Q3 2019 Earnings Call
Greetings and welcome to the adult adult subjects third quarter 2019 earnings conference call.
So I won't participants already listen only mode. A question answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
This conference call is also being broadcast live over the Internet at the Investor section of the company's website at Www Dot logics Dot com and a webcast replay of the call will be available at the same site approximately one hour after the end of the cool.
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Clinical trial status product portfolio updates financial and operating projections implants. These are known and unknown risks uncertainties and other factors that made that may cause the company's actual results performance or achievements to be materially different from any future results performance or achievements expressed.
Or implied by the forward looking statements for a discussion of risk factors. The company I encourage you encourages you to review its most recent annual report on Form 10-K quarterly report on Form 10-Q , and subsequent reports as filed by the Companys I filed by the company with the Securities and exchange.
Commission.
Furthermore, the content of this conference call contains time sensitive information.
That is accurate only as of the state of the light broadcast.
November six 2000 at <unk>.
And a lot checks undertakes no obligation to revised.
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Sorry about that and to watch ex undertakes no obligation to revise or update any statements to reflect events or circumstances. After the date of this call.
In addition, today's discussion will include references to adjusted EBITDA.
Which is non-GAAP financial measure.
Adjusted EBITDA as a key he measure.
Used by the company to evaluate operating performance generate future operating plans and make strategic decisions for the allocation of capital.
Please refer to the company's press release issued earlier today for further information.
With that said I'd now like to turn the conference over to John on up a check go at Geological Endologixs Chief Executive Officer. Please go ahead.
Thank you operator, and good afternoon, everyone and welcome to our third quarter conference call today I'll provide a brief overview of our third quarter 2019 results and also provide an update on our product portfolio.
Including a comprehensive update on IDH status and the approval timeline for your best to Alto and she batch.
I will then turn the call over to our Chief Financial Officer to see my who will review our third quarter financial results in 2019 financial guidance in more detail. After that we'll open the call for questions. As a reminder, we have posted an updated investor deck corner investors relations website.
Directly below the webcast link.
I am pleased with our solid performance in the third quarter as we achieved year over year revenue growth for the first time in more than two years, while continuing to effectively manage our expenses and operating cash.
[noise] performance across the business.
She sequential growth of U.S.T. effects to volume.
We remain focused on the accountability in execution to drive sustained cost through operational results across the board from sales to expenses to cash.
We will now turn our attention to finishing the year strongly and positioning the company for sustained growth.
Through strong execution in 2020.
Looking forward, we are poised to achieve our 2019 financial targets and her team remains committed to building momentum through the ended the year I'll now turn to our quarterly highlights.
Total revenue for the third quarter was 35.8 million, representing a 2.9 a year over year increase.
We achieved annualized growth for the first time intensive consecutive quarters, which is attributed to the two enablers, we referenced over a year ago first achieving AFX two volumes stability in the U.S. in Q3, and second driving sequential growth.
Although they should.
Our O U S curve teams continue to deliver these solid performance and consistent with the teams in the U.S. continue to leverage our expanding body.
Evidence to secure cases.
We continue to rebuild credibility through transparency and evidence in the marketplace, while targeting high volume centers, we have a stable commercial team across the organization, which has continued to build stability and I'll return to year over year groups.
We have achieved consistent and meaningful operational progress against our goals for Opex and then earlier than expected achievement of our operating cash burn target.
Leading the quarter under $5 million a quarter earlier, then we promised we expect our expenses to be maintained at these levels through year end.
Now I'd like to give you an update on our current product portfolio, including a comprehensive update on the status and timelines related the best to Alto She bass no ex any effects too.
I want to take some time to address the recent ft, a safety communication regarding the effects system.
I want to be absolutely clear. This is not a recall of the apex product nor is it a correction to the product or product labeling.
On October 28, 2018, you of D.A. issued a communication and press release in response to an abstract from the Kaiser integrated health system abstracted into journal of American College of Surgeons My Rothberg it out.
DFT noted that the data may suggest it potentially higher than expected risk.
Type three endoleaks occurring with use they have to actually do apply an FX two endovascular grass.
The FDA also made clear specific to aspects to the data only included a small number of patients with to your follow up.
Do you update restated that patients with the epic system should continue with the existing recommended surveillance regimen.
