Q2 2021 ViewRay Inc Earnings Call
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Good day and thank you for standing by welcome to the second quarter 2021 view Ray incorporated.
Earnings Conference call at this time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you'll need to press star 1 on your telephone. Please be advised that today's conference may be recorded I would now like to hand, the conference over to your speaker today, Ashley clues head of Investor Relations.
Please go ahead.
Thank you operator, good afternoon, everyone and welcome to view Reis second 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 todays call that presence.
Patient can be viewed live on our webcast or downloaded from the financial events and Webinars portion of our site at Www Dot investors Doffy raised dot com today's call is being broadcast and 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 Securities 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 Purdue.
For a description of these risks and uncertainties. Please see V raised annual report on form 10-K for the fiscal year ended December 31, 2020, and its quarterly reports on form 10-Q as updated periodically with the company's other SEC filings.
Furthermore, the content of this conference call contains time sensitive information accurate only as of today August 5th 2021 day rate undertakes 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 actually good afternoon, everyone and welcome to our Q2 call today will begin with key patient metrics, we will discuss our second quarter results and highlight recent events will share some color on the value of meridian directly from our customers Zach will cover our financial results and guidance for the remainder of <unk>.
'twenty, 1 and then we look forward to answering your questions if.
If youre not on the webcast I'll be referring to slides from the presentation on our Investor Relations site.
Turning to slide 3 our mission is to treat and prove what others can't.
We now have 45 meridian systems' treating patients we've surpassed 14300 patients treated and have about 3200 patients with clinically reported outcomes. This growing body of clinical data is critical to our efforts to change and improve the paradigm of care.
Let's begin with our Q2 results on slide 4.
We continue to have solid performance.
We delivered 7 meridian orders in the quarter versus 4 in Q2.2020.
In the first half of the year, we are booked 14 orders a step up from 8 in the first half of last year.
Our backlog grew $46 million or nearly 20% increase from Q2 last year, bringing the balance to $278 million.
Revenue was about $15 million per the quarter based primarily on 2 revenue units.
And finally from a cash perspective, we used approximately $15 million in the quarter. This represents a $13 million sequential improvement from Q1.
We ended the quarter with $167 million of cash on hand, and continue to drive efficiencies in our business.
Beyond financial results, we continued solid execution on our clinical innovation and commercial pipelines everything begins with and flows from the amazing clinical results our customers deliver with meridian.
Turning to slide 5 it's important to stay anchored in 2 critical customer desires.
First the number 1 thing our customers desire is meaningful clinical data and second they are very clear about how they define clinical success.
Customers want to deliver an ablative dose with tight margins no implants, 5 or fewer fractions and low to no grade 3 or higher toxicity.
These elements represent the critical meridian 5.
Meridian continues to drive the only meaningful body of work that meets these criteria.
Customer input has shaped our clinical pipeline and goals, which are twofold number 1 to expand the utilization of meridian smart and number 2 become frontline therapy.
The cycle of more clinical proof leading to more therapy adoption is greatly benefiting our customers cancer programs and patient care.
Slide 6 highlights some recent events in our 3 pipelines.
Our customers have made significant progress on the clinical front.
Specifically on the smart 1 and lung star trials will take a closer look at these trials in just a moment.
On the innovation front, we're 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.
Efforts on the clinical and innovation pipelines are leading to commercial success.
Our early pioneer customers, who have purchased incremental systems, such as <unk> M. C have led others to follow suit.
We are seeing more and more customers purchase incremental systems recently customers such as Penn State Jefferson Health, Henry Ford and Genesis care have doubled down on meridian.
The incremental system purchases or direct evidence of the value of meridian.
While we are bullish on our therapy adoption path I will point out that the pandemic continues to have a dampening effect on our business from an order and revenue standpoint.
Very proud of the work our team has done in the face of these headwinds and how they have set us up for future growth.
We have solid traction in each of our 3 pipelines changing the paradigm of care is underway.
Now diving deeper into our clinical pipeline on slide 7.
Everything begins with inflows from our clinical value.
We view the process of developing clinical evidence longitudinally.
