Greetings, and welcome to the Avinger Third Quarter 2020 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Matt Kreps..

Thank you, Omar, and thank you all for joining us and participating in today’s call. I would like to welcome all of you to Avinger’s third 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 third quarter ended September 30, 2020. 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 like to now turn the call over to Jeff..

first, starting with initial launch into a limited number of highly experienced Lumivascular sites; and then following this initial experience, expanding commercial availability for national launch.

We believe the staged approach works best to obtain insights and learning on the performance and capabilities of the device in a real-world clinical setting prior to launch to less experienced or new Lumivascular users.

It also allows us to develop case studies and fine-tune our training programs for physicians and our clinical support teams, including cycling our sales reps and clinical specialists through the initial sites for training prior to national launch. As we announced in October, we have successfully completed our first cases with Tigereye at three U.S.

sites. We were very encouraged by physician feedback on the performance of the device and, most of all, patient outcomes in a number of highly challenging CTOs. I was very happy to be able to personally observe cases at all of these first sites and was thrilled with the patient outcomes delivered by these pioneering physicians.

Many of these first CLI patients treated with Tigereye had previously experienced failed crossing attempts using conventional approaches, with several scheduled for highly invasive bypass surgery or subject to possible future amputation.

Since announcing our first cases, we’ve already launched one additional site and have three more sites scheduled to launch next week with the plan to launch up to 10 sites by the end of the fourth quarter. Based on the success of this program, we anticipate expanding commercial availability for national launch in January 2021.

We’re excited about the prospects for Tigereye to drive growth of our image-guided CTO-crossing business. Our current Ocelot family of CTO-crossing catheters have been in the market for almost eight years. While these are strong devices with a good following, we’ve seen Ocelot sales volumes decline in recent years.

During this time, our physician customers increased utilization of our Pantheris atherectomy catheters, which were refreshed in 2018 with the launch of our next-generation Pantheris catheter and then again last year with the launch of Pantheris SV, which expands the franchise for the treatment of small vessels, both above and below the knee.

We believe Tigereye will vitalize our CTO-crossing business with the introduction of important new features that were developed based on input and feedback from our physician users during the development cycle.

New design elements include high-definition, real-time intravascular imaging, similar to the imaging provided by our next-generation Pantheris catheters; a user-controlled deflectable tip designed to assist in steerability within the vessel; and a new distal tip configuration with faster rotational speeds designed to penetrate challenging lesions.

The Tigereye catheter has a working length of 140 centimeters and five French sheath compatibility for treatment of lesions in the peripheral vessels both above and below the knee. Since Tigereye runs on the same OCT platform as our Pantheris product, it allows for rapid exchange to a Pantheris device for atherectomy following CTO crossing.

Most Tigereye cases completed to date have been followed by treatment with one of our Pantheris atherectomy devices. With Tigereye, we believe we’ve strengthened the opportunity to drive growth across all of our disposable product categories.

Our next major new product in development is the L300 Lightbox imaging console, which will be marketed under the brand name Lightbox 3 since it represents the third major advance in our Lightbox platform, with the last major platform improvement introduced in 2016.

During the third quarter, we continued to make progress on this revolutionary redesign. As you may recall, the next-generation Lightbox 3 system incorporates our proprietary OCT imaging through a state-of-the-art solid-state laser, brings a more powerful computing platform and adds an advanced software system.

The Lightbox 3 also incorporates an improved user interface, which we believe will streamline the operation for customer ease of use and efficiency. Perhaps most exciting of all, Lightbox 3 comes with a radically reduced size and weight of approximately 17 pounds compared to 240 pounds for our current Lightbox system.

This 90% reduction will provide for easy transport, cost-efficient shipping, a simplified service strategy and efficient integration into the cath lab environment. We also expect the Lightbox 3 to provide a significant cost reduction of up to 50% compared to our current Lightbox.

We believe the Lightbox 3 will accelerate the evaluation process in new accounts, increase the uptake rate for new account acquisition and improve the physician experience overall.

In short, the Lightbox 3 is anticipated to ease physician adoption, which we believe will help more prospective accounts get our Lumivascular technology into their cath labs sooner and support increased utilization of our proprietary image-guided devices once on site.

Lightbox 3 product design is largely complete, and prototypes have been successfully used to run our image-guided catheters in laboratory and cadaver testing. We’re in the process of building final prototypes and anticipate initiating final verification and validation testing this quarter.

