Greetings, and welcome to the Avinger's 2020 Fourth 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 Matt Kreps, Managing Director at Darrow Associates Investor Relations. Mr. Kreps, you may begin..

Thank you, Alex, and thank you all for participating in today's call. I would like to welcome you to Avinger's fourth 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 fourth quarter ended December 31, 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 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 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. And now I'd like to turn the call over to Jeff..

Thank you, Matt. Good afternoon and thank you for all joining us. I hope that you and your families remain safe and healthy. We're grateful that the continued rollout of the COVID-19 vaccines has provided a light at the end of the tunnel and we look forward to the time when we can all return to normalcy.

We were very pleased with our team's continued strong operating performance and revenue growth in the fourth quarter, despite the resurgence of COVID-19 infections and limitations on the procedural volume in certain regions late in the quarter.

Fourth quarter revenue increased 19% over the third quarter and 7% year-over-year, demonstrating our continued sales recovery following the second quarter COVID-related shutdowns and exhibiting the market's excitement for our new Tigereye CTO crossing catheter.

The incremental sales from the Tigereye limited launch program were a significant contributor to revenue growth in the fourth quarter, driving a 38% increase in our image-guided CTO crossing revenue over the third quarter and a 24% increase year-over-year. During the quarter, our new account activities also continued to bear fruit.

We opened nine new Lumivascular accounts in the fourth quarter bringing our total new accounts open for the year to 36. More and more physicians are beginning to realize the unique benefits provided by our proprietary image-guided technologies.

We expect this to continue as our three new catheter introductions over the past three years broaden the appeal of our product line.

In the year ahead, we see several growth drivers, including the continued rollout of Tigereye to our full customer base, the release of our next-generation Lightbox 3 which we expect to be commercially available in the second half of this year and the strategic expansion of our field sales team.

We are executing on these opportunities as a leaner more efficient operating company backed by a very strong balance sheet and our broadest product portfolio to treat PAD. Let me share some details on these initiatives.

We were thrilled with the results of our Tigereye limited launch in the fourth quarter and based on our experience with the device made the decision to advance to full commercial launch in January 2021. As you may remember, we received FDA clearance for Tigereye in September 2020 and commenced our first US limited launch cases in October.

By the end of the fourth quarter, physicians successfully completed approximately 50 Tigereye cases at 12 clinical sites. I was able to attend first cases at several of the initial launch sites and observed firsthand the excellent clinical results delivered by these talented physicians in a variety of challenging CTOs.

Physician feedback has been very positive with physicians reporting that Tigereye's enhanced imaging, increased control, and higher rotational speeds improved their ability to safely and effectively cross complex CTOs, including cases that may have required more invasive procedures such as bypass or amputation.

The response to Tigereye's limited launch and progression to full commercial launch in January has brought a high level of excitement to the company.

Just as our Pantheris SV small vessel device, opened access to another large segment of the atherectomy market, Tigereye is shaping into an important growth opportunity to expand access to the approximately $100 million peripheral CTO market.

Since expanding the full commercial launch in mid-January, Tigereye has continued to drive positive momentum in our CTO business. We've almost doubled our number of Tigereye sites with the device now launched in 23 clinical centers and new sites coming onboard each week.

Utilization and revenue continue to ramp nicely with now over 120 cases performed in the US. We have advanced our internal and physician training programs and continue to document exciting clinical outcomes. We're shipping more devices every week to support both existing and new sites with the Tigereye solution for their CTO patients.

This momentum is particularly exciting because the CTO portion of our sales, our earliest Lumivascular product line had been declining over the past few years, even as our Pantheris next-generation and Pantheris SV franchises were accelerating. Driving growth across all three of our platforms is a key element of our growth strategy.

And as mentioned earlier, we are already seeing the impact of this expanded revenue opportunity in our fourth quarter results. Tigereye was designed to be used together with our Pantheris atherectomy products and allows for more efficient exchange to a Pantheris device for atherectomy treatment, following CTO crossing.

