Chris Camarra – Director of Client Communications at IRTH Communications Jeff Soinski – Chief Executive Officer Matt Ferguson – Chief Financial Officer.

Destiny Buch – Ladenburg Thalmann.

Greetings and welcome to Avinger’s 2018 First Quarter Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] I’ll remind you that this conference is being recorded. It is now my pleasure to introduce Mr.

Chris Camarra, Director of Client Communications at IRTH Communications. Mr. Camarra, you may begin..

Thank you, and thank you all for participating in today’s conference call. I’d like to welcome all of you to Avinger’s first quarter 2018 conference 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, 2018.

Before we begin, I’d like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the 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, are future financial expectations, are based on 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 of – 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, Chris. Good afternoon, and thank you all for joining us. Avinger has made significant headway during the first quarter, and we’re excited about the opportunity to share it with you.

I’ll briefly touch on the financial transactions we completed during the quarter that have reduced debt and given us the capital we need to focus on upcoming anticipated FDA clearances and commercial launch of our two next-generation Pantheris image-guided atherectomy devices this year.

Later in the call, Matt will cover these transactions in greater depth as well as discuss our first quarter 2018 financial results. Improving our financial position is just one of the steps we’ve taken to achieve a significant turnaround of the company.

Avinger is an emerging commercial-stage medical device company that designs and develops the first-ever image-guided catheter-based system for the diagnosis and treatment of patients with peripheral artery disease, or PAD.

We believe our Lumivascular technology has the potential to improve the standard of care for the millions of patients that suffer from this disease. We’ve made significant progress in product development, regulatory affairs, continued cost cutting as well as driving utilization of our existing products.

We had – have a number of important milestones still to come this year, and we believe we’re well positioned for growth in the second half of the year. As a reminder, Avinger has developed the only technology in the world that provides real-time visualization inside the artery during the treatment of PAD.

PAD is a narrowing of the arteries away from the heart and is most commonly diagnosed and treated in the arteries of the pelvis and legs.

Our Lumivascular platform provides physicians a clear picture of the artery during treatment, enabling them to better differentiate between plaque and healthy arterial structures, thereby helping them avoid damage to the healthy portions of an artery.

Our clinical studies and real-world clinical experience have shown that by empowering physicians to precisely target disease and avoid damaging the healthy artery, we can provide an extremely positive safety profile and excellent long-term clinical outcomes.

Currently, our product pipeline consists of five central products in various phases of development and commercialization. In addition to our FDA-approved Pantheris image-guided atherectomy device, we offer the FDA-approved Ocelot family of image-guided CTO-crossing catheters.

For those of you new to Avinger or the peripheral space, CTO stands for chronic total occlusion, which is used to refer to a completely blocked artery. A CTO-crossing device is used to create a passage through a blocked artery so that a guidewire can be introduced and further treatment can be provided.

We’re also developing a next-generation CTO crosser on the same technology platform used for Pantheris, which we call Ocellaris. This device will be used in the peripheral arteries, but we believe it will also provide a strong foundation for the development of CTO-crossing devices for the coronary arteries.

Coronary CTOs represent a substantial unmet medical need, and we believe our Lumivascular technology is ideally suited to address this need. In addition to our new catheter programs, we’re continuing to develop a next-generation Lightbox imaging console, which we call the L300.

This is an exciting product that will dramatically reduce the size of our imaging console and provide a variety of other benefits. We look forward to sharing additional details on the L300 on future calls. The company has made significant strides in our efforts to bring these limb and life-saving technologies into widespread commercialization.

In January, we announced that Dr. Arne Schwindt, a vascular surgeon at St. Franziskus Hospital in Muenster, Germany, had successfully treated the first seven patients with the next-generation Pantheris Lumivascular atherectomy system. Dr.

Schwindt treated patients with a variety of lesion types, including in-stent restenosis, a calcified lesion and a chronic total occlusion. In each of the seven cases, Pantheris performed as intended. And Dr.

Schwindt made note of the design features that enabled significant performance improvements as a comparative – excuse me, as compared to previous versions of the device, including better directional control of the cutter blade for more precise atherectomy, a more robust nosecone and markers on the catheter shaft to facilitate longitudinal positioning.

In the months following these initial treatments, our physician customers in Europe continue to report outstanding clinical results in a variety of anatomies and lesion types. We believe this early experience in Europe bodes well for the adoption of the next-generation Pantheris catheter in the U.S. once the device is cleared by the FDA.

As we stated on our last call, we continue to expect to receive FDA clearance and launch the next-generation Pantheris in the U.S. accounts this quarter. As is typically the case with 510(k) filings, we received some questions and requests for data following our initial submission.

We’ve now responded to all of these questions and are waiting to hear back from the agency. In the meantime, we’re building our initial inventory of the next-generation devices and plan to launch this device into initial sites in the U.S. immediately following FDA approval.

We plan to expand distribution of the next-generation Pantheris throughout the remainder of the year as we increase production and gain purchasing approvals in additional Lumivascular sites.

