Greetings, and welcome to Avinger's 2019 Fourth Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. .

It is now my pleasure to introduce Matt Kreps, Managing Director, at Darrow Associates, Investor Relations. Mr. Kreps, you may begin. .

Thank you, Jess. And thank you all for participating in today's call. I would like to welcome all of you to Avinger's Fourth Quarter 2019 Conference Call. Joining us today are Avinger's CEO, Jeff Soinski; and Chief Financial Officer, Mark Weinswig.

Earlier today, Avinger released financial results for the fourth quarter and full year ended December 31, 2019. A copy of the release is posted on the Avinger website under Investor Relations. .

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 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 Form 10-K and 10-Q 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. .

Thank you, Matt. Good afternoon, and thank you all for joining us. I'm excited to be with you today as we report another strong growth quarter for Avinger. During the fourth quarter, catheter sales for Pantheris, our largest product line, were up 69% year-over-year and up 10% sequentially from a very strong third quarter.

There were 2 primary drivers of Pantheris growth in the fourth quarter, new catheter sales of Pantheris SV, our small vessel device that we launched earlier this year; and the continued growth of our Pantheris 7 French next-gen device, which grew 15% year-over-year. .

Total revenue in the fourth quarter grew 26% over the prior year and 6% over the prior quarter. We had our highest quarter of disposable sales at $2.3 million, which, in turn, drove gross margins to a 2-year high of 36%.

Disposable revenue increased throughout the year as we shifted our business model to focus on recurring revenue from catheter sales and away from lower-margin capital sales. We expect this shift to positively impact growth, new account acquisition and operating efficiency in 2020. .

Adding new accounts is a key element of our growth strategy. You may recall that we added 7 new sites in the third quarter, primarily in geographies with a high incidence of PAD.

We added another 7 new clinical sites in the fourth quarter, including locations in Florida, Arizona, Arkansas and Pennsylvania, bringing the total number of new accounts added in the second half of 2019 to 14. This is our highest period of new account growth in more than 3 years and illustrates the momentum we're gaining in the marketplace. .

We are focusing on new account acquisition in 2020 as we increase penetration in existing markets and strategically expand into new territories. Pantheris SV continues to perform very well from both the commercial and clinical perspective. We initiated the national launch of Pantheris SV in the third quarter of 2019.

And by the end of the fourth quarter, we'd already shipped this exciting new device to more than 50 accounts. Clinical feedback continues to be excellent with Pantheris SVs lower profile and longer length, enabling physicians to safely treat a variety of lesions in the smaller vessels below the knee. .

By allowing access to this difficult-to-reach anatomy, we believe that Pantheris SV expands the addressable market for our atherectomy catheters by as much as 50%. Pantheris SV revenue in the fourth quarter grew 16% over the third quarter and this positive momentum is carried into the new year.

We expect to see a significant ramp in SV disposable sales in 2020 as we continue to launch new sites and drive utilization at existing accounts. .

During the fourth quarter, we also made significant progress in the development of our pipeline products, starting with the achievement of 2 important milestones for Ocellaris, our next-generation image-guided CTO crossing catheter.

We received CE marking for Ocellaris in December, and soon after announce the physicians in Germany had completed the first successful procedures with this new device across a variety of lesion types and anatomy, both above and below the knee.

This initial clinical experience provides early validation of the potential impact Ocellaris can have to improve the standard of care for patients with CTOs or chronic total occlusions, which are completely blocked arteries.

It also makes us excited about the potential for Ocellaris to drive growth of our image-guided CTO crossing business, with an advanced new product extension of our current Ocelot family of catheters.

Ocellaris is designed to bring several improvements to the platform, including enhanced imaging, the ability to spin at speeds up to 1,000 RPM and a steerable tip for precise maneuverability, all of which, we believe, will enhance physicians' ability for True Luminal crossing of a wider range of CTOs. .

Based on the progress we've made with Ocellaris, we anticipate filing a 510(k) submission for U.S. pre-marketing clearance with the FDA in the second quarter of this year. Pending FDA clearance, we're hopeful that Ocellaris will be available for market launch and a contributor to our revenue growth in the second half of this year.

We plan to take the same structured approach to the Ocellaris market launch that we executed for our Pantheris next-gen and SV products. First, launching into a limited number of sites to gain commercial experience with the device, receive physician feedback in a variety of clinical settings, and refine our sales and training programs. .

Following this limited launch period, we would expand a full national launch with the benefit of this initial U.S. market experience. .

During the fourth quarter, we made investments to accelerate the development of our next-generation L300 Lightbox imaging console. The Lightbox is an important part of our image-guided system.

It's the console that our image-guided catheters are connected to, and includes high-definition screens, where the OCT images captured inside the vessel, are displayed in real-time during a procedure. The Lightbox also includes the laser light source in the computer system to process the image. .

Our next-generation L300 system is designed to deliver enhanced OCT imaging through the use of a state-of-the-art solid-state laser, a more powerful computing platform and advanced software system. It is also designed to provide variable high-speed catheter rotation, which, we believe, can be important for future catheter applications. .