Phase 1 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 breadth and depth of this work reflects extraordinary clinical curiosity.
Other than the smart pancreas trial, our pipeline is predominantly investigator led.
Let's turn to slide 8 and highlight recent activity in 2 of these studies.
Last month Mci enrolled initial patients in the smart 1 trial, which is being led by Dr. Michael Chang.
Conventional linac are used to deliver single fraction therapy in tumors distant from vital structures such as peripheral lung.
Smart 1 is a feasibility study to demonstrate safe and effective delivery of ablative doses in a single fraction to multiple tough to treat tumors, including lung pancreas, liver kidney adrenals and lymph nodes.
Another advancement in our clinical pipeline is in central lung.
Central and ultra central lung represents a sizable opportunity for our meridian to treat patients with limited treatment options.
Alarming numbers were published in April regarding a multicenter prospective central lung study unconventional Linux.
34% grade 3 or higher toxicity were reported along with the stunning 15% grade 5 or patient death.
The limitations of conventional radiation therapy or sadly evidence for these patients.
Lung star is a prospective multicenter phase III trial led by Dr. <unk> <unk> at Mci intended to demonstrate that meridian can safely and effectively treat these patients.
Preliminary meridian data published in high risk lung cancer patients reported only 8% grade 3 toxicity and zero treatment related death.
This is a positive signal the investigators and we hope to confirm.
As you can see we're striving to do in lung what we're doing in pancreas. Our goal is to open new avenues of meridian therapy for patients in need.
As we've stated many times meridian's clinical value unlocks strategic and economic value lets take a closer look at this value chain through the eyes of our customers.
On slide 9 we see the department chairs and executives from 2 leading cancer centers.
Dana Farber, Brigham and womens in the Miami Cancer Institute.
During the quarter, we held a customer roundtable to demonstrate how meridian programs can deliver clinical value, which translates into strategic and economic value.
This webinar is available on our website.
Each customer share their experience and they will refuse or in their price.
We were delighted to hear their quotes regarding meridian's, such as game changer mind blowing exceeded all clinical and financial expectations and highlights around net new patients due to meridian, especially those that could not or would not tree on any other system.
More specifically <unk>.
Turning to slide 10.
Dana Farber referenced several important facts that are illustrative to what we see time and again with our customers. For example, they expected to treat 50% of meridian patients with <unk> and they are actually treating 98%.
Conversely, they expected to treat 50% of patients via <unk> versus actual results of only 2%.
They expected, 13% net new patients and achieved 25% a significant number of them coming to the program specifically because of meridian.
Perhaps most importantly, there are thrilled by the fact that they are treating many patients on meridian that they would not or could not treat on any other system.
We heard similar thoughts from Mci.
About a quarter of patients treated on meridian came from outside their traditional catchment area.
By year 3 they have nearly doubled the expected ROI. They are adapting a significant percentage of fractions and believe that meridian will be APM friendly.
These proof points give us confidence that we're on the right track.
Turning to slide 11.
Our customers feedback on meridian's clinical strategic and economic value combined with the momentum in our clinical innovation and commercial pipelines gives us the confidence to accelerate investments in our R&D and commercial teams.
We've proven that a successful meridian program can and increasingly does lead to another.
These investments will help us accelerate customer success and system enhancements.
Obviously, our goal is to speed the virtuous cycle of a successful meridian program, leading to more successful meridian programs.
With that I'll turn it over to Zach to review, our Q2 financials and guidance for 2021.
Thank you Scott turning to slide 13, we will discuss some key financial highlights.
We received 7 meridian orders, including 1 upgrade in the quarter totaling $38 million.
This represents a 54% increase in total order value versus Q2 of 2020.
Excluding the upgrade order the ASP in the quarter was $6.1 million further evidence of the value customers see in meridian.
We ended the quarter with a backlog of $278 million, including the removal of 2 systems.
Compared to the same period last year, this is a $46 million or 20% increase.
Revenue for the quarter was $15 million, primarily from 2 revenue units.
Gross margin in the quarter was a loss of $1.7 million. We recognized several 1 time charges that ultimately impacted our system margin.
Excluding the onetime charges our system gross margin would've been effectively breakeven.