Many of our Tigereye cases have been followed by treatment with one of our Pantheris atherectomy catheters, adding to the synergy provided by the new device. Tigereye is our third new product in three years, putting Avinger on the leading edge of PAD therapeutic technology.

Clinical outcomes support this leadership with physicians using our devices to produce measurable, verifiable results for their patients.

The ability to use Avinger's real-time imaging inside the vessel, allows physicians to see and treat the disease to safely and effectively restore blood flow, while minimizing damage to the healthy vessel, which has been clinically proven to result in positive and durable outcomes for patients.

We're making excellent progress on a number of additional strategic milestones in 2021, starting with our Lightbox 3, next-generation imaging console. We are nearing completion of development for this revolutionary redesign and expect to submit a 510(k) application for US premarketing clearance by midyear.

If all goes according to plan, we hope to be in a position to release this next-generation console into the market in the second half of 2021.

We believe Lightbox 3 represents a major leap forward in imaging portability and capability compared with our current unit and are very excited to get this new console into the labs of both new and existing customers. Lightbox 3 radically reduces size and weight compared to our current L250 platform.

From a console that is the size of a large ultrasound machine and weighs 240 pounds to a portable unit that fits into a carry-on sized suit case and weighs less than 20 pounds. This radical reduction in size and 90% lower weight provides for easy transportation, a simplified service strategy and streamlined integration into the Cath lab environment.

We also expect the Lightbox 3 to break through one of the most significant barriers cost with a reduction of up to 50% compared to our current Lightbox.

We believe Lightbox 3's portability and more favorable economics will accelerate the evaluation process in new accounts, increase the uptake rate for new account acquisition and improve the physician experience.

With an advanced solid-state laser, a more powerful computing platform, redesigned software system and highly intuitive user interface, the Lightbox 3 is anticipated to ease physician adoption and support increased utilization of our proprietary image-guided devices once on site.

In addition to our work on Lightbox 3, we are also exploring opportunities to expand our peripheral product portfolio with new catheter solutions that would provide additional utilization opportunities and continue to differentiate Avinger in the marketplace. We look forward to discussing these products in more detail in the future.

Finally, I wanted to briefly discuss a topic that's generated a lot of interest recently, our potential transition into the CAD or coronary artery disease market. As previously indicated, we believe the fundamental technology in Tigereye could have coronary applications, developed specifically for that indication.

The treatment of chronic total occlusions in the coronary arteries represents a clinically challenging and largely underserved market.

Due to the size and tortuosity of the vessels, risk of perforation or other adverse events and complexity of the procedure currently only a limited group of interventional cardiologists, regularly perform percutaneous coronary intervention to treat complex CTOs.

These CTO PCI procedures often require the use of multiple wires balloons and other devices and can take up to four to five hours under fluoroscopy, subjecting the Cath lab staff and patient to extended exposure to X-ray radiation. Even with these limitations, it is estimated that there are approximately 50,000 CTO PCI procedures performed each year.

In addition, it is estimated that over 200,000 highly invasive coronary artery bypass graft or CABG surgeries are performed in the US each year, with up to 30% of these procedures related to the treatment of coronary CTOs.

By combining real-time imaging inside the vessel, with precisely controlled therapeutic catheters, we believe that we can provide important new tools to support physicians' efforts to safely and efficiently treat coronary CTOs on a less invasive percutaneous basis.

We also believe that our proprietary image-guided approach could expand the number of interventional cardiologists willing to take on CTO PCI procedures and potentially reduce the number of highly invasive CABG surgeries performed for this debilitating condition.

While we know, it will take some time to complete product development, and anticipate that a clinical study will be required to support the regulatory clearance process. We believe this could be a transformational opportunity for Avinger. Turning to our clinical study initiatives.

While the pandemic impacted some of our efforts in 2020, we've made good progress on our key programs. Our INSIGHT IDE clinical trial is designed to evaluate Pantheris for the treatment of in-stent restenosis or ISR in lower extremity arteries.

I'm happy to report that, we've completed additional cases and data collection and are now working to finalize data analysis for submission of a 510(k) application in the second quarter with the goal of expanding our US label for Pantheris to include the ISR indication.