In addition to the small number of patients implanted with the effects to.
That is 32 patients.
DFT noted additional limitations with the study design, including the fact that the results are not stratified by type three a and type three be endoleaks and the lack of a comparison of these results to outcomes from other endovascular graph systems in our view this small.
A number of patients with it affects two at two years that is 13 patients prevent any clinically meaningful statistically significant interpretation of these findings.
The objective of the refer Goodell study was to provide crude mid term post operative outcomes with Endo logic setbacks, hey affects two devices.
It is notable the differentiation of the type of vendor Lee was absent from the data as was the proportion of patients treated within the indications for use or any detailed patient anatomy or demographics.
We have spent time analyzing the data from rothberg, it out and making direct comparisons to our own data in an attempt to understand the findings endologixs is a robust approach to monitoring the performance of our products through the use of multiple datasets that are benchmark compared against.
Other commercially available in two graphs and analyzed for concordance. These data include the leopard trial be only randomized control trial will be more providing level one evidence real world data from best fuel registry, our own benchmark MDR complaint data and.
And that will assist current literature.
All of the datasets, we use our couldn't Gordon and demonstrate through the perspective analysis of over 60000 patients with the effects system that our FXR apply and AFX two systems currently chief patient outcomes equivalent to other contemporarily commercialized.
End of grass went assess on encompassing spectrum clinical complications.
These data also support our conclusions the changes to the EPG EFI manufacturing process from the Strada, two dura fly along with the FX I give you updates are associated with a reduction in the occurrence of type three endoleaks for the apex systems.
With all of that said, let me outline the actions we have taken to date to start we have provided our global sales works with customer facing material in the form of a letter to health care providers and a presentation on Rosberg abstract and our clinical date data we have also request.
It Anonymized data set used in kaiser's reported outcomes to ensure that we have exhausted our understanding of their results.
We have commissioned an independent analysis of both their data and air data to arrive at it impartial third party appraisal of the clinical validity and significance of each I want to be clear that we believe we have a safe effective and highly competitive product that is supported by a higher.
Degree of vigilance reporting and related assessments found within our quality system. We are subjected our findings and conclusions to independent sources that further reinforce our now stable products justifiable place in the global market.
We're committed to transparency in the data we used to assess the performance of our products. We recently published our annual clinical update 2016 through 2019 for the effect system, which is a 100 and by page document containing a detailed presentation the clinical.
Trial data MDR complaint data and the leopard trial data that we have compared against the study from Rosberg. It out it is worth noting that in the leopard study, which remains the only level one randomized control trial. He bar there have been no reported type three under lease in.
111 patients implanted with the effects to system and there is no difference in the primary endpoint of aneurism related complications between the FX group and the comparator graphs from Medtronic Cook and Gore.
Due to the analysis of multiple data set including independent sources with data with active compares we remain confident that the effects to devices, a safe and effective product when used as indicated we will continue to work to understand and placed into appropriate context data that because.
Publicly available, but would stressed that evidence must be placed in a hierarchy recognized by healthcare practitioners payors and regulators globally.
The level of evidence within that hierarchy, including the sample size data integrity and quality along with an active comparator are critical when assessing endograft performance as a holistic concept.
Before I leave the topic of FX two hour report that we recently received FDA approval for a three year shelf life.
This has a significant implication to us in managing our working capital going forward.
Turning now to progress we've made any best to I.D., we have 33 active sites and we have enrolled 80% of the study.
We plan to present these one year data at the Beach symposium in 2020 .
In the early part of 2020 , we anticipate completion of the full enrollment for 105 patients and we will begin submitted modules for the PNM.
I revenue in space to support the best continues to expand with two papers in publication.
Total et al recently published research report titled Endovascular, Aneurisms ceiling is associated with higher medium term survival than traditional E bar in the animals the vascular surgery.
These data were previously presented at the sharing cross symposium by Dr. should reward whilst the three year results from E. Best one have been provisionally accepted in the journal of vascular surgery.
This publication will emphasized the need for procedural adequacy in ebasco and contributes to furthering our knowledge about this new therapy.
As we reached the end of enrollment for evaporates too we will concurrently ramp up activities for cheap pass, which we plan to begin enrolling in early 2020.
