maybe as an example of that, we actually although our revenue did decline on an absolute basis our sales per headcount did increase significantly as did our catheter utilization per head count which increased by about 50% in the second quarter versus the first quarter of 2017..

Okay, and so as far as you know kind of revenue we think that the reduction in sales head count kind of utilization was the driver of revenue in the quarter..

Yes, we as you saw in past quarters you know we have been pretty prolific in opening new accounts every quarter I think averaging about 50 new accounts a quarter. During this quarter we really focussed on driving utilization our existing accounts.

We did strategically add some new accounts, but also took the opportunity to clean up our account base and bring that supported account base in line with our more productive accounts and also our best supported territories.

So what you are really seeing in the second quarter is reorder volume as a primary driver as well as just some strategic new ads for new accounts versus you know second quarter last year was virtually all stocking orders for Pantheris in the Pantheris part of our disposable revenue stream given that that was the quarter we launched..

Okay and then sort kind of going forward is that what you are expecting to the new with catheter utilization as being the main drive revenue?.

We do through the – certainly through the end of 2017 is will continue to be our primary focus.

Obviously we’ll start to benefit from the launch of our new products early in 2018 first with the Pantheris 3.0 device and the multiple improvements that that incorporates and then with the BTK device or the lower profile device for smaller vessels later in 2018..

All right. Thanks, I’ll hop back in the queue..

Thank you..

And our next question comes from the line of Steven Lichtman with Oppenheimer. Your line is open..

Yes, hey guys this is Dennis [ph] in for Steve. I guess first question can you, can you go into more detail on the new revenue sales force structure, is the system working for you and kind of any noticeable changes you’ve seen in the field this past quarter..

First of all thanks for the question, Dennis. We’re really pleased with how the group has come together. We did as you might remember had two regional VPs and we as the smaller organisation consolidated under one sales leader.

We believe he’s done a really great job of pulling the group together and focussing the organization on driving catheter utilization primarily in existing accounts in the strategic addition of new accounts. So that is really our focus. And we continue to see literally every day outstanding case results.

So, and the other thing that the sales organization has been doing partnering with our clinical group and our marketing group is to identify the sites where we are going to enrol our ISR study, starting with two sites this quarter, which were the two physician investigator sites and then expanding beyond that in the fourth quarter of this year.

So we feel like we’re making good progress in all areas, pleased with the way the groups together under strong leadership and we’re also as I said just a moment ago, pleased with the increase in utilization per rep as well as increase in revenue per rep.

And we think that can continue to improve throughout the end of the year as we get ready for the launch of our new products..

Great. I guess a few follow ups on the previous financial side.

Any potential for you guys to potentially draw down further on this year? Or has that kind of been exhausted in avenue for capital and I guess on the car side, any chance you can go into more detail on how you might rationalize the cost structure, realizing what you are trying to accomplish for the rest of the year?.

Yes, Dennis. The existing agreement with PRG does not – doesn’t provide for the ability for the company just to call additional case. We are certainly in good regular contact with CRG and so we have a very good relationship there. You know currently the company have a significant amount of debt on its balance sheet currently.

So we don’t see that as the primary way to bring more cash into the company at this point, but you know I wouldn’t rule anything out. In terms of expenses, we’ve done a lot at this point in terms of getting down the organization and also really looking at every discretionary expense that we have and we surely we’ve made great progress there.

There are some other things that we potentially could do to maybe further trim discretionary expenses but we are pretty close to I think where we should be at this point given what we are trying to accomplish and given the kind of long list of milestones that we have ahead of us that we think will really drive value in the company.

So we don’t want to sacrifice any of those and we don’t think we have to in order to keep the company going..

Great. That’s helpful. And last one from me, maybe can you speak to any clinical data on Horizon that might help you drive utilization further. So thanks for taking the questions..

So we did put out as you know earlier this year our 24,12 and 24 month data from our vision study which has been very positively received by their clinical community. We are continuing to work with single sites and individual physicians to develop K-series that they are interested in to show the many different benefits of our device.

Had a couple of posters and significant as we said podium presence at CBC at app this week, there is a couple of posters being presented as well. So we are continuing to build data in these smaller ways while we are beginning enrolment in our instant restenosis trial And we are very excited about that.

As you know we have not gone through indicated trials are and physicians are on their own, using our device for ISR in a certain number of cases and are getting outstanding results very large luminal gain with the empowerment of real time visualization providing for an extremely safe procedure and very good visualization of the stents straps, so they can avoided.

So as you know there’s really only one device that has a label or claim for ISR currently, and the data for that device isn’t that strong. So we believe that we can not only provide much greater luminal gain, but better long-term results and are excited to develop that. I think it will be very meaningful to our business.

And as we said, we expect to begin enrolment this quarter and complete enrolment in the first half of 2018. In addition to that, we are very interested in going after incremental reimbursement for OCT diagnostic, similar to what [Indiscernible] has which would be particularly impactful in the office space labs.

We are working with a physician investigator as well as advisers to define a comparative clinical study of either sources OCT to support a CPT application for that incremental reimbursement.

And that will also develop data that we think will be meaningful and important to the clinical community and expect to begin enrolment in that study in a relatively near timeframe and will lay out specific timelines on our next call. So we’ll continue to pursue and develop individual physician data as you know mostly driven by physicians themselves.

And then start enrolment in these larger studies as well..

That concludes our question and answer session for today. I will now turn the call back over to Jeff for closing remarks..

Well thank you all for joining our call this afternoon. We do appreciate your interest in our company and we look forward to updating you on our continued progress when we report our third-quarter results. Thank you very much time..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect and everyone have a great day..