Greetings, and welcome to Avinger’s 2020 Second Quarter Conference call. At this time, all participants are in a listen-only mode. A brief question-answer-session will follow the formal presentation. I’d like to remind you that 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, Karen, and thank you all for participating in today’s call. I would like to welcome all of you to Avinger’s Second Quarter 2020 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 second quarter ended June 30, 2020.

A copy of the release is posted on our Avinger’s 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 were 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 facts should be deemed to be forward-looking statements. All forward-looking statements, including, without limitation or future financial expectations, are based upon the 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. And with that, I’d now like to turn the call over to Jeff..

Thank you, Matt. Good afternoon, and thank you all for joining us. I hope that each of you are staying safe and healthy as the nation continues to face the challenges presented by COVID-19.

As we open our call, we’d like to thank the physicians, nurses and staff, including Avinger staff, who are working in hospitals and labs around the country every day to support patients during this critical time. In recent months, we’ve seen steadily increasing atherectomy case activity and improvement in our business levels.

We continue to be very aware of the impacts of the COVID-19 pandemic on health care providers and expect the process of working our way back to normalcy to continue to unfold over the months ahead. We’ve taken aggressive actions to adapt to the current environment.

We’re working more closely than ever with our physician customers to support their case activity and open new sites. At the same time, we’ve taken important steps to reduce our cost structure through a combination of temporary and permanent measures to improve operating efficiency and conserve cash.

We’ve also significantly strengthened our balance sheet through our financing activities to end the second quarter with $16.6 million in cash. During the quarter, we made tangible progress on key programs that we expect to drive additional future revenue growth.

Most notably, our 510(k) submission for Ocellaris, our next-generation CTO crossing system. We’re excited about the potential for Ocellaris to drive growth of our image-guided CTO crossing business and continue to anticipate U.S. premarketing clearance for this advanced device in the second half of this year.

Following market launch, Ocellaris would represent the third new PAD treatment device introduced by Avinger in the last three years we’re committed to continually improving and expanding the utility of our proprietary image-guided approach to the treatment of PAD, and it’s exciting to see these efforts pay off with the development of new products, indications and compelling clinical data.

Looking at second quarter results. As previously communicated, April was sharply impacted by COVID-19. Provider access was limited as health care systems reprioritized resources and reduced elective procedures, anticipating a surge in COVID-19 cases.

This was compounded by patients who are uncertain about venturing out due to stay at home and social distance orders. While we continue to support more urgent cases such as critical limb ischemia or CLI, many patients who are in need of treatment had their procedures deferred.

However, the ability to defer PAD treatment is limited as the disease, if not treated, will continue to worsen. Throughout May and June, we saw an increase in procedural volume as more states and communities began to loosen restrictions on elective procedures and providers started to rebook deferred cases.

In the third quarter, we’ve seen continued growth in case volume and utilization, with July 2020 realizing higher revenues than both July 2019 and July 2018. During the second quarter of 2020, total revenue declined 37% from the prior year to $1.5 million.

Although a steep decline, this decrease was less severe than originally anticipated and speaks of the resilience of our organization and health care providers in the face of the pandemic. As you might recall, in May, we disclosed case volume were up by more than 50% in the first weeks of the second quarter.

During the quarter, disposable sales decreased by 28%, the bright spot being Pantheris sales, which declined by only 13% from the prior year.

The Pantheris image-guided atherectomy platform continues to see strong results primarily due to the introduction of Pantheris SV, our low profile device used to treat smaller vessels, including those below the knee, where many CLI cases occur. We’ve now shipped Pantheris as veto over 80 accounts in the U.S.

and expect penetration to continue to grow as we prioritize new account acquisition. Adding new accounts continues to be a key element of our growth strategy. You may recall that we added 14 new lumivascular sites in the second half of last year and then another 11 new sites in the first quarter of 2020.

Despite the challenges presented by COVID-19, we were able to launch two new clinical sites in the second quarter for a total of 27 new sites in the trailing 12 months. This positive momentum has continued into the third quarter as we have already launched five new sites in July.

