Q1 2023 ViewRay Inc Earnings Call

Speaker 1: The.

Speaker 2: Good afternoon and thank you for joining the View-Ray first quarter earnings call. My name is Kate and I will be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.

Speaker 2: I would now like to pass the call over to our host, Matt Harrison, Director of Investor Relations. You may proceed. Matt Harrison, Director of Investor Relations I am Matt Harrison, Director of Investor Relations.

Speaker 3: Thank you, Kate, and welcome to Vue Ray's first quarter conference call. Joining me today are Scott Drake, our President and Chief Executive Officer, and Jake Signorello, our Interim Chief Financial Officer.

Speaker 3: Earlier today, Vue Rate issued a press release for today's call, which is available on our website.

Speaker 3: Today's call is being broadcast and webcast live, and a replay will be available on our website for 14 days.

Speaker 3: Before we begin, I would like to remind you that the discussion during this conference call will include forward-looking statements.

Speaker 3: Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC.

Speaker 3: Also, the discussion may include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measure can be found in our appendix and exhibit of our current report on Form 8K filed today with the SEC.

Speaker 3: And with that, I will turn the call over to Scott Drake.

Speaker 4: Good afternoon, everyone, and thank you for joining our call. Given that we pre-announced our results last month, we are going to focus our remarks today around three areas. First, our strategic process. Second.

Speaker 4: provide color around the steps we have taken to enact cost savings and cash preservation, and, third, provide an update on our views on guidance.

Speaker 4: Regarding our strategic process, we are working diligently with the Goldman team and potentially to further engage in our international success platform.

Speaker 4: Understandably, investors inquire about specifics relating to who and how many have engaged, expected timing, and the like.

Speaker 4: As we set in April , we will not disclose specific developments unless and until our board approves a transaction or action.

Speaker 4: We will communicate with investors when we have definitive news as we seek the path that is best for shareholders. As I mentioned on prior calls, our distributors have elongated their payment cycle to preserve cash on their balance sheets until they have received all payments from the end users.

Speaker 4: In addition, rising construction costs have delayed installation cycles for certain customers.

Speaker 4: The net effect has been delayed revenue and increased working capital demands for the company.

Speaker 4: Our cost saving efforts today are designed to address these cash flow shortfalls while preserving and prioritizing our R&D pipeline, clinical pipeline, and customer service efforts.

Speaker 4: On the OptX and Cache Preservation fronts, we have taken several important steps to reduce costs while maintaining key research and clinical programs as well as preserving strong customer service levels. We are enacting reductions of 19 to 23 million dollars.

Speaker 4: including travel, back office, commercial, and other DNA expenses.

Speaker 4: We believe these actions are consistent with our strategic alternatives review process, but also maintain flexibility for the wide range of outcomes our process may yield. We want investors to know that we are clearied about our need to preserve cash, yet mindful that different supers and paths.

Speaker 4: have different requirements and needs.

Speaker 4: These cost savings actions taken to date allowed us to maintain that flexibility while reducing cash burn in 2023 and beyond.

Speaker 4: As part of our announced reductions, we had to make the difficult decision to ask Wilbur to step down and CFO .

Speaker 4: They'll join you, Ray, because of the profound patient impact of Meridian.

Speaker 4: In unison with our capable team, Bill has led extensive planning to prepare us for the potential pathways that lie ahead.

Speaker 4: I am grateful for his efforts and wish him well as he returns to retirement.

Speaker 4: Jake Stiglerllo, who has served as our VP of Finance and Investor Relations, has agreed to serve as CFO in an interim capacity as we go forward.

Speaker 4: Finally, given the range of outcomes related to our strategic review, we believe it's appropriate to suspend our guidance for the remainder of the year. While we have not had any customer orders canceled at the current time, and we continue to advance discussions with both prospective...

Speaker 4: and they delay installations until there's greater clarity.

Speaker 4: As such, we feel it is prune to cancel guidance until we have determined the next steps for the company.