Most exciting, we believe that we can deliver this enhanced capability within a highly portable configuration that has a radically reduced size and weight. We anticipate the final L300 design to be able to fit inside a standard carry-on case, and we expect the unit to weigh less than 20 pounds.

With this small size and weight, the L300 is designed for easy transport by our sales reps and clinical specialists, cost-efficient shipping through a standard overnight carrier, and efficient integration into the cath lab environment and existing image banks. .

We also expect the L300 to provide a significant cost reduction compared to our current Lightbox, all of which, we believe, will have a positive impact on new account acquisition, a more efficient service strategy, and broader expansion of our image-guided platform to a wide range of accounts. .

With our increased focus on the L300 program, we are making rapid progress in our development efforts. We have working prototypes in-house and are preparing to enter the final design phase of the program.

We expect to be in a position to complete product validation in the upcoming months and at this point, anticipate being in a position to file a 510(k) submission with the FDA prior to the end of the year. .

During the fourth quarter, we also made important progress on our clinical programs, starting with our INSIGHT IDE Clinical Trial. This study is designed to evaluate Pantheris for the treatment of instant restenosis or ISR, in lower extremity arteries.

We are highly encouraged by the clinical outcomes being achieved by physicians in the study and the preliminary data from the first patients that were presented last year.

We hope to complete enrollment in the InSIGHT study in the first half of 2020 and anticipate being in a position to submit a 510(k) application to expand our label to specifically include the ISSR indication to the FDA by the end of this year. .

In January, we announced that we'd initiated enrollment in a new clinical study for Pantheris SV called Image BTK. Image BTK is a post-market trial designed to evaluate safety and efficacy endpoints for Pantheris SV in the treatment of peripheral artery lesions below the knee. We expect to have 6 U.S.

sites participating in this study and anticipate enrolling up to 60 patients. Patients will be evaluated at 30 days, 6 months and 12 months following the procedure. We expect to complete enrollment in Image BTK and be in a position to release 30-day data from the study later this year. .

We look forward to having the results of this study to support the commercial expansion of this revolutionary new device. .

In February, our SCAN clinical study was published in a peer-reviewed journal. SCAN is a prospective post-market study comparing optical coherence tomography or OCT, with intravascular ultrasound or, IVUS, as a diagnostic imaging tool in the peripheral arteries.

Study results indicate that OCT imaging with Pantheris was statistically superior or equivalent to Ivus on all parameters evaluated. We believe this study is an important step forward in building the case for OCT diagnostic imaging reimbursement in the peripheral arteries, similar to the reimbursement currently provided for Ivus. .

We plan on using the SCAN study, along with other published studies and data, to support the filing of a CPT code application with the American Medical Association later this year to pursue this incremental diagnostic imaging reimbursement opportunity. .

Over the past year, the Avinger team made significant progress executing our growth strategy. We grew revenue and increased our footprint through the strategic expansion of our commercial organization.

We enhanced our Pantheris franchise with the continued success of our Pantheris 7 French next-gen device and the rapid adoption and expansion of Pantheris SV. We advanced our pipeline products with CE Marketing for Ocellaris and the acceleration of our L300 Lightbox imaging program.

And we've continued to build the clinical body of evidence in support of our image-guided approach to the treatment of PAD. .

Most importantly, this progress provides a strong foundation for growth in 2020. We are maintaining our focus on accelerating higher-margin disposable sales.

We are driving increased productivity of our sales force and exploring opportunities for strategic expansion into new markets, we are investing in new product development and clinical data to support new indications and new product launches in 2020 and 2021 and we are closely managing operating expenses to drive continued improvement in operating metrics throughout the year, a key element of our 2020 strategy.

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At this point, I'd like to ask Mark to cover our financials, then I'll come back for Q&A.

Mark?.

Thank you, Jeff. Total revenue was a record $2.6 million in the fourth quarter ended December 31, 2019, compared with $2 million for the fourth quarter of last year, an increase of 26% year-over-year, and $2.4 million in the third quarter of 2019.

Key to our growth in the quarter was a 35% increase in catheter sales over the prior year, the recurring and higher-margin portion of our business. We realized strong performance from our Pantheris Next-gen and Pantheris SV, in particular, as those products, together, grew 69% over the prior year.

As we evolve our business and sales model towards recurring catheter sales, our legacy and console products have declined as expected. .

Gross margin for the fourth quarter of 2019 was a record 36%, an increase from 27% in the year-ago period and 35% in the third quarter, and was the third straight quarter of improving gross margins.

The significant increase in our gross margin percentage over the prior year reflects the revenue growth of our higher-margin disposable products and continued focus on driving efficiencies in our manufacturing operations. .

Please note that our gross margin of 36% in the fourth quarter includes a negative impact of approximately 4 percentage points from inventory reserve expenses from certain legacy products as noted in the non-GAAP reconciliation. .

As we accelerate revenue growth and continue to improve operating efficiencies, we expect gross margins to continue to improve. .

Operating expenses for the fourth quarter were $5.9 million, down 10% from the prior year, but up from the third quarter. In the fourth quarter, we made additional investments in sales personnel and R&D resources as we increased spending on the L300 Lightbox and Ocellaris platform.