There is considerable clinical incitement engagement around this trial, which will offer a therapy in an anatomically area poor served poorly served by Endovascular therapy at present.
Turning now to Alto, we continue to work collaboratively with the FDA and continue to have a line of sight to approval in the first quarter 2020.
We have submitted materials to the FDA in response to some of the issues that were raised at the 100 day meeting and we have completed all additional testing.
We have some final outstanding questions. We're still working through that will be addressed in a face to face meeting with the FDA, which is scheduled to take place next week.
We plan to submit our formal response to the deficiency letter shortly after this meeting.
We have submitted our alto data to the society of clinical vascular surgery, and we will present, our alto data in March of 2020.
In the E U we recently met with NFC I in Dublin to discuss working practices going forward into the MDR. Initially I have our final clinical module for Alto and we believe we are still on track to receive out to approval in Europe before the end of the year.
Our execution. This year has been solved and I am pleased that we've achieved stability in the business. This quarter. However, this is only the first step and we recognize that are still significant work to be done in order to return to sustainable long term growth.
Our culture of Accountability has been a key factor in driving progress against our goals and it will allow us to maintain our high level of commitment to on time on budget on target execution.
We have a relentless focus on execution across functions in regions.
As we close out the year, we continue to generate clinical data that drive further adoption and growth of our products.
We intend to compete on the basis of evidence that support superior outcomes of our current and next generation E bar and the best products, we are well positioned to achieve our financial targets for 2019, as we advance our mission to transform aortic care by providing.
Differentiated products that enable superior lifelong outcomes to patients suffering from both infrarenal in complex Triple S.
And now I'd like to turn the call over to seem to discuss the third quarter financial results and provide you with details on our guidance.
Thank you John and good afternoon, everyone. Our total revenue for the third quarter of 2019 increased 2.9% year over year to $35.8 million compared to $34.8 million in the third quarter of 2018.
This is a significant milestone for endologixs as we returned to growth after 10 consecutive quarters of year over year declines and we're excited to report this year over year growth again.
U.S. revenue decreased 6.2% or $24.1 million into third quarter of 2019 compared to $25.7 million the year, though as we continue to see the impact of previous commercial restructuring.
Just a reminder, we executed on the commercial restructuring in August last year and as a result, the third quarter represents the last quarter of tough comps due to that restructuring.
We did see sequential growth in the third quarter on the heels of terrific performances from both AFX and ovation, especially when considering the seasonality of the third quarter.
Third quarter International revenue of $11.7 million increased 28.7% compared to revenue of 9.1 million in the third quarter of 2018.
This is largely driven by timing of distributor orders, coupled with organic growth in Japan. The FX still continues to do well.
Our European business continues to stabilize after the restructuring last year and the team has done a nice job converting some of our nellix business to FX do.
On a constant currency basis, our third quarter 2019 international revenue increased 31.5% year over year.
On a product line basis, our global FX system sales were up 18% year over year ovation was up 9% year over year and Nellix was down 84% in.
In the U.S. market, both ovation any FX system sales grew sequentially.
This is a huge accomplishment for the rest theme and as a testament to the strength of our leopard data and the resilience of our sales team.
Third quarter gross profit was $22.1 million, representing a 64.5% gross margin compared to 65.1% in the prior year period.
The decline versus prior year is driven primarily by smaller U.S. revenue number and lower absorption due to lower volumes as we continue our efforts to drive better inventory turns and working capital improvements, we don't expect to see any favorable impact due to capitalize variances in the fourth quarter and we'll see sequential decline.
Gross margins, we expect our gross margin to be approximately 62% for the topia.
We had another strong quarter of continued cost controls total operating expenses for the quarter were $33.9 million compared to $38.5 million a year ago, which is a 12% reduction year over year.
However, the third quarter of 2018 included $2.9 million in onetime items and on a comparable basis operating expenses declined 4.9% from the prior year period.
Our improved expense management continues to drive operating costs lower positioning us well to achieve our previously communicated 2019, opex guidance of 130 million to $140 million.
Looking more closely as a third quarter operating expenses on a year over year basis marketing and sales expenses were down 5.8% research and development expenses decreased 7.8% general and administrative spend decreased 7.6% and our clinical and regulatory expenses increased 13.2%.
We need to make investments in our pipeline and the evidence to bring new products to market.