Sales rep access continues to improve, and we are bearing the fruit from our selling efforts and marketing outreach programs such as our highly attended physician webinar series that we implemented over the past quarter. As mentioned earlier, in May, we filed a 510(k) submission with the FDA for U.S.

premarketing clearance of Ocellaris and our next-generation invited catheter for CTO crossing. Chronic total occlusions or CTOs are among the hardest pad cases to treat as the most critical since the patient is facing a complete blockage of the artery.

Ocellaris is designed to bring several improvements to our CTO platform, including real-time video ray imaging, rotational speeds up to 1,000 RPM and a user control the flexible tip for precise maneuverability within alumin, all of which we believe will enhance physician’s ability for true limb across a wider range of CTOs.

We continue to anticipate FDA include for Ocellaris in the second half of this year. And as we did with the successful launch of our Pantheris SV device. Following FDA clearance, we expect to initially launch Ocellaris into a limited number of U.S. sites.

Starting with experienced lumivascular operators in targeted sites gives us the opportunity to build real-world clinical experience to device built case studies and clinical support protocols and our position and sales force training programs prior to rollout to more accounts and eventually national launch.

This is a big milestone for Avinger, and we hope to have good news to share with you in the upcoming months.

We’ve also made significant progress on the accelerated development of our next-generation imaging console, the L300 Lightbox, our next-generation L300 system is designed to deliver a proprietary OCT imaging through a state-of-the-art solid-state laser, a more powerful computing platform and advanced software system.

The L300 also incorporates a redesigned user interface, which we believe will streamline the operation for customer ease of use and efficiency. Most exciting, we expect to deliver the enhanced capability of the L300 in a small form factor with a radically reduced size and weight of less than 20 pounds.

This will provide for easy transport by our sales reps, cost-efficient shipping and a simplified service strategy and efficient integration into the athletic environment. Just as important, we expect the L300 to provide a significant cost reduction of up to 50% compared to our current Lightbox and other imaging technology consoles.

We believe all of these enhancements will have a positive impact on new account acquisition, more efficient to our operation and improve the physician experience with our platform.

We’re building final prototypes for verification and validation testing and anticipate being in a position to submit a 510(k) application for the L300 late this year or early in 2021. Based on this timing, we expect to receive premarketing clearance for U.S.

launch in the first half of 2021 and anticipate gaining CE Marking for trial in Europe and certain other international markets early in 2021.

On the clinical side, we’ve continued our clinical study activity through the pandemic, although as we expected, there have been delays in certain programs due to the disruption in case activity and limitations imposed by health care institutions.

We’ve advanced our Insight IDE clinical trial, evaluating Pantheris for the treatment of in-stent restenosis or ISR in lower extremity arteries and anticipate completing patient enrollment this year. Depending upon how quickly patient follow-up and final data analysis can be completed.

We expect to be in a position to submit a 510(k) application in the first quarter of 2021 to expand our Pantheris label to include the ISR indication.

The initial data we’re seeing from this study continues to be highly encouraging and we believe will be very compelling compared to other non image-guided atherectomy devices that have received the ISR indication in the past. In January, we announced the start of our IMAGE-BTK clinical study for Pantheris SV.

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 had enrolled our first patients in the study earlier this year but paused new site initiation due to COVID-19 restrictions.

As we restart these efforts, we expect to be in a position to be enrolling patients in new sites in the fourth quarter. Before I turn the call over to Mark to review our financials, I’d like to end my opening comments with some perspective.

The second quarter began with uncertainty and concern about the impact – or how the pandemic would impact our business and our future prospects as a company. As we’ve demonstrated, the Avinger team has been able to successfully advocate what we hope will be the worst of the crisis.

Our team has continued their dedicated support health heroes, our physician users and their staff who are putting their health on the line every day to provide critical care for their patients. We’ve expanded our reach to new and current users and return the company to positive new account acquisition trend.

We’ve continued to manufacture products and have built safety inventory to provide for our customer needs. We’ve made personal sacrifices to significantly reduce costs in the company, and we put significant new cash on the balance sheet to fund our corporate priorities and growth strategy.

I could not be more proud of our team’s hard work, dedication and commitment to our mission as we face the challenges presented by COVID-19. We’re aware that the pandemic is far from over and that there will be continued challenges to face in the coming months.