On the service side, we have experienced higher material and associated freight costs, along with increased wages as compared to the second quarter of last year, when we implemented COVID-19 related salary reductions.
We continue to focus on driving cost efficiencies and maximizing our cash savings initiatives.
These efforts resulted in operating expenses remaining flat when compared to Q2 of 2020, which had salary reductions in place and high travel restrictions.
In short we are doing more with less.
Net loss for the quarter was $31 million as compared to $26 million in the same period last year.
Net loss for the quarter was impacted by the revaluation of warrants, resulting in an approximately $3.7 million expense driven by the increase in our stock price and.
In contrast, we recorded a $400000 gain in Q2 of 2020.
Turning to cash use we used $15 million during the quarter.
This represents a $13 million decrease from Q1 this year.
We finished the quarter in a strong liquidity position with $167 million of cash on the balance sheet.
The success, our customers are having with meridian is encouraging it gives us confidence in the investments we are making in our current cash balance positions us well to capitalize on these investments.
Now turning to guidance on slide 14.
We are issuing guidance for full year 2021 for both revenue and cash usage.
We expect to deliver revenue in the range of $63 million to $73 million. This represents year over year growth of 11% to 28%.
Regarding cash usage.
Excluding our January 2021 equity financing, we expect to deliver cash usage between 58% and $68 million.
This represents an annual decrease of 3% to 17% in.
And includes the incremental investments we mentioned.
Our guidance contemplates ongoing COVID-19 related challenges and delays, we are seeing improvements in certain areas of the business most notably our order flow. However challenges continue with revenue as we have seen some delays in construction projects and revenue timing.
We are managing the items, we control, but external risks primarily related to the pandemic are difficult to forecast.
Recently, we have seen some of our prospects and customers reestablish pandemic related restrictions on travel and in person meetings.
Despite these challenges we are pleased with our results and activity in the first 2 quarters and we are working to drive our clinical innovation and commercial pipelines in the second half of 2021.
With that operator, we will now open the line for questions.
Thank you as a reminder, ladies and gentlemen, if you have a question at this time. Please press Star then 1 on your Touchtone telephone to withdraw your question. Please press the pound key.
Our first question comes from the line of Jason <unk> with Piper Sandler. Your line is open. Please go ahead.
Hey can you hear me okay.
We can.
Hey, guys. Congrats on another strong order pipe order quarter here.
Wanted to first start on the revenue guidance.
The implication here it seems to me that you recognize.
Net revenue on maybe 4% to 6 systems here in the back half of the year.
It would be consistent with maybe a modest step up from where we've been here in the last couple of quarters.
So I guess with kind of with that preamble, there I've got a bit of a 2 parter.
First of all should we interpret the fact that you are giving guidance here as a sign that youre access to hospitals is becoming more predictable I can't tell their transactions from your last comments there.
But it would seem like it does seem like maybe you have a little more visibility on some of the installed here in the back half of the year.
And the second part of the question is.
He has given this more defined outlook.
Do you have can we start to thinking about maybe a slightly faster installed pace looking beyond 'twenty..1 are we getting too too premature if we as we do that.
Yeah I'll go ahead and touch on it real quickly here, Jason I would share with you that.
The overall conditions are improving.
But the challenge is still persist.
We're dealing with permitting delays construction delays.
<unk> is getting into certain countries and therefore certain accounts.
So that continues.
But we do have increased visibility I would say.
Into our installations here in the back half and I think things will indeed, if they go.
As we anticipate.
Youre going to have a nice acceleration.
And at the end of 'twenty, 1 time frame I think we're very well set up for future growth in 'twenty 2.
And in 'twenty 3.
Okay, and just to put a finer point on that Scott I mean is this what we're talking about here it sounds more permitting and construction related which I know you've referenced in the past, but in the past. It's also seemed more like hospital access and travel restrictions, especially in some of your international markets is as that becomes.
The lesser of an issue for you and it's more the former on the construction and permitting.
Or am I, just over reading some of those comments.
It's both.
On the permitting front the construction front end and our access continues to be restricted.
For example in certain parts of Europe, and certainly in Asia as well.