Over the past year, we have made significant progress in lowering our operating cost structure, even as we have added sales and marketing head count, to drive more revenue growth, advanced our clinical work and continue developing new innovative products for the PAD market.

We believe that investment in our commercial sales activities and new products better positions Avinger for growth in 2020 and beyond. .

Our results in the fourth quarter demonstrate the early returns of those investments. We anticipate this momentum carrying into 2020 to drive additional growth. Net loss was $5.1 million in the fourth quarter, down from $6.1 million in the prior year. .

Adjusted EBITDA, which is a non-GAAP measure that excludes certain excess and obsolete inventory charges, restructuring, stock compensation and other items, as noted in the tables in today's press release, was a loss of $4.1 million, a $0.4 million improvement from a loss of $4.5 million in the prior year and an uptick from a loss of $3.9 million from the third quarter as we continue to make investments.

A copy of the reconciliation from net loss to adjusted EBITDA can be found in today's press release, which is also posted on our website at www.avenger.com, under the Investors section. .

Cash and cash equivalents totaled $10.9 million as of December 31, 2019. As noted, the company raised an additional $4.5 million in gross proceeds in January 2020 to more fully fund our business through the year ahead. Proceeds of this new equity financing are not included in the $10.9 million year-end figure. .

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

Thanks, Mark. It was a strong quarter of progress with record revenue and gross margin, accelerating case activity, the addition of 7 new accounts and significant advances in our Ocellaris and Lightbox L300 new product programs. .

Heading into 2020, we are well positioned to continue to grow case volume, expand Pantheris SV penetration and target new sites with our expanded commercial team. The first quarter is off to a strong start, with solid case activity above our seasonal trend and strong new account activity.

We have an important milestone coming up for our next pipeline product, Ocellaris, with 510(k) submission planned for the second quarter, and we're excited about the potential for adding this next-generation image-guided CTO crossing device to our marketed product portfolio later this year. .

The Avinger team is focused, determined and committed to delivering on the growth prospects for our company and most of all, helping physicians improve the standard of care for the millions of patients suffering from vascular disease. At this point, we'd be happy to take your questions. .

[Operator Instructions] We'll go first to Nathan Weinstein in Aegis Capital. .

Congratulations on the strong results for the quarter and the year. Two quick questions for me. Firstly, the SCAN clinical study results, really very compelling.

Can you just talk a little bit about how well those have been disseminated out to the practitioners? And then how much could further education -- educational activity sort of help get that out to the market?.

Yes. So thank you, Nathan, and thanks for the questions. SCAN, as you know, we just got published in February. We have shared some of the data and the clinical study results at clinical conferences at different points throughout 2019 or physicians have in their podium presentations. However, this is the first publication of the full study.

And as you might remember, we initiated the study to support our initiatives to seek incremental reimbursement for Pantheris' diagnostic imaging, or for all of our products, diagnostic imaging capabilities. .

You may remember that we have 510(k)s cleared for therapeutic indications for our device, but we also have separate 510(k)s cleared for both Pantheris and the Ocelot family of CTO crossers for diagnostic imaging, including vessel measurement capability.

And so as we move forward, we continue to see our physicians getting great utility out of these diagnostic capabilities, vessel measurement, especially in advance of adjunctive procedure or adjunctive therapy. And so we're very excited to get this news out.

Imaging and real-time imaging, especially, we believe, is a strong differentiator and relates to dramatic and significant clinical benefit to the patients. So stay tuned as we continue to move through this process.

We do intend to file a CPT code application with the AMA later this year, and are hopeful that we can make some good progress going forward. .

And then if I could also ask if you could perhaps make some comments on what we could expect in terms of sales force, both from any potential head count additions in the year? And then also any anecdotal thoughts you might have on the productivity that we could expect?.

Yes. So as you know, we added a significant number of sales heads throughout the course of 2019, increasing from about 19 people in our sales organization at the end of '19 to 26 by the end of 2019. We also made some additions in our marketing organization to support those commercial activities.

As we go into 2020, we will be making strategic additions throughout the year.

We don't expect to increase by the same number or as big an increase this year versus what we added in 2019, since we will be focusing on increasing productivity of many of our new hires as we continue to deepen penetration of our Pantheris SV products, get ready for the Ocellaris launch, and as our people just get more experience with our lumivascular platform.

So again, look at us to make adds on a strategic basis throughout the year, but not at the same pace that we did last year. .

And I guess, the final question are to add related to your question about productivity. We did see significant increases in the fourth quarter in sales productivity and utilization per account in the fourth quarter, especially, of course, with the addition of our Pantheris SV. And we'll expect to continue to see those throughout the year.

It's a primary goal of the commercial organization. .

[Operator Instructions].

If there are no further questions, we'd like to thank you all for joining our call today. We're very excited about the progress we've made over the past year. We're even more excited about the opportunities ahead for Avinger, and we look forward to updating you on our continued progress on our next quarterly call. Thank you very much. .

Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time, and have a great day..