Caroline Corner - Westwicke Partners Jeff Soinski - CEO Matt Ferguson - CFO.

Harris Iqbal - Cowen and Company.

Good day, ladies and gentlemen, and welcome to the Avinger Third Quarter 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 instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I'd now like to turn the conference over to Caroline Corner from Westwicke Partners. Your line -- ma'am you may begin..

Thank you, and 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 third quarter ended September 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 current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipating 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, Caroline. Good afternoon and thank you all for joining us. This quarter we’ve continued our drive toward positioning our company for broader success in 2018. Our focused sales force is driving Pantheris utilization and clinical success.

Our clinical team has initiated our in-stent restenosis trial, our finance team has secured funding and successfully reduced our cash burn and our regulatory team continues to shepherd approvals across the finish line. I appreciate the dedicated efforts of our team and I’m proud of all we’ve achieved across the company over the past few months.

Our commercial organization which now numbers 20 people in the field is working hard to drive utilization of our image guided catheters in key existing accounts. And we again, saw solid utilization within our loyal user base this quarter.

As we love to introduce new products and indications in 2018 and beyond and continue the advancement of our Lumivascular platform for the treatment of peripheral artery disease or PAD, it's important that we have the support of this core physician base in these relationships.

Our R&D efforts are continuing to proceed well and as we’ve laid out before, we expect to have two new products fueling our growth in 2018. On the last earnings call, we mentioned we were exploring financial alternatives and to that end earlier this week we announced a $15 million equity agreement with Lincoln Park Capital.

With this positive development paired with the successful usage of our ATM in the quarter, we believe we have a realistic path to funding the company's through our product launches in 2018.

We’ve also mentioned on prior calls that our goal is to reduce 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 continue to demonstrate our success here with cash usage in line with our plan and a cash balance of $10.2 million at the end of the third quarter. I’m now going to provide a bit more color on our progress. I will also review some of the growth drivers we have ahead of us.

After that, Matt, will walk you through our third quarter financial results and then we'll be happy to take your questions. As we laid out before, 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, we are focusing our resources on more productive accounts in our most productive sales territories. Consistent with this approach, we ended the third quarter with an installed base of 157 Lumivascular accounts, unchanged from the second quarter.

Our current team of 20 sales professionals is focused on utilization and reorders and we’re pleased with the $1.7 million in disposable sales they brought in last quarter.

We continue to hear positive reports from physicians about the outcomes they are seeing in their Lumivascular cases and the unique value of this technology brings to their practices. Now turning to our product development and pipeline products.

In September, we received CE marking for Pantheris for in-stent restenosis or ISR, which we view as continued validation of the clinical utility of our technology.

CE Mark approval allows us to promote the use of Pantheris for ISR in EU countries and while we’ve a limited commercial presence in Europe, key physician and account relationships there provide an excellent opportunity to collect valuable feedback and clinical experience with our devices.

In October, we announced that we began enrollment of our pivotal clinical study to evaluate the safety and effectiveness of Pantheris in treating ISR.

As you may recall, while Pantheris is not contraindicated for ISR, the results of this study are intended to support a 510(k) submission with the FDA to expand the Pantheris product label to specifically include the ISR indication and enable us to directly promote Pantheris for this purpose in the U.S.

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 up to 140 patients at up to 20 sites. We plan to open additional sites and ramp up enrollment once we have clearance to incorporate our next-generation Pantheris device into this trial.

Our current plan is to complete enrollment in the ISR trial in the first half of 2018. Our R&D team is working hard to complete verification and validation testing and prepare our 510(k) submission for Pantheris 3.0, our next-generation image guided atherectomy catheter.

As we’ve discussed on our last call, we made a series of incremental improvements to the current version of Pantheris with most of these changes made under a letter to file regulatory pathway.

In the second quarter, we filed a 510(k) submission that rolled up these multiple improvements into a single filing, and I'm happy to report we received clearance for these improvements in October. We are hopeful that this clearance might streamline the FDA review process for the Pantheris 3.0 filing.

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

We are keenly focused on getting Pantheris 3.0 to a superior level of consistency and while final development of this device has take us a little longer than expected. We plan to file for 510(k) clearance of Pantheris 3.0 in December.

Our Pantheris BTK program incorporates additional improvements from our Pantheris 3.0 program and we currently expect to file a 510(k) submission for this device in the second quarter of 2018.

To remind you, our Pantheris BTK program is centered around development of a lower profile and longer length image guided atherectomy catheter which will enable treatment of smaller vessels including those below the knee where we believe our outstanding safety profile will be critical.

Given the small size of the vessels being treated, this product design also eliminates the need for an inflation system to provide apposition and occlusion which makes the product even easier to use and results 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 device would be directly leverageable to the coronaries which represents another potential future market for us.

We are 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.

As a final development update, we’ve continued our engagement with our reimbursement consultants and relevant clinical societies to determine our CPT application strategy and clinical programs to pursue incremental reimbursement for OCT diagnostic imaging for our devices in the peripheral arteries.

Similar to the reimbursement currently provided for use of intravascular ultrasound or IVUS in this setting. Based on these interactions and feedback we’ve received we're now working against a goal of being in a position to file our RCT CPT application for this reimbursement initiative in 2018.

Late last month, we received written notice from the staff of the listing qualifications Department of the NASDAQ stock market indicating that based upon the company's noncompliance with the minimum $50 million market value of listed securities requirement for continued listing on the NASDAQ global market or securities will be subject to delisting from NASDAQ unless we request a hearing before NASDAQ hearings panel.

