Q1 2021 ViewRay Inc Earnings Call
Yeah.
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Welcome to the Q1 2021 view Ray incorporated earnings Conference call. My name is Daryl and I will be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answers that debt. During the question and answer second question. Please press Star then one on your.
Touchtone phone I will now turn the call over to Ashley Cliff actually you may begin.
Thank you operator, good afternoon, everyone and welcome to day rates first quarter 2021 financial results Conference call. Joining me today are Scott Drake, our President and Chief Executive Officer, and Zach Stassen, our Chief Financial Officer.
Earlier today <unk> issued a press release and presentation for today's call.
The presentation can be viewed live on our webcast or downloaded from the financial events and Webinars portion of our site at Www Dot investors thought Derate dotcom.
Today's call is being broadcast on webcast live and a replay will be available on our website for 14 days.
Before we begin I would like to caution listeners that comments made by management. During this call may include forward looking statements within the meaning of federal security laws.
These statements involve material risks and uncertainties and actual results could differ from those projected in any forward looking statement due to numerous factors for a description of these risks and uncertainties. Please see the raised annual report on form 10-K for the fiscal year ended December 31, 'twenty 'twenty.
And its quarterly reports on form 10-Q.
David periodically with the company's other SEC filings. Furthermore, the content of this conference call contains time sensitive information accurate only as of today may six 2021 day rate undertakes.
<unk> takes no obligation to revise or otherwise update any statements to reflect events or circumstances. After the date of this call I will now turn the call over to Scott.
Thank you Ashley good afternoon, everyone and welcome to our Q1 call.
Today, we will begin with key patient metrics, we will discuss our first quarter results share our clinical and innovation pipelines are driving commercial traction Zach will cover our financials and then we look forward to answering your questions.
If you're not on the webcast I'll be referring to slides from the presentation on our Investor Relations site.
Turning to slide three.
Our mission is to treat and prove what others can't.
We have now surpassed 12500 patients treated and have more than 3000 patients with clinically reported outcomes.
This growing body of clinical data is critical to our efforts to change and improve the paradigm of care.
Slide four provides context on meridians value to patients and customers.
In 2020, we treated approximately 4300 patients globally.
Globally about 80% of meridian patients were treated with five fraction SPR T.
That number in the U S is nearly 90%.
This stands in Stark contrast to the overall market that delivers SPR T for only about 14% of patients.
Considered the dramatic difference in patient experience.
Generally speaking treatment on Meridian takes one week versus on average seven weeks with conventional therapy.
That is five trips to the hospital versus about 35.
The difference in time energy career disruption like disruption and expense is profound.
The 3400 patients treated on Meridian, we estimate saved over 100000 treatment days.
This is price list time, given back to patients and their families and allows for a quicker return to normal life.
This is the power of Meridian.
On slide five patients treated on meridian have grown at a CAGR of about 85% since day one we.
We believe this growth to be a precursor to future business growth.
Our customers are demonstrating that one successful meridian program can and increasingly does lead to another.
Our clinical innovation and commercial pipelines continue to drive therapy adoption.
Let's turn to our Q1 results on slide six.
Performance in the quarter was broadly favorable to the same quarter in the prior year.
We received seven meridian orders in the quarter versus four in Q1 2020.
Our backlog grew 33 $5 million about a 15% increase bringing the balance to $264 million.
Revenue grew nearly 9% over prior year coming in at $15 $5 million.
Total gross margin improved by 1700 basis points to two 1%.
And finally from a cash perspective, we used approximately $28 million in the quarter versus 36 million prior year or a reduction of about 22%.
Cash use for this quarter was impacted by about $6 million of receivables that moved into Q2.
These payments are now in hand.
Our balance sheet is strong we have $182 million of cash on hand, and anticipate we will continue our multi year trend of reducing cash use.
Moving to slide seven.
The number one thing our customers desire is meaningful clinical data.
They have also been very clear about how they define clinical success.
I want to deliver an ablative dose with tight margins no implants fiber fewer fractions and low to no grade three or higher toxicity.
These elements represent the critical meridian five.
No hubris intended but the only meaningful body of clinical work that meets these criteria belongs to view right.
Customer input has shaped our clinical pipeline and goals, which are twofold.
Number one to expand the utilization of meridian smart and to become frontline therapy.
On slide eight as mentioned everything begins with inflows from our clinical value.
We view the process of developing clinical evidence longitudinally.
Phase one represents feasibility work that can result in an interesting signal that leads to phase III confirmatory trials when required effort progresses to definitive phase III.