The data are highly encouraging and we believe will be very compelling compared to the laser atherectomy devices that have received the ISR indication in the past. Our second clinical study 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 enrolled our first patients in the study in 2020, but paused new site initiation due to COVID-19. With the lessening of COVID-19 restrictions, we have now opened four clinical sites for enrollment and are expanding our patient enrollment efforts.

We're excited about the potential to develop strong data in support of the outstanding clinical outcomes we see in Cath labs every day, with this revolutionary small vessel device. It's exciting to start 2021 with positive momentum and new opportunities for growth.

I believe that, we are beginning to see the potential of our proprietary approach to the treatment of vascular disease and with three new compelling products designed to address even the most challenging cases Avinger builds upon its position as a technology leader in the treatment of PAD.

By lowering the barriers to adoption with our new Lightbox 3, we expect to make our innovative solutions more readily accessible to physicians and by empowering physicians with real-time imaging during a therapeutic procedure, we provide them the information they need to best treat their patients.

We continue to see the positive impact of this approach in our clinical data and in our increasing case activity every day. In order to take advantage of these favorable developments, we plan to expand our commercial footprint and geographic reach in the US in 2021, with the addition of new sales and clinical support personnel.

Over the past couple of years, we've modestly expanded the size of our sales force to 27 full-time employees, including sales management at the end of the fourth quarter. We plan to increase the size of our field sales team by about 20% this year. At this point, I'd like to ask Mark to cover our financials and then I'll come back with Q&A.

Mark?.

Thank you, Jeff. Total revenue for the fourth quarter of 2020 was $2.7 million, a 19% increase from the third quarter and 7% increase year-over-year. It's important to note that many of our sites are still not back to pre-COVID volumes.

And as a result, in the latter part of the fourth quarter, procedure volume was unfavorably impacted by the resurgence of COVID-19 infections. This makes our strong revenue performance in the fourth quarter even more impressive.

But probably the most exciting aspect of the quarter's performance was the strong revenue contribution from our Tigereye device, which as Jeff discussed led to a 38% quarter-to-quarter increase in our overall image-guided CTO catheter revenue.

Gross margin in the third quarter was 36%, an improvement of 200 basis points compared with 34% in the third quarter and flat with the year ago quarter. 36% is the highest gross margin level that Avinger has achieved as we continue to work hard to generate operating efficiency.

We believe there are opportunities to further increase our gross margins as we scale volumes and gain economies of scale. Operating expenses for the fourth quarter were $5.2 million, up slightly from $4.9 million in the third quarter, but down 12% from $5.9 million in the year ago period.

Importantly, we have maintained a lower operating cost profile than prior to the COVID-19 pandemic enabling us to direct capital toward investment in strategic initiatives such as expanding our commercial sales activities, development of our next-generation products and our clinical study programs.

We believe that these activities are key to Avinger's differentiation and future success. Net loss attributable to common shareholders was $4.6 million in the fourth quarter up $0.1 million from $4.6 million in the third quarter, an improvement of $0.5 million from a year ago period.

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 $3.7 million an improvement of $0.5 million year-over-year.

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 $22.2 million as of December 31st.

During the first quarter, we raised an additional roughly $13 million in net proceeds from a bought deal offering providing a cash balance of more than $35 million when added to the year-end balance. Finally, another important note that we concluded was amending the existing loan agreement in January 2021.

These changes included an extension of the interest-only period and maturity date of the term loan by 2.5 years with the interest-only period being extended from June 30th, 2021 to December 31st, 2023 and the maturity date being extended to December 31st, 2025.

In addition, the amendment reset the material adverse change representation date and adjusted the minimum revenue requirements. At this point, I'd like to turn the call back to Jeff for Q&A. .

Thanks, Mark. The fourth quarter began with good momentum and the excitement steadily built as we conducted the initial cases under our Tigereye limited launch program. New site activity and case activity remained strong and we executed well on efficiency and operating metrics.