We have requested this hearing and is now scheduled for January.

We intend to present our plan to comply with all requirements for continued listing on NASDAQ and we're considering a number of options and our efforts to regain compliance with the NASDAQ listing criteria, including raising additional equity capital and the implementation of a reverse stock split.

Our request for a hearing has stayed any delisting action by NASDAQ at least pending the outcome of the hearing and any extension granted by the panel. In the interim, our securities will continue to trade on the NASDAQ global market.

I'd also like to note that we’ve been in constructive discussions with our lender CRG about amending the revenue covenant in our loan agreement. While we don't yet have an agreement in place, I'm optimistic we will reach one before the end of the year.

In summary, we are pleased with the progress our 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.

With our product development, regulatory and operations teams all working hard to ready our new products and indications for launch. We anticipate exciting growth opportunities in 2018 and beyond. I'd now like to ask Matt to review our Q3 financial results and then we'll open the call to your questions..

Thanks, Jeff, good afternoon everyone. Total revenue was $2.1 million for the third quarter ended September 30, 2017, a 61% decrease from the third quarter of 2016. Revenue from disposable devices was $1.7 million for the third quarter of 2017, which was a 56% decrease compared to the third quarter of 2016.

Revenue related to Lightbox imaging consoles was $0.4 million, a 71% decrease compared to the third quarter of 2016. Gross margin for the third quarter of 2017 was negative 58% down from positive 30% in the comparable quarter of 2016.

The decreased gross margin was primarily attributable to lower production volumes and $1.6 million charge for excess and obsolete inventories which was predominantly related to reduced expectations for the opening of new Lumivascular accounts through 2018 and the write-down of Pantheris catheters produced prior to the implementation of certain manufacturing process improvements.

Without these charges, gross margin for the quarter would have been positive 19%. Operating expenses for the third quarter of 2017 were $7.7 million compared to $13 million in the third quarter of 2016. This decrease was primarily attributable to higher sales and marketing expenses in 2016.

Loss from operations for the third quarter of 2017 was $8.9 million compared to $11.4 million for the third quarter of 2016. And net loss for the third quarter of 2017 was $10.4 million compared to $13 million for the third quarter of 2016.

Loss per share for the third quarter of 2017 with a loss of $0.43 compared to a loss of $0.73 for the third quarter of 2016. Adjusted EBITDA which is a non-GAAP measure, was a loss of $6.8 million for the third quarter of 2017 compared to a loss of $9.3 million for the third quarter of 2016.

Cash and cash equivalents totaled $10.2 million as of September 30, 2017 compared to $14 million as of June 30, 2017. The cash balance at the end of the third quarter included $3.2 million raised through the company's ATM program during the quarter.

Cash utilization in the third quarter of 2017 excluding the proceeds from this financing was $7.0 million compared to an average of $13.4 million per quarter in 2016, and $9.1 million in the second quarter of 2017. We expect cash utilization in the fourth quarter of 2017 to remain approximately consistent with the quarter just ended.

And with that, I’d like to turn the call back to Jeff..

Thanks, Matt. Looking ahead we are focused 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 the next generation with Pantheris in December.

And we plan to file for 510(k) clearance of our below the knee atherectomy device in the second quarter of 2018. We also expect to complete enrollment of our ISR trial in the first half of 2018. We look forward to updating you on our progress on these milestones and our other initiatives on future calls.

And with that, we would like to open the call to your questions..

[Operator Instructions] Our first question comes from Josh Jennings with Cowen and Company. You line is now open..

Hi. Good afternoon. This is actually Harris Iqbal on behalf of Josh. I appreciate the question. First one, on Pantheris 3.0, what types of quality control checks, you want to go internally to ensure experience in the quality or reliability issue they saw with your current product cycle..

Thanks for the question. We have, first of all, looked at every aspect of our verification and validation testing and have implemented an extremely rigorous program both -- what’s called DDT and Develop Testing for this device.

We also throughout the development of this product have incorporated and sort out physician feedback along the way and our evaluation testing includes the use of physician users to evaluate these devices. So we believe that we have a -- an extremely rigorous program. We’ve learnt a lot about manufacturing these devices.

We learned a lot about the clinical environment that they will be subject to and the types of lesions that that our devices will be worked on.

So we are very, very confident that we will launch a robust and reliable device incorporating a number of improvements that we met along the way to our current version of Pantheris as well as a host of additional improvements both for performance clinical usage and also reliability..

Great. That’s helpful. And then can you breakout the revenue growth in the quarter between new accounts and carry orders recognizing, and there has been a focus with your sales force that kind of increased utilization. I’m just kind of curious about the dynamic in the quarter..

So the vast majority of disposable revenue in the quarter was related to existing accounts. While we have added a few accounts during the quarter, we’ve taken a couple of accounts out to net at the 157 Lumivascular accounts.

The vast, vast majority of our volume consistent with our strategy of focusing on utilization in our existing accounts has been related to reorder volume with existing users as opposed to stocking orders and new accounts..

Got it. Thank you..

Thank you..

Thank you. [Operator Instructions] And I’m showing no further questions in queue at this time. I would like to turn the conference back over to Jeff Soinski, CEO for closing remarks..

Well, thank you all for joining our call this afternoon. We appreciate your interest in our company and we look forward to updating on our progress when we record our fourth quarter and year-end results. Have a great afternoon..

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day..