We’re encouraged by the positive progress we’re seeing so far in the third quarter, and we’re confident that we have the right stuff as an organization to face the challenges ahead. At this point, I’d like to ask Mark to cover our financials, and then we’ll open up for Q&A.

Mark?.

Thank you, Jeff. Total revenue for the second quarter of 2020 was $1.5 million, a decrease from $2.3 million in both the second quarter of 2019 and the first quarter of 2020. The decrease directly related to the reduction in procedures across the medical industry due to COVID-19.

While more serious PAD procedures continued, Avinger saw a sharp reduction in April shipments And then realized a steady increase in case activity during May and June. In the second quarter, Pantheris revenue declined 13% year-over-year with a strong relative performance due to the addition of Pantheris SV, which started in the third quarter of 2019.

Sales from legacy products continued to decline as expected and in line with our goal to shift our commercial focus to our next-generation catheter products. Console-related sales and service revenue increased slightly on a sequential basis as we continue to roll out new sites.

Gross margin in the second quarter was 24%, compared with 22% in the first quarter and 31% in the year ago quarter. Gross margin was impacted in the quarter by the reduced volumes and roughly $95,000 in excess and obsolete charges for older products as disclosed in today’s release.

We expect our gross margin to improve as revenues increase back to pre-pandemic levels. Operating expenses for the second quarter were $4 million, a significant decrease from $6 million in the first quarter and $5.4 million in the year ago quarter.

As Jeff mentioned, we were very successful in our cost reduction efforts while at the same time, we continued to invest heavily in the development of both our Ocellaris next-generation CTO catheter and our L300 Lightbox console and in our clinical studies.

We believe that these investments will contribute to future revenue growth after achieving 510(k) clearance and indications. We will further discuss the operating expense trend later in the call.

Net loss attributable to common shareholders was $5 million in the second quarter of 2020, down from $6.8 million in the first quarter and $5.5 million in the year ago second quarter.

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 today’s press release, was a loss of $2.9 million minimally improved from a loss of $4.8 million in the first quarter and a loss of $4 million in the second quarter of last year.

This quarter’s adjusted EBITDA results were the best results in the company’s history and illustrate how successful we were in controlling our cost base. A copy of the reconciliation from net loss through adjusted EBITDA can be found in today’s press release, which is also posted on our website at www.avinger.com, under the Investors section.

Cash and cash equivalents totaled $16.6 million as of June 30 compared with $9.9 million as of March 31. During the second quarter, we raised $9 million of gross proceeds from equity financings and received $2.3 million in loan proceeds pursuant to the Paycheck Protection Program.

These additional proceeds are expected to provide us with the needed capital to sustain our corporate growth initiatives. Please note that we received an additional $0.8 million in gross proceeds from the exercise of the over-allotment in July. Avinger continues to monitor closely the COVID-19.

as we discussed previously, we entered aggressive cost-reduction in April. This included a company-wide 12% reduction in base compensation for salaried employees, a reduction in hours work for hourly employees, a cut in discretionary spending and other measures to reduce cash used in operations.

We expect our operating expenses to increase in the third quarter with the return to normal salary levels for all employees and the expected increase in our variable costs commensurate with the rise in our expected business levels.

I’m pleased to announce that some of the cost reductions we have made are going to continue and our structural change in how we operate the business to be more efficient. As Jeff discussed, we are seeing improved case volumes in July, a trend we hope to maintain through the third quarter.

As we have shown, Avinger is a very nimble organization, and we are ready to respond to the needs of the business as the environment changes. At this point, I’d like to turn the call back over to Jeff..

Thanks, Mark. As I said previously, the second quarter began with uncertainty and concern of how the pandemic would impact our business. These challenges brought out the best in our people, and we exited the quarter as a stronger, more efficient and more confident organization.

We saw increasing case activity and utilization throughout the quarter, which is carried over into the third quarter we remain connected and committed to our physician partners and have added seven new accounts in June and July.

We filed a 510(k) submission for Ocellaris, our next new product, and significantly advanced our L300 program, and we exited the quarter with a reduced cost structure and strengthened cash position.