Based on successful completion of this testing, we expect to receive CE Marking for the Lightbox 3 for trial in Europe in the first half of 2021. We anticipate submitting a 510(k) application to the FDA for U.S. premarketing clearance of Lightbox 3 in the first half of 2021 and hope to receive clearance for U.S. launch in the middle of 2021.

On the clinical side, while the pandemic has slowed some of our efforts, we’ve continued to advance key programs, including our INSIGHT IDE clinical trial evaluating Pantheris for the treatment of in-stent restenosis or ISR in lower extremity arteries.

We anticipate completing patient follow-up and data analysis for a sufficient number of patients to support submission of a 510(k) application in the first quarter of 2021 to expand our U.S. label for Pantheris to include the ISR indication.

The data we are seeing from this study continue to be highly encouraging and we believe will be very compelling compared to other atherectomy devices that have received the ISR indication in the past.

Our other primary clinical study is IMAGE-BTK, a post-market trial designed to evaluate safety and efficacy endpoints for Pantheris SV in the treatment of peripheral artery lesions below the knee. As you might recall, we had enrolled our first patients in the study early this year but paused new site initiation due to COVID-19 restrictions.

We are in the process of adding three new sites to the study and have already restarted patient enrollment in our existing site this quarter. Unless further delayed by COVID-19, we believe we should be able to complete patient enrollment in the study in the first half of 2021.

We’ve also continued to make progress on the international distribution of our products. Last week, we announced market launch and successful first cases with our Lumivascular products in Israel through a distribution relationship with Neopharm Medical Supplies.

We’ve also signed a distributor agreement for our products in Mexico and are in the process of working through the registration process in that country for an anticipated market launch in the first half of 2021.

Before I turn the call over to Mark, I want to highlight once more that while our rapid return to growth and our new products are exciting, we believe we are just beginning to realize the clinical and business potential of our unique approach to the treatment of vascular disease.

By empowering physicians with real-time imaging during a therapeutic procedure, we provide them the information they need to make the best decisions for their patients both during and after treatment. We’re seeing the positive impact of this approach in our clinical data and in our increasing case activity every day.

We’ve taken important steps to improve our operations and strengthen our balance sheet with our leaner operating structure and renewed balance sheet anticipated to fund our business initiatives through 2021.

While this has been a difficult year in many respects, I believe we are now better positioned to execute than at any time in the past several years. We approach the end of 2020 and the beginning of a new year very excited about the future. At this point, I’d like to ask Mark to cover our financials, and then I’ll come back for Q&A.

Mark?.

Thank you, Jeff. Total revenue for the third quarter of 2020 was $2.3 million, a 57% increase from the second quarter where we saw the significant effects of the COVID-19 pandemic on our case revenue.

Although we believe that not all of our sites are back to pre-COVID volumes, we saw a strong return of case activity in Q3 as most sites seem to be reopened and working within appropriate protocols to ensure patients have access to PAD treatments. Over the prior year, revenue fell 5%.

Delving into our third quarter results, we delivered strong growth of our Pantheris next-generation and Pantheris SV products with Pantheris revenue increasing 71% compared to the prior quarter. On a year-over-year basis, our Pantheris product revenues increased slightly but were offset by the expected decrease from our legacy products.

Our new Tigereye CTO catheter and next-generation Lightboxes are key tools in accelerating future revenue growth once deployed commercially. Gross margin in the third quarter was 34% compared with 24% in the second quarter and 35% in the year ago quarter. Gross margin largely returned to pre-COVID levels as revenue rebounded.

Operating expenses for the third quarter were $4.9 million, up from $4 million in the second quarter as we returned salaries to pre-COVID levels and variable compensation rose due to the increase in revenues.

Compared to the prior year, operating expenses decreased 11% from $5.5 million as we have successfully maintained our lean cost structure while investing in strategic initiatives, such as expanding our commercial sales activities, development of our next-generation Lightbox image console and investing in our clinical study programs.

We believe that these programs are key to Avinger’s successful future. Net loss attributable to common shareholders was $4.5 million, up $0.5 million from $4 million in the second quarter and improved $0.1 million from $4.6 million a year ago.

Adjusted EBITDA, which is a non-GAAP measure that excludes certain excess and obsolete inventory charges, depreciation and amortization expenses, stock compensation and other items, as noted in the tables in today’s press release, was a loss of $3.5 million, an improvement of almost 10% compared to $3.9 million a year ago.