Currently our customers are conducting over 60 trials the.
The breadth and depth of this work reflects extraordinary clinical curiosity.
Other than the smart pancreas trial, our pipeline is predominantly investigator led.
Turning to slide nine we consistently hear from our customers that they buy meridian due to its clinical value.
They use the system for a short period of time and realize theres, even more clinical value than they anticipated.
This clinical value translates into strategic value by attracting net new patients in the form of patients that wouldn't or couldn't be treated on any other system pace.
Patients, who travel long distances for meridian therapy, and an increase in network referrals.
This strategic value translates into economic value.
These three value propositions are why we see Genesis care.
See Penn State Henry Ford and many other customers evaluating or purchasing incremental meridian system.
On slide 10 customers desire and patient demand shorter courses of effective treatment.
Our technology allows clinicians to move along the continuum from <unk> T to SPR T to Meridian smart.
Our customers are now leading us in exploratory work with single fraction Meridian therapy.
The smart one trial opens enrollment this year for single fraction therapy in both primary tumors and ligaments located in lung pancreas, liver kidney adrenal and lymph nodes.
Turning to slide 11, our innovation and clinical pipelines accrue to commercial traction.
On the innovation front, we are driving toward our goal of sub 20 minute treatment times and improving workflow and automation.
In the future you can expect enhanced MRI imaging increased dosing a brain treatment package and remote access.
We are concurrently driving cost efficiencies to improve margin over time.
We have solid traction in each of our three pipelines changing the paradigm of care is underway.
With that I'll turn it over to Zach to review our financials.
Thank you Scott.
Turning to slide 13, we will discuss some key financial highlights.
We received seven meridian orders in the quarter totaling $49 million. This.
<unk> and 81% increase in total order value versus Q1 of 2020.
The order ASP in the quarter is a solid reflection of the clinical strategic and economic value that meridian brings.
We ended the quarter with a backlog of $264 million on a sequential.
Basis, this represents a $23 million or 10% increase.
Compared to the same period last year. This is a $33 $5 million or 15% increase.
Revenue for the quarter increased 9% over the same period last year to $15 5 million.
Primarily from two revenue units.
<unk>, 51% increase in service revenue was a key growth driver during the quarter.
Gross margin for the quarter was a positive 2% and represented meaningful improvement over the same period last year, we saw an improvement in our system margin on a year over year basis from negative 13% to a positive 7%.
Service margin was impacted by some onetime costs in the period, excluding the impact of the onetime costs. Our service margin would have been breakeven.
Related to service, we have seen positive movement in the average annual value of our service contracts.
As our installed base grows and systems anniversary their respective warranty periods, we see customers signing up for our higher end service offerings.
We continue to focus on driving cost efficiencies and maximizing our cash saving initiatives.
These efforts resulted in an 11% decrease in operating expenses, primarily in the form of decreased personnel and travel spend.
Net loss for the quarter was $26 7 million as compared to $27 5 million in the same period last year, we remain focused on maintaining operating efficiencies born of the programs we implemented during the pandemic.
Turning to cash use <unk>.
Excluding the net proceeds from our equity financing in January we used $28 million during the quarter.
This represents an $8 million decrease compared to Q1 of 2020.
Q1 is our seasonally highest cash use quarter.
In addition to some of the seasonal items, we saw approximately $6 million of receivable shift into Q2, and we have now collected on all of those payments.
We finished the quarter on a strong liquidity position with $182 million on the balance sheet.
Due to lingering pandemic related uncertainty, we will not be issuing guidance at this time.
We are encouraged by the activity we are seeing for the remainder of the year. However, we need better line of sight to revenue conversion in several geographies, most notably Europe Middle East and Asia before providing guidance.
Given the binary nature of our business, even one or two systems shifting into early next year has a material impact on our 2021 results.
The combination of the strength of our clinical innovation and commercial pipelines, coupled with our fortified balance sheet positions us well to capitalize on the opportunity in front of us.
With that operator, we will now open the line for questions.
Thank you if anyone has a question you can press Star then one on your Touchtone phone. Once again, if you have a question. Please press Star then one on your Touchtone phone.
And I am standing by for questions.
Once again that Scott.
Then one on your Touchtone phone.
Standing by for questions.
Alright, and then it looks like we have.
A question from.
Murray.
Tebow Marie <unk> go ahead.
Hi, yes, thank you for taking the questions and congrats on a very strong order results.
I guess I'd like to start there and sort of hear your thoughts on what drove the order strength this quarter.
All of that things can change from quarter to quarter on timing as always.