In addition to the next-generation Pantheris, we also anticipate submitting a 510(k) application for clearance of a lower-profile six-French version of Pantheris for smaller vessels, including those below the knee, by the middle of this year.

We expect to receive our CE Marking for this new device around the same time we file our 510(k) submission in the U.S., which, similar to the next-generation Pantheris, would provide the opportunity for early clinical experience with this new lower-profile device in Europe soon after filing in the U.S.

Based on our anticipated filing time line, we continue to expect 510(k) clearance and initial U.S. launch prior to the end of this year. We remain excited about the potential for the expansion of our Pantheris product line.

In addition to the demonstrated health benefits of the device, we believe that our unique technology will quickly assert itself as a valuable solution in addressing this large and growing market.

In fact, we estimate that 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.

In addition to our important product development activities, we continue to make progress on our INSIGHT IDE trial, our pivotal clinical study designed to evaluate the safety and effectiveness of Pantheris in treating in-stent restenosis, or ISR.

We’re excited about Pantheris’ potential role in treating these challenging lesions, which represent approximately 20% of PAD procedures in the U.S. We continue to open new sites for enrollment in the study and expect most of the enrollment in this trial to take place once the next-generation Pantheris is commercially available in the U.S.

In order to enhance what we believe is already a strong value proposition, we remain committed to execution of our previously discussed reimbursement initiatives. We continue to expect to file an application for a new CPT code for OCT diagnostic reimbursement by the end of the current quarter.

Our goal is to gain 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, or IVUS, in this setting.

While the FDA has already cleared OCT diagnostic claims for our Pantheris and Ocelot devices, we anticipate that the CPT application would be supported by a small-scale clinical trial called SCAN, which we’re in the process of initiating here in the U.S. that compares OCT diagnostic imaging to IVUS in the peripheral arteries.

We expect any new diagnostic reimbursement to be incremental to the strong reimbursement currently in place for atherectomy procedures in the peripheral arteries, reimbursement for which our Pantheris device already qualifies.

In summary, we’re confident that we’ve taken the necessary steps to restructure and stabilize the company while establishing a fortified platform capable of supporting both near-term growth and long-term sustainability. I believe that the most difficult aspects of the turnaround are behind us and that the business will continue to trend upwards.

Avinger has a very bright future, and our entire team remains focused on leveraging the numerous opportunities that lay ahead of us as we strive to achieve our ultimate goal of improved utilization, increased market share and enhanced shareholder value.

I’ll now ask Matt to give details about our recent financing transactions and our first quarter financial results.

Matt?.

Thank you, Jeff. During the first quarter, we significantly strengthened our financial position, which has allowed us to focus on operations and our anticipated FDA clearance and product launches. In February 2018, we successfully completed a new equity raise with gross proceeds of $18 million.

In conjunction with the equity transaction, our lender, CRG, converted $38 million of their debt into preferred equity. This reduced our debt by 85% and leaves us with approximately $8.1 million of debt as of the end of Q1. The equity offered includes two series of warrants, both with an exercise price of $2 per share.

The Series 1 warrants expire in February 2025. And the Series 2 warrants contain a feature providing that if they earn the money during the 60 days after we achieve FDA clearance of our six-French Pantheris, they would have to be exercised by that date.

If they’ve not yet earned the money during the 60 days following the FDA clearance, their expiration is extended to February 2025, the same as the Series 1 warrants.

As Jeff mentioned, we expect to receive FDA clearance for our six-French Pantheris prior to the end of this year, so the exercise of these warrants at that point would provide up to $18 million in additional cash to support our ongoing operations.

The Series 1 warrants could also provide an additional infusion of cash up to a maximum of $18 million if they are exercised at any point prior to expiration. Now turning to our financials.

Total revenue was $1.8 million for the first quarter ended March 31, 2018, a 48% decrease from the first quarter of 2017 when the company had a much larger sales force. Revenue from disposable devices was $1.5 million for the quarter, a 49% decrease compared to the first quarter of 2017.

Revenue related to Lightbox imaging consoles was $0.3 million, a 45% decrease compared to the first quarter of 2017.

At the end of the first quarter, our Lumivascular installed base was 147 accounts, a slight decrease from 152 at the end of Q4 2017 as the company continues to focus on supporting catheter utilization with our streamlined sales force in our most productive territories and accounts.

Gross margin for the first quarter of 2018 was 22%, up from negative 17% in the comparable quarter of 2017.

The increase in gross margin for the quarter resulted from the increased efficiency associated with the company’s more streamlined operational infrastructure and from a reduction in charges to inventory that negatively impacted gross margin in the first quarter of 2017.

Operating expenses for the first quarter of 2018 were $6.0 million compared to $13.2 million in the first quarter of 2017. This decrease was primarily attributable to reduced headcount expenses compared to the first quarter of 2017.

Loss from operations for the first quarter of 2018 was $5.6 million compared to $13.8 million for the first quarter of 2017. And net loss attributable to common stockholders for the first quarter of 2018 was $10.7 million compared to $15.3 for the fourth quarter of 2017.