In the prior quarter, our revenue – our EBITDA loss was $2.9 million. 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.avinger.com under the Investors section.

Cash and cash equivalents totaled $25.3 million as of September 30 compared with $16.6 million as of June 30. During the third quarter, we raised $12 million of net proceeds from equity financings. These additional proceeds are expected to provide us with the needed capital to sustain our corporate growth and strategic initiatives through 2021.

Avinger’s cash resources, both on an absolute basis and compared to its reduced operating burn levels, are at the most favorable level in the past four years and illustrate our stronger financial position.

As we have shown, in the third quarter, Avinger was able to resume full operations while maintaining a number of the cost reductions we undertook as part of the COVID pandemic.

While we expect operating costs will rise as we grow, we have established a leaner, more efficient operating structure and seek to continue this approach going forward so as to maximize our operating leverage as revenues improve.

We are also seeking to increase revenue generation by our sales reps as we roll out our new Tigereye device, enabling our reps to sell and support a greater number of cases in the clinics we serve. At this point, I’d like to turn the call back to Jeff for Q&A..

Thanks, Mark. The third quarter began with good momentum that has carried through into the fourth quarter. New site activity and case activity remain strong, and we are working hard to maximize every opportunity to generate revenue and win more business for Avinger.

At the same time, we continue to make excellent progress on our strategic growth initiatives, including our Tigereye launch, commercialization of our next-generation Lightbox 3 imaging system and our clinical study programs. The challenges from earlier this year have driven us to achieve more with less.

And we’ve emerged stronger, leaner and with an expanded growth opportunity ahead of us. We currently have the strongest balance sheet in the past four years, enabling us to focus our energy and attention fully on growing the business and expanding our product set.

We look forward to executing our strategy to build value for Avinger stockholders and fulfill our mission of improving the standard of care for patients with vascular disease. At this point, we’d be happy to take your questions..

At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question is from Rommel Dionisio with Aegis Capital..

Yes. Thanks very much for taking my question. I just was – wanted to ask about this international launch in Israel, obviously a great announcement.

I wonder if you could just talk about the addressable market there just given that I know that Israel is signing these – obviously, it’s Israel, but I know they’re signing these treaties with some other neighboring countries, might have expanded those. You touched on Mexico.

What are some of the other markets as well in the international front that you might look to expand to? Thanks..

No. Thank you for the question. As you know or likely know, Israel is a relatively small market, just a little under 9 million people in the market. However, it’s a market that highly values technology and technology advance in health care.

So we’re really delighted to bring our – what we believe is the most advanced technology for the treatment of PAD to this market. We have a strong partnership with a good distributor there, and we believe that we will have the opportunity to build sizable inroads in a relatively small market.

In addition to Israel, we have signed a distribution agreement with a strong distributor in Mexico. We believe that there will be a sizable opportunity for us there. We’re in the registration process now. That seems to be going well, and we anticipate that we’ll receive the clearance and be able to market in that country sometime in early 2021.

And so those are the two countries that are pending. As you may know, we do have existing distributor relationships in the UAE as well as Hong Kong.

And our largest international market is in Germany where we take advantage of the strong relationships that we have with some very important clinical thought leaders in that market to have our first experience with our devices even in advance of U.S.

launch since we typically are able to gain CE Marking on a more rapid basis or more quickly than we can receive clearance in the U.S. And that relationship has been invaluable from a strategic standpoint beyond just the revenue that’s contributed.

Overall, our international revenue is a little less than – less than 10%, closer to 5%, 6% of the total business.

So most of our revenue, due to where our sales force is centered, due to reimbursement, superior reimbursement in the U.S., is driven out of the U.S., but we believe the international work that we’re doing is very important strategically as we develop this company and develop the platform..

Great. Thank you so much for the color..

Thank you..

[Operator Instructions] Well, it appears we have no further questions. I’d like to turn the floor back over to Jeff for any closing remarks..

Well, thank you very much for joining our call today. We very much appreciate your interest in our company and your support during these unprecedented times. We look forward to updating you on our continued progress and further outlining our plans for 2021 on our year-end call. Thank you..

Thank you so much. This concludes today’s conference. You may disconnect your lines at this time. Again, thank you very much for your participation. Have a great evening..