Not certain but I'd love to hear your thoughts on how sustainable some of this strength is and just general thoughts on on the order environment at this point.
Yes. Thank so much Marie I think there's a couple of things that I would point out regarding orders in the quarter.
First as you are really seeing our strategy kind of unfold.
<unk> R is we have been focused for the past two and a half nearly three years now.
On our clinical pipeline.
Driving our business forward on our innovation pipeline targeted at exactly what our current and prospective customers are looking for and those two pipelines accruing to commercial traction.
So I think youre seeing that.
Unfold before us as we speak.
And the second thing I would say quite simply is our commercial team.
Really has executed.
Terrific way.
My hats off to them they have been very nimble during the pandemic in a travel constrained environment. Fortunately that's lifting.
In certain markets as we speak.
But their creativity how new.
Nimble they've been.
He is really a credit to that team and the work that they're doing.
As it relates to the sustainability of it.
I would share with you my perspective.
That it feels like we're at a different level.
Of both activity and productivity.
Because of the things that I've already mentioned, the three pipelines that we have and the traction.
Debt, we have evidenced in each one of them.
But I would tell you what I share with our team with frequency, which is this company is unrecognizable today to the company that we were two three years ago and I anticipate that will be completely unrecognizable again in the next one two or three years going forward.
So I think we've put up a solid quarter here.
I love the prospects that our team has generated in the near term, but frankly I'm more excited about the long term of this business and the impact that we can have on cancer patients around the world.
Very good thanks for that detail Scott and then maybe I can ask on the other side.
Halation visibility on some of the revenue recognition trends.
Maybe you can talk to us a little bit about what the different regions are looking like right now it sounds like in EMEA, you're looking for a little more clarity. So maybe you can talk through some of the dynamics that are happening over there and thanks for taking the questions.
Yes, absolutely and thank you.
It's a little bit spotty.
Is why we want to be very cautious here.
We're able to move around the U S market pretty freely as you would imagine.
We are starting to travel.
Not only from an installation standpoint, but commercially here in the United States. There are parts of Europe that are quite challenging at the moment.
Certainly parts of the Middle East and Asia.
That we're having continued challenges getting thesis for our travel to do the installation work.
So we really want to be very careful.
In terms of the timing when we provide guidance and also be very prudent when we due to account for the uncertainties and risks associated with the pandemic and as Jack mentioned, the binary nature of our business.
Thank you.
Thank you.
And our next question comes from.
Jason Bednar go ahead Jason.
Hey, good afternoon, guys I'll share my congrats here on the order bookings here in the first quarter.
Scott I know you've had some success in booking orders from repeat customers you mentioned some of those here today, but.
Just out of the seven orders that are going into backlog. This quarter I'm just wondering if youre willing to talk about how many of those are new versus repeat meridian customers.
Yes, Jason.
As in this quarter for their second system. So that's a repeat order.
But I would tell you bring up one of the things that we're most interested in and that is the proportion of our customers that are buying an incremental meridian system.
It is a substantial number.
And it's quite gratifying. If this were just technology that were marketable.
Obviously, those customers would not need or probably want.
An incremental meridian system and the activity on that front is very high.
Other signals that we look at in our commercial pipeline.
Include.
Certainly the academic centers, but beyond that community hospitals freestanding market for profit chains, and we like the the level of activity in <unk>.
And productivity there. So we're gratified by what we're seeing and we'll continue to keep you posted on those.
Incremental meridian orders as we go forward.
Alright, great great that's excellent.
Excellent to hear an exact.
Zach I'll throw on your way just on the gross margin side or Scott feel.
Feel free to weigh in as well.
You guys are obviously, making some nice progress you had system gross margin here.
Positive in the quarter I mean.
Can it remain in positive territory.
I'm sure, there's plenty of volume kind of pushes and pulls here but.
I guess what are the factors, we should be thinking about.
On that line on the margin line on product gross margin, particularly as we go forward.
Yes, Jason I would I would share a couple of things with you from a macro perspective, and then I'll invite Jack to make any comments that he'd like to make.
We have said and I'll repeat here that we see line of sight to.
To getting to industry kind of norms from a gross margin perspective.
It's going to take us a little time.
And it is.
Our gross margin profile is highly sensitive to the number of installations, we do in any given quarter.
So as that that backlog builds and we're able post pandemic to really travel and install at the pace that our customers would like and we would like I think youre going to see improvement there and then we complement that with the work that we're doing to take cost out of the system and increasingly I think.
Our commercial team is doing a better and better job.
Selling our higher price.
Price service offering.