Net loss per share attributable to common stockholders for the first quarter of 2018 was a loss of $5.37 compared to a loss of $25.74 for the first quarter of 2017. Adjusted EBITDA, which is a non-GAAP measure, was a loss of $4.7 million for the first quarter of 2018 compared to a loss of $11.9 million for the first quarter of 2017.

Cash and cash equivalents totaled $14.4 million as of March 31, 2018, compared to $5.4 million as of the end of December 31, 2017. Currently, there are approximately 5.6 million shares of common stock outstanding. There are also currently 41,800 shares of Series A preferred stock and approximately 8,600 shares of Series B preferred stock outstanding.

Each share of both series of preferred stock is convertible into 500 shares of the company’s common stock at a conversion price of $1 per share. So assuming conversion of all preferred stock, we would have preferred stock, we would have approximately 30.8 shares of common stock outstanding. And with that, I’d like to turn the call back to Jeff..

Thanks, Matt. We’re pleased with the progress we’ve made this quarter and believe that 2018 will prove to be a pivotal time in the history of our company. Avinger has completed a financial restructuring that provides vital support for the execution of our business plan.

We’ve taken important steps to drive efficiency and productivity throughout the organization with a strong focus on reducing cash usage throughout the year.

And we’ve made good progress on the development of our product pipeline and in our various clinical initiatives with a number of important milestones still to come in 2018, including the anticipated approval and launch of our 2 next-generation Pantheris catheters, which we believe will fundamentally change our value proposition and position us for growth through the rest of this year and into 2019 and beyond.

With that, we’ll open to questions..

[Operator Instructions] Thank you. Our first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed..

Hi, Jeff and Matt, this is actually Destiny on for Jeff.

How are you?.

Doing great.

How are you, Destiny?.

I’m well. Thank you. Okay. So first, I was just wondering if you could provide a little reminder for us about the number of patients that are going to be enrolled in the INSIGHT trial as well as how many centers..

Yes. So the study will enroll up to 140 patients in 20 sites. And since our last conference call, we continue to open new sites here in the U.S. and are in the process of opening two additional sites in Germany. So one of our strategy on this study is, of course, to continue to get a terrific ISR experience with our current device.

But we’re very excited to get the next-generation Pantheris into that study, both in Europe, where we already have CE Mark, and here in the U.S. following FDA approval..

Okay, got it. And I think you said you now have 147 accounts.

Is that correct?.

Yes, that’s correct. 147 accounts. So we’ve been right at around that 150 number for a couple of quarters here.

As I think we’ve discussed previously, our focus, while we’re waiting for the FDA approval of the next generation with our smaller, kind of more focused sales force, is to support utilization in our existing accounts and really not to seek out driving growth other than kind of strategic, small initiatives along the way here prior to the approval of next-gen Pantheris.

But as we get closer to that, I anticipate, as we discussed, receiving that approval this quarter. We’re developing and kind of building our pipeline of new accounts that we can access as we go into the second half of the year..

Okay, got it.

And will there be any kind of like training delay for your sales force, where they’ll have to take some time and learn about the new products? Or are you kind of introducing them to the new products now so that they’re prepared when it is approved?.

That’s a great question. First of all, it is an evolution of an existing device. So image interpretation and device setup is very similar. We also started as early as January at our sales meeting with our sales force. As you may remember, number is around 18 – or 18 folks now.

We started training and actually put hands on the devices for our sales force starting in January and have continued that process to get them ready, especially in the initial sites that we’ll launch into prior to launch of Pantheris.

But our sales team, overall, as you might remember as well, is a highly clinically experienced group, have been with us, most of them, for quite some time. And even prior to joining us, had spent a lot of time in the cath lab or some of them even – especially our clinical specialists, have come out of the cath lab.

So we think their learning curve, based on their current experience with Lumivascular, the training we’ve already done and their clinical competence, will be very rapid.

And they’ll be prepared to start helping physicians, especially our current Lumivascular physicians, right away and to launch this important new device into new accounts as we move throughout the year..

Okay, that sounds great. I guess my final question has to do with margins.

Is this kind of the level we should be expecting to see going forward? Or do you expect additional efficiencies with things like operational infrastructure and like that?.

Yes. Thanks, Destiny. We were glad to see the significant increase that we did in the first quarter compared to the last few quarters, especially going through 2017. But we do have a long way to go yet, and I expect we’ll continue to see significant progress as we go through 2018. So it’s a little bit hard to gauge exactly how quickly that will come.

A lot of it has to do with the volumes that we’re producing. And that, of course, is driven a lot by our overall sales level. But we are expecting growth in revenue and production, and that will translate, we believe, to higher gross margins as well. So we expect to see steady progress through this year and probably well into next year and afterwards..

Okay, perfect. That’s it from me. Thanks again for taking the question..

Thank you, Destiny..

Thank you. We have reached the end of our Q&A session. I’d like to hand the floor back over to management for closing remarks..

Well, I’d like thank you all for calling in, for your continued interest in Avinger and the progress we’re making. And we look forward to reporting on our continued progress when we communicate second quarter results. Thank you very much..

Thank you. This concludes today’s conference. You may disconnect your lines at this time, and thank you for your participation..