We look forward to updating you on our Ocellaris 510(k) submission and other important milestones as we advance through the second half of what has proven to be an unprecedented year.

Through it all, the Avinger team remains focused, determined and committed to advancing our technology platforms, delivering on the growth prospects for our company and most of all, supporting physicians in their critical work of treating patients with vascular disease. At this point, we’d be happy to take your questions..

[Operator Instructions] We’ll take our first question from Nathan Weinstein with Aegis Capital. Please go ahead, sir..

Hi, Jeff and Mark. Thanks for taking my questions. If we could just start with sales in the most recent quarter, they were actually better than we feared, just given the environment that you’re operating in.

And I know you may have touched on this a bit in your prepared remarks, but if you could kind of recap and discuss, how is – how are you guys able to hold the business in better than expected?.

So Nathan, I agree and appreciate your comment. The impact of COVID was less than anticipated earlier in the quarter. As you know, procedural volume really dried up in April and was quite limited to more severe cases.

Probably as encouraging as the level of revenue that we were able to achieve for the quarter was the increase of utilization throughout May and June. So seeing that increase in volume, which is now carried forward into July and into the third quarter as more states have loosened restrictions.

So the trend, in addition to the absolute number was encouraging. I think we did it in a couple of ways. First, we stayed connected and present and where we could get access to the physician’s labs we were there.

So our sales team didn’t hold back in any way and understood the importance of their work, and most importantly, the work of the physicians to treat these CLI patients. As we stay connected, as we continue to be present and readily available, we benefited as these cases came back and more elective procedures were introduced.

Mark, I don’t know if you have anything to add to that..

Yes. I mean I think that we also felt – obviously, we feel very good by the results, especially the fact that we saw an increase in May over April, June over May and then obviously July being so far, a very, very strong month for us..

Got it. Okay.

And just thinking a little bit ahead, you have done a great job of refreshing the product portfolio and you think about the new product pipeline that’s coming along, any anticipated disruption on to timing due to COVID?.

No. As we look at our pipeline, we’re right on track with Ocellaris. We filed, as you know, our 510(k) in May, which was right in line with our anticipated timing. FDA has been open and interactive.

And we feel, based on the visibility we have, that we will gain the approval, hopefully, right on time in the second half of this year and are making steps, preparing, for a limited launch sometime following that clearance.

But we haven’t seen any delay or experienced any delay related to COVID in the Ocellaris or our new product development programs. We did have a little bit of slowdown, obviously, with the INSIGHT study. But we are so far along in that study that we feel time lines won’t be significantly impacted.

IMAGE-BTK, which we had just started prior to the kind of advent of COVID and all the restrictions was impacted on a timing basis. We don’t expect to really begin enrolling again in a significant way until the fourth quarter as we now are starting to initiate new sites and prepare to get back in the clinic on that study.

But other than that, I think we’ve maintained good progress on all of our strategic milestones and initiatives. And we were able to stay open and manufacturing as an essential business. And I think we have made good use of the time. We’ve had here over the second quarter to focus on some of the internal operations and business..

Great. And then I suppose just a final question for me. On the reimbursement environment from your perspective.

Are you guys seeing any potential changes, significant changes on the horizon with regards to reimbursement?.

No. There has been a discussion of potentially the endovascular codes coming up for review, starting later this year, but that would be obviously a multiyear process. Everything we’ve seen and heard does not indicate that there would be any significant diminishment in reimbursement for the atherectomy codes, which are our primary codes.

And I think that there could be potentially incremental opportunities for us, as we’ve discussed previously, related to the fact that we have imaging claims, diagnostic claims cleared by FDA in addition to our therapeutic claims, which we’re hopeful could provide the basis at some point in the future for incremental reimbursement..

Got it. Thanks for taking my questions and great to see the continued progress in the business..

Thank you, Nathan..

[Operator Instructions] And that appears to be all the questions that we have today. This will conclude our question-and-answer session. We’ll now turn the floor back over to Mr. Soinski. Please go ahead, sir..

Thank you. Thank you all for joining our call today. We very much appreciate your continued interest in our company and your support during these unprecedented times and look forward to updating you on our continued progress on our next quarterly call. Thank you..

Ladies and gentlemen, this does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day..