Some macro comments and I'll invite Jack to chime in.
Yes, I think.
I think we do see.
Our way to the industry gross margin profile on the systems side I think.
Our demand.
At this stage is a little bit lumpy. So I think our margin will bounce around a little bit just from a overhead absorption standpoint, but.
Jason we're going to work hard to keep that system that system margin positive.
Going forward so.
Got it got it and if I could just squeeze one more in it Scott. It I didn't hear you talk about M. Three specifically here I know you talked about a lot of the other one of the specific items in the commercial pipeline, but any update you can share here regarding that new platform that you had theoretical discussions with customers regarding M. Three.
And does that at all influencing decision, making here as they pull the trigger on some orders.
Yes, Jason one of the one of the norms in the in this space is to under NDA.
To share a bit of the pipeline given that you have a 10 year relationship with <unk>.
A customer in our system.
So I do believe that.
On one hand, our customers shape, both our clinical and innovation pipeline.
On the other hand, it's customary to give.
A bit of a peak into.
On the pipeline in a noncommercial fashion, we're very careful about what we do and how we do it there.
But I think we're going to be targeting debt sub 20 minute treatment time brain treatment package remote access to the system.
Are the things that we have shared publicly with investors.
And we think those things are targeted directly at what our current and prospective customers are looking for from us.
Alright, great. Thanks, so much guys.
Thanks Jay.
Yes.
And our next question comes from.
Andrew do you still go ahead, Andrew Inc.
Yes, hi, good afternoon. This is <unk> on for Andy.
We're taking our question so just a couple from us.
You've started to invest in these phase III studies, and obviously meridian can be used for these indications already so I guess can you help us understand the commercial strategy with conducting these studies and how many cancer types, you think you'll need to run phase.
Phase II phase III trials for before you expect.
Meridian's ability to improve outcomes is broadly accepted across all applicable cancer types.
Yes. Thank you for the question Kyle I would tell you, let's first zoom out for a second and let me just kind of share that strategically.
From the time that we entered the door at view Ray.
We believe that it is critically important to lead with clinical data.
It's a bit of a unique approach in this space in particular, but we believe leading clinical data and leading technology is a pretty tried and true recipe in the medical device space and Thats exactly what were pursuing.
The number one thing that our customers desire is meaningful clinical data.
And they're also very clear about how they define clinical success.
As I mentioned ablative dose very tight margins.
No implants, five or fewer fractions and low to no grade three or higher toxicity.
So we think it's critically important to keep our foot to the floor on our clinical pipeline and I think it's also important to understand that of those over 60 studies that are going on out there. Those are investigator led studies. The one trial that we are sponsoring is the smart.
Kyle.
And our strategy is to really prove meridian's value in the toughest to treat cancers and also prove value in more ubiquitous cancers. So.
I think it's difficult for me to say exactly how many studies, we would need to run to drive faster and broader adoption, but I believe that's underway.
Having 3000 patients with very consistent clinically reported outcomes right in line with those five criteria that our customers state.
Is compelling so <expletive>.
Difficult to really tell you when when it's actually going to take hold but I would tell you in certain cancer types, such as pancreas, we have a customer down in Florida that prior to meridian.
Which treating very few pancreatic cancer patients with radiation therapy, and now I believe that one customer is treating over 100 pancreatic cancer patients a year on meridian. So if you. If you believe in that from a pancreatic standpoint, it's quite possible that you would believe in that.
From a central lung ultra central lung.
And other cancer targets, but that work is ongoing.
In various cancer types led by our customers due to their clinical curiosity. So we think it's absolutely the bedrock of what we're doing.
And I think it is having its effect and we're looking forward to just continuing to chop wood on that front.
Okay. That's helpful and then as it relates to the episode based and alternative payer models is there any update on the timing there is it still set to be implemented next year and then as a follow up.
Patients have a percentage of total facility is expected in the APM test period, and the number of cancer types that the APM covers.
Is that still the same.
Yes. The start date, we continue to believe is going to be January of next year of 22 and to give you the.
Statistics in terms of who is included its 30% of all Medicare fee for service beneficiaries.
That represents about 10% of all cancer patients when you look at Medicare Medicare advantage private payer Medicaid et cetera. So it is.
We believe pretty firm on that point, and we think we compete very well because of the clinical value that we have.
That accrues to strategic value you hear that from our customers on the.
Over a dozen webinars that we've had and they all talk about how that strategic value translates into economic value.
Both top and bottom line because of the net new patients that they're able to attract with meridian.