With our next-generation Lightbox 3 imaging system, clinical study programs and sales expansion plans we are carrying this enthusiasm into 2021. We're focusing our energy and attention on growing the business and expanding our product set.

We look forward to executing our strategy to build value for Avinger's 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. .

[Operator Instructions] Our first question is from Nathan Weinstein with Aegis Capital. Please proceed with your question..

Good afternoon Jeff and Mark. Thanks for taking my question. Good to see the ongoing growth in your business and perhaps, we could start with a couple pandemic-related questions.

I know, Mark touched on this in your prepared remarks, but if you guys could perhaps share some more insights into the resumption of case volumes you're seeing in your markets as we come back from the pandemic lows?.

Yes. Thanks, Nathan. As you saw in our third quarter results, we came back strong following the significant and severe shutdowns in the second quarter. As we went into the fourth quarter, we continued that strong momentum.

Kind of coming off the Thanksgiving break and the resurgence of COVID infection nationwide, we did see a slowdown of volume, particularly, in the latter part of December and additional or maybe the reinstatement of certain limitations especially in certain regions of the country.

And so that did carry over into the early part of the first quarter and we also had the additional impact of the snowstorms and ice storms in Texas. However, we've come back very quickly from that. Our field representatives have stayed active and in the labs.

And we're really pleased with how they've been able to address these challenges and how our physician customers have put the needs of their patients first. So we see an improvement.

Really we've seen an improvement throughout the first quarter and a continued lessening of restrictions kind of following the January limitations and feel good about where the market is now especially as more and more vaccines roll out.

Most of our representatives have been vaccinated and clinical specialists and certainly most physicians and frontline healthcare workers in the labs we work in have been vaccinated as well. .

Great. Thank you. And just had one follow-up on the pandemic front which is -- and this is something we talked about much earlier. It was like maybe 2Q-3Q of last year.

But your integration of virtual tools in the selling and training process kind of where are you with that?.

Yes, we still have -- and thanks for mentioning that, especially, in the second quarter we took advantage of the technology and in some cases more time for the physicians to engage with us via Zoom calls, Webinars et cetera. We're continuing that program. We're continuing that for -- and really Dr.

Jaafer Golzar, who's our Chief Medical Officer is very involved in this in training our reps and getting people comfortable and getting them ready, especially, around Tigereye and launching Tigereye into these new accounts.

And you saw the pretty dramatic uptake on new accounts already this first quarter almost doubling to 23 accounts with Tigereye so far in the quarter. So we're continuing to use those tools. There is no substitute for being there in person certainly to drive and support case volume. So we're staying present. We're staying active.

We're staying in the field even myself and several of our senior team were in the field quite a bit, especially, in the fourth quarter with the limited launch of Tigereye. But we're weaving in and continuing to use the technology and kind of, maybe the greater acceptance of using that technology as we engage with physicians and our customers. .

Great. Thanks. That's helpful. And switching gears here to the product side, you've done a great job largely refreshing the portfolio. I know there's more products on the way. But maybe you could explain what it means on a portfolio level when you approach new perspective clinics.

They typically start with one of your products and then expand to being a consumer of multiple different Avinger products.

And how does that process go?.

You know, we typically will start with selling and communicating the benefits of our image-guided Lumivascular approach. And that really is the fundamental core of our selling process and our selling message.

And I think it's quite easy for physicians based on the data, but also based on their own personal experience and just the intuitiveness of being able to precisely target disease and preserve healthy vessel.

Typically the first products that are used are our atherectomy products, and usually our seven French Pantheris next-gen product in the SFA, which is a more comfortable area for the physicians to work with a new technology and a new device.

But it doesn't take long to transfer that experience to treating the smaller vessels below-the-knee with our Pantheris SV device. Now having said that Pantheris SV has been very effective in opening the doors to new accounts that are focused on BTK and CLI disease.

And where there really isn't a safe and effective -- or a safe and effective device to provide large luminal gain below-the-knee without damaging or perfing these very small vessels.