We have conversations with our counterparts that do vault preparation and construction for our customers to validate what we're seeing and there.
Seeing those challenges permitting construction, even getting workers hired.
Is a challenge for them and then we have our own challenges on the installation front, primarily in the form of accessing accounts. So I think you read is exactly right.
In terms of the challenges that we and our vendor counterparts have.
Okay, Okay that all makes sense.
And maybe just a quick quick 1 here on R&D.
This was a new absolute high for you in this quarter.
Which I guess makes sense given the growth in our clinical work in the system enhancements, you've been driving towards and again.
I don't want to over read a single line item here on a single quarter.
Are you feeling a bit more comfortable loosening the purse strings here on some of these items given maybe the better intermediate term revenue outlook.
In light of that order book that you're you're you've been building here in the last couple of quarters and the big backlog, we are now sitting on.
Yes, Jason I would I would tell you from a macro perspective.
When you look at our 3 pipelines, our clinical pipeline has never been more robust than it is.
Our innovation pipeline is gaining speed.
And our commercial pipeline, obviously is increasing.
In its depth and breadth as well and that's what has led us to as we said in our prepared remarks to increase our investments both in the R&D side of our business and on our commercial team and on the commercial side, it's primarily in teammates that will help deliver.
Our customers' success.
So we feel great about our clinical and innovation pipeline.
We feel increasingly more comfortable about the growth of the business going forward and that's what's given us the confidence to increase our investments and I would tell you in 'twenty, 1 just to kind of Dimensionalize, what we're talking about.
We estimate that here in the back half of the year will increase R&D and.
Our commercial investment by about $4 million.
Alright very helpful color. Thanks, Scott.
Thank you Jason.
Thank you and our next question comes from the line of Anthony Petrone with Jefferies. Your line is open. Please go ahead.
Thanks, and hope everyone is doing well I may start with with orders in the quarter to 7 orders and just looking at the announcement in late June on Genesis care for 14th system. Just wanted to clarify if if any of those systems were in that order number in.
In the quarter, if not how how those 14 systems will be reflected in orders going forward and then I'll have a couple of follow ups.
Yes, Thanks, Anthony we hope Youre doing well also 2 of the 7 orders in the quarter were from Genesis care and as we share with investors.
Yeah.
Frequently.
We view that MPA with Genesis care is the way that we have viewed our relationship from the very beginning.
Those guys said to US couple of years ago put 1 system in the ground and prove that it's as good as.
As they think it is and as we think it is we did that at Oxford.
That worked.
Very well for them as you can see on their social media that led to a second system and now we have 2 more for a total of 4 and then the incremental systems.
Represented in the NPA.
We view that as we earn those 1 at a time by just having great clinical strategic and economic performance with them.
So that's how we view it and again to answer your question 2 of the 7 orders in Q2 were from Genesis care.
That's helpful. And then the follow up would be just when you sort of think about.
Orders sort of picking up here overall.
Regardless of where we are in a COVID-19 cycle, maybe just a little bit on the meridian funnel.
Are there any large tenders that are that are out there on how you see that evolving over the back half of the year and the last 1 I'll sneak in is just an update on timing for the UCLA.
Prostate study is that still expected in the second half.
Yes, a couple of things there.
As it relates to kind of orders in the in the back half of the year.
I would say qualitatively and quantitatively.
Our pipeline on the orders front is more robust than it's ever been.
That's true across academic centers community.
Hospitals.
For profit chains et cetera, So we feel very good.
About that.
I don't want to go any further and get ahead of myself I will reinforce as we said in our prepared remarks that COVID-19 challenges have not helped us over the last 18 months from an order and revenue standpoint, it's put pressure on the business.
And as I said, I think we're very well set up for the long term and I don't want anybody getting in front of US here in the short run because of what we perceive happening in the next.
Several years in the business. So we feel very good there.
The clinical side, yes, specifically the UCLA study.
Is still on track for the timing that we mentioned previously.
I think we'll get some.
Very interesting data here.
Here in the 'twenty 2 timeframe on a number of studies, including the UCLA prostate study.
Thanks again.
Thanks Anthony.