If you think about that and the fact that the vast majority of patients treated on meridian or with five fraction SPR T. Then it's easy to consider that in the APM.
Model.
We would we would compete even more favorably there shorter courses of treatment driving greater throughput.
And frankly, I think the competition for patients increases isn't that model. So the strategic value of the system becomes something that more and more customers are going to seek.
Okay, great. Thanks for taking the question.
Thank you.
And our next question comes from.
Anthony Petrone go ahead Anthony.
As bad as some feared I think that's an accurate comment in our activity level with customers would would reflect that.
And I would also emphasize and agree with your point on just.
Just the uncertainty that we want to be careful about as it relates to installations and therefore revenue.
In the 2021 timeframe very very difficult for us to know when we're going to be able to clear visas and win parts of Europe and the middle East are going to open up for us to be able to do the installation work that we and our customers want to do and we want to be very cautious on that front.
So that's how we're going to be going forward and we're going to be communicating with investors.
On our point of view on guidance.
At the earliest possible date, but we're not going to rush that because we want to give a meaningful number that we believe we can stand behind.
That's helpful. On my fault will be when you look at the data initiatives the phase one programs.
Investigator initiated trials and I think if I'm not mistaken the UCLA prostate study.
Sort of falls in that category.
Standard head to head and prostate.
Maybe just.
Date on the UCLA prostate study.
Should we still still be expecting data later this year.
And Scott maybe when you talk about the statistics, where you get an increase in procedures. After data is out there clearly prostate is a big category.
How do you think that data will resonate after it's released thanks again and be well.
Thank you Anthony Yes, we knock wood, we're going to see some data Outta UCLA here in 2021.
That study the Scimitar study is fully enrolled.
We're really excited about that.
The other data that we anticipate that we could see in 2021.
There is there is currently data from two large multicenter retrospective analyses, one and pancreas and one in the ligaments that we may see in 21 as well.
And then there's there's a whole bunch of clinical data readouts that we anticipate in the 22 timeframe and again in 2003 and these individuals studies are interesting Anthony to your point.
But even more so the aggregate effect when you look at.
Meridians capability.
Post prostatectomy and when you look at some of the head to head studies out there I think the individual studies are interesting I think the aggregate effect is going to be even greater and I think that's true in the really tough to treat cancers as well so.
We feel like we're doing the right things here from a clinical product and commercial pipeline perspective, and we're we're hopeful for cancer patients as we move forward.
Thank you.
Thank you.
Our next question comes from Mike add go ahead, Mike.
Good afternoon, Scott and Zach Thanks for taking my questions and congrats on a nice quarter have a couple of questions on competition I guess to start with Siemens helping years, having now closed on berrien, how are the collaboration dynamics at play, especially since I'm moving you've seen these is providing split magnet and on the other hand berrien competes with Ya.
Yeah, Mike. Thank you are.
Our collaboration with Siemens.
Is very long standing and very strong we're gratified with the partnership that we have there.
Our teams are in very close contact on a on a regular basis and we feel we feel good on that front.
Through the.
Actual deal process, we were able to strengthen.
What was already a pretty strong partnership agreement. So we feel good about that.
<unk>.
We see good things with our Siemens partnership that that lie ahead.
That's great to hear thank Scott and also would want to get your latest thoughts on elected unity platform and how any real or perceived competitive differences are playing out on the field today.
Yep, Mike I'm going to I'm going to shy away from that one a little bit.
I think.
The advancement to M. R guided radiation therapy as an important one.
It took us about a dozen years as an industry to go from two by two X rays too.
<unk>, what I call conventional linear accelerators I believe we're in the early stages maybe.
May be maturing a little bit now.
Moving from conventional.
Conventional linear accelerators too.
<unk> guided therapy.
<unk> opinion leaders.
Have been very clear in their language that they believe we will look back.
With the with the.
The benefit of hindsight.
That meridian and M. R. Guided is a new paradigm of care that we will ship too.
So I don't really want to get into any of the comparisons there we want our performance to speak for itself.
Their customers that have bolted unity system in Meridian system, we'll see what they choose to do with future purchases and we'll let that speak for itself.
Okay that makes a lot of thank thank you so much thanks.
Thanks, Mike.
Awesome.
And our next question comes from Brandon.
Brandon folks go ahead Brandon.
Brand New Airlines open.
Brandon your lines open.
Alright, maybe stepped away from the phone that is the last question we have to the speakers have any final comments.
Operator, I'd like to thank you and I'd like to thank everybody, who joined us for our call today and we look forward to doing this again in about a quarter. Thanks so much.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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