And so overall, we'll start with Pantheris, atherectomy we'll also work in or sometimes start with Pantheris SV and then we'll proceed to use of our CTO crossing devices. Now up until now we've only had Ocelot, and we're continuing to sell and support Ocelot, and continue to be very pleased with the case results we see with our Ocelot catheter.

But now we have another new tool to introduce into the hands of our physicians and that is our Tigereye device. But one of the things we're focused on is getting our reps and our clinical support specialists very, very comfortable with the device to make sure that they can provide the expert support that physicians deserve.

So, typically we'll start with atherectomy. We have obviously the stronger reimbursement in atherectomy as well. And especially in a hospital environment that will lead to usage of our CTO crossing devices. .

Great. Thanks Jeff. And we, of course, look at revenue as a gauge of business progress and also expected growth in the field sales team as a driver of that -- or one of the drivers of that. But maybe shifting towards another metric that's important in the P&L which is your margin profile. It's nice to see margins continue to expand.

Can you talk about maybe in general in terms what we can expect on that front and what levers you have on that with margins?.

Yes. Certainly. I'm going to ask Mark to expand on that Nathan..

Yes, Nathan, thanks for the question. So, the nice thing about Avinger's product set is that we have very, very high direct and contribution margins above 60%. The one limiting factor that we have is just the volume that we run through the factory.

As we continue to drive revenue with new products and with new customers, we do expect to be able to increase our gross margins, especially, as we gain additional efficiencies and operating leverage.

And so we're really excited about what a new product means for us and also winning additional accounts, and how that can really drive our gross margins higher and higher. We're very pleased with our performance in the fourth quarter, and we look forward to additional margin expansion in future quarters as we can drive our revenue growth. .

Okay. Great. Thanks for the clarification on those points.

And as just a final question from me regarding the expected growth in the field sales team, are there specific roles or geographies that you're hiring for or looking to hire for? And then what -- how would you characterize the environment in terms of the availability of talent?.

Yes. So maybe I'll take the second part first. There is -- it is a competitive environment to get -- to find and retain talented experienced people in the Cath lab. We have not found it to be a challenge though because we're offering a differentiated device, which is a little more exciting than just going in and selling a typical peripheral product.

And so in a way we kind of self-select for reps and clinical specialists, who are excited about being involved with a new technology in a growing company that's really making a difference in the market. Now, as it relates to our strategy in specific geographies, we're doing really a combination of factors.

We're going deeper in certain markets where we've shown significant growth, new account activity, either by adding clinical specialists to support the account so the rep can move on to find new accounts, the territory sales manager.

We also have identified and created a new position as part of our sales structure called a sales associate, which is a more junior sales rep that might be very active in greenfield opportunities, and kind of trying to develop new markets typically in partnership with a more experienced TSM.

And then, we are looking at adding a couple of new markets and geographies, where we may have one or two accounts that have come in through leads et cetera, and are being supported by reps that are pretty – or clinical specialists that are pretty distant.

But we see based on the data and a strategic analysis, the opportunity to really create a beachhead and grow a new market. And so it's really a combination of all three working together.

We're working obviously in partnership with our sales leadership and leveraging data as much as possible, and really trying to be efficient and make sure that we're not being too spread out as a small organization, because we want to build kind of density of accounts and assets for our greater efficiency. And that's just one investment.

That's an area, of course that we're making significant investment, but we're also as you know investing in R&D, investing in new products trying to broaden and deepen the bag of our reps and make them more efficient give them more to sell.

And then also have some very exciting clinical data coming down the pike all of which works together to make the job of the field sales rep, which is a tough job easier..

Got it. Understood. And thank you Jeff and Mark for addressing my questions and we're looking forward to ongoing progress in the business for the balance of 2021..

Thank you very much. Appreciate the questions, Nathan..

Thank you. We have reached the end of the question-and-answer session. And I will now turn the call over to Jeff Soinski for closing remarks..

Well, thank you very much for joining our call today. We very much appreciate your continued interest in our company and your support, and look forward to an exciting year of progress ahead. Thank you..

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day..