Thank you and our next question comes from the line of Murray Thai baht with BTG. Your line is open. Please go ahead.
Hi, Good afternoon. This is Sam <unk> on for <unk>. Thanks for taking the question.
I think just going back to the Genesis Kerwin, Hey, how are you just going back to the Genesis care when they're wondering if debt agreement came with any kind of ASP discount.
Then you also talked about increasing the MSP is there any potential for an increase from the up to 14 systems today to something even larger down the road. Thanks.
Yeah, Sam I would say the the agreement that we have with Genesis care carries a slight discount to the ASP that you saw in the quarter.
Which was excluding the 1 upgrade a little north of $6 million. So.
So I would say a slight discount from an ASP perspective.
And in terms of what the future is with Genesis care again, I don't want to get ahead of where we are.
My view is we earn.
These orders 1 at a time, even though we have a 14 system MPA and we've received 2 orders.
I think the value that we deliver to customers broadly Genesis care and beyond.
Is is really reflected in the clinical strategic and economic value that you saw from Dana Farber, Brigham and women's and Mci and Thats whats really driving our success in the marketplace across all customers across all regions of the world.
Great. Thanks for taking the question. Thank.
Thank you.
Thank you and again if your other question at this time. Please press Star then 1 and our next question comes from the line of Andrew de Silva with B Riley Securities. Your line is open. Please go ahead.
Hey, good afternoon, congrats on the progress.
So just a hip hop back on the Genesis care question line.
I believe are substantial.
Shannon.
<unk> backlog.
Type of Genesis care as well any sense of how.
That will be a fortunate or.
That's being phased out given your recent agreement with Genesis care It seems like.
They wouldn't have CIS.
Systems.
We're running an holders.
Facilities, unless there was some strategic reason to do it.
Yes, Andy Thanks first of all for your comments on on the progress in the business, we feel really good about the work that the team is doing so thank you for that.
I wouldn't care to comment on anybody else's backlog there I would tell you that we feel very good about the relationship that we have with Genesis care and more broadly as I mentioned on the previous question the <unk>.
Clinical value translating into strategic and economic value.
We have heard this story now across 45 different customers that are clinically active treating patients and that gives us a lot of confidence in terms of the future of our business and you put that together.
Understanding our customers definition of clinical success.
<unk> dos type margins, no fiduciary fiber fewer fractions and low to no grade 3 or higher toxicity and.
And the fact that we're the only system consistently generating that kind of data we search constantly for it we think the combination of those factors is really moving US along and then you put in there the continuous flow of really positive clinical data and the work that we're doing.
Right in line with our customers' desires on the Meridian system things like sub 20 minute treatment times brain treatment package et cetera, we feel as though that's really driving our success across all customer types and across the globe. So I'll leave it there and we will continue to be transparent with future.
Genesis care orders and we only put 2 and our backlog I want to be really clear about that I think we do treat our backlog a little bit differently than some others do we only put 2 in our backlog and we will only do that with firm purchase orders.
Okay and then.
As it relate to.
Genesis care systems that have been put in the backlog.
Are the 2 systems replacement systems or are they actually new build outs.
When you say replacements.
Or do you mean replacements for current systems that they have or empty vaults is that are you.
Question, Yes.
Okay.
These are replacements for other systems that were previously in use.
Okay, that's useful context.
Got it and then.
That are catching the attention in the marketplace and all of that value begins with an flows from the clinical value of meridian.
Okay Perfect and then our last question for me has there been any change in where orders are coming from.
Specifically are you seeing region, where there are existing systems being utilized for treatment, having increased interest relative to regions that they don't have a meridian system installed in the area that I'm looking at.
Reference is Florida, I'm curious if that's resonating in other regions.
Yeah, I think it it kind of continues Andy I think the interest in meridian is increasing across the globe I do think to your point in areas, where meridian is in essence, taking patients competitively there is more activity, we see that in the.
UK market, we see it in Florida, I think we're going to start to see it with more intensity in the mid Atlantic region in the upper Midwest.
So I do think there's a competitive factor here and patients are definitely traveling for the system again reference back to what you heard from Dana Farber and Mci.
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