Net loss for the third quarter of 2019 was $7.8 million, what 40 cents a share compared to a net loss of $10.1 million or $1.19 cents per share a yet about.
This net loss reflects the structural changes we have made since the 2018 August reset and the strategy, we laid out at the Investor day last year.
Adjusted net loss totaled $10.5 million compared with adjusted net loss of $30 million for the third quarter of 2018.
Adjusted EBITDA totaled a loss of $5.6 million for the third quarter 2019, compared to an adjusted EBITDA loss of $9.3 million for the third quarter of 2018.
Moving to the balance sheet, our total cash cash equivalents at restricted cash for $47.8 million as of September 32019, compared to $24.7 million as of December 31, 2000 anything.
The availability on our involvement with Deerfield as of September was approximately $19 million, putting us at approximately $66 million available liquidity.
Our operating cash burn for the quarter was approximately $4 million, bringing our year to date operating cash burn to roughly $24.7 million.
As previously communicated we were targeting an operating cash burn of less than $5 million into fourth quarter of 2019, we are happy to see us get to that number of quarter earlier than planned we expected operating cash burn to be less than 5 million in the fourth quarter as well.
As we discussed previously our $20 million annual operating cash burn target was predicated on $30 million. The total operating cash burn offset by $10 million. The working capital improvement we remain on track to hit our $30 million operating cash burn target for the year. However, the working capital improvements we had originally anticipated.
We'll start to accrue in the fourth quarter and into 2020, especially the impact of the three year FX to shelf life extension project that John mentioned for which we received FDA approval in early October .
A quick update on the debt to equity conversions, resulting from the financing deal announced in April of this year as part of that deal up to $50 million afford that 25 million with our 2024 convert holders and $25 million with Deerfield was meet subject to a mandatory conversion to our common stock these mandatory conversions happen when.
Certain conditions are met we converted approximately $3.3 million if our debt in the third quarter that resulted enough issuing approximately 500000 additional shares. These new share issuances are included in the 17.9 million shares outstanding at the end of the third quarter.
We will continue to provide you update every quarter, if and as these conversions happen and lower our overall debt load.
Turning to guidance, we are reiterating our previously provided guidance in 2019, we continue to expect revenue of at least $140 million, while operating expenses are anticipated to be in the $130 million to $140 million range.
For the fourth quarter of 2019, we expect revenue in the range of 32.5 million to $35.5 million.
The low end up the range reflects the uncertainty surrounding the impact to our U.S. business due to the recent FDN notice regarding FX.
This impact is based on historical trends, we have seen following the issuance issuance of for field safety noticed and similar regulatory actions.
We know that DFI in order has created questions among our investor based on what the implications are we're encouraged by the early signs on our U.S. business. There we have seen no material impact on either our case creation or Keith cancellations, thus far.
Obviously, it's still early so we will continue to monitor the situation.
And as noted in our guidance, we have factored in the potential impact from the Cephea action on our Q4 revenues, while still maintaining our annual 2019 revenue guidance.
Overall, our third quarter and year to date performance positions us to achieve our revenue and expense targets for 2019, we are pleased with our performance today as we continue to execute against our strategic initiatives and deliver value to our customers and patients with that let me turn the call back to John John . Thank you the same.
This marks the fifth consecutive quarter since our reset a year ago in which we delivered on our commitments for revenue opex, reducing operating cash burn through both expense reduction in working capital improvements, while improving the balance sheet.
We are encouraged that our FX two system sales were stable this quarter as compared to the second quarter and we are aggressively pursuing.
To achieve overall sales growth in the fourth quarter.
Our ability to secure new users in high volume centers continues to take hold with promising early results.
We plan to present, our updated leper data at beef and our elevate clinical trial data at the CBS in March of 2020.
Finally, we continue to make crop progress on Alto, you've asked to Nexgen E bass and she best in pursuit of realizing our mission of transforming aortic care for life with that we will now open the call for questions. Operator. Thank you we will now be conducting a question and answer session.
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Okay.
Once again, if you would like to ask your question. Please press star one on your telephone keypad.
Thank you I would like to turn the floor to Mr. omnichannel for closing remarks.
Operator, we've concluded closing remarks, if there arent any questions I will then or.
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This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.