Speaker 4: We look forward to sharing this with investors and customers at that time.

Speaker 4: with and leaving with a couple of thoughts.

Speaker 4: Our innovation and clinical pipelines have never been stronger.

Speaker 4: Our customers are treating patients every day that have no other therapeutic option.

Speaker 4: Meridian has treated over 30,000 patients.

thousands of them with reported clinical outcomes that reporting to key One of the several closest lawyers here is a steady

Patients and customers deserve and demand proven, highly effective, short course treatment, and this is exactly what we deliver. We currently have a sizable backlog and an increasing number of customers that desire incremental descendants to get tapping together, commonrametal, beridian, and systems.

Our board is focused on the importance of bringing clarity to the market and we are acting with all due speed to optimize value for our investors and provide this leading product to a growing list of customers.

This challenging macro environment is a reality, but one that will improve over time.

What won't change is the life-enhancing patient impact of our technology.

Thank you for joining us today and with that operator, please open the line for questions. Absolutely. We will now begin the question and answer session. If you would like to ask a question, please press star followed by A1 on your telephone keypad. And if for any reason you would like to remove that question, please press star followed.

Scott, a couple of questions for me. Just along with your cash conservation initiatives, I wanted to be clear in your mind, given the U.S. success in reducing GNA, etc. as you mentioned.

What kind of cash burn do you think you're expecting? And what kind of timeline does that give you extending into next year to work out some of the strategic review and come to some conclusion there?

And maybe just as part of that, just on this financial part, it reminds us, you didn't mention your SVD line of credit. I think if I recall correctly, there was $45 million available, which was tied to the company achieving certain milestones.

Are you still able to draw against that credit, women? Where does all that stand now? That'd be great to get some color, thank you. Yep, thank you, Rick. So a couple of things I would share, and I'll invite Jake to come in over top if I go astray here at all.

Rick, we ended the quarter at somewhere between 85 and 86 million at the end of Q1.

We are being incredibly careful about our cash utilization. As you mentioned, we have taken actions today to preserve expenses and elongate our cash runway.

Our focus is on this strategic process that we're partnering with Goldman on. And most importantly to us, we have the capital to get through this process, whatever it may yield. Many different potential outcomes there.

from sale of company to capitalization of the company and everything in between.

This is taking 100% of our time, and we have the runway to get through that.

taking 100% of our time and we have the runway to get through that. Okay, and the line of credit?

Yeah, Rick, I'm going to stop there. We have suspended guidance and we don't guide the cash. So I'm going to leave commentary there that we have the runway to get through this process. Three, four, five. Put that right here like you've got.

which is critically important and what we're focused on at the moment.

Okay. And just as a follow-up question, Scott, I know over the last several years you've been emphatic about the quality of your backlog and removing orders that seemed uncertain.

And I'm intrigued that you're emphasizing that no custom orders have been canceled. You're still working on new orders and actually I think I'm right and think the backlog went up a little bit.

Can you give us more color on customer reactions? Do you feel like your prior install rate in rough terms is still going to happen this year? What are customers saying to you?

How concerned are you about, you know, sustaining the backlog at current levels and expanding it? I'll stop there. Thanks so much.

Yeah, no, thank you, Rick. I appreciate that. Yeah, just to be clear, we have not lost any orders at this point out of our backlog and Rick to your point we have had some success on the order and commercial front pushing things forward.

I do want to say I think it's fair, you know, right down the middle here to share that some customers are pausing to see how this plays out over the next 60, 90 days.

We had a customer, a conversation with a customer last week, I think, Sig, that is looking to buy their second system.

They're somewhat conditioned, I think might be the right word. They've seen VueRay go through difficult times during our partnership over the past several years.

and they seem to be moving forward with their process of ordering an incremental system. Other customers, frankly, are taking a different approach, and they are waiting to see what happens here, understandably, and we are in very close.

communication with those customers and happy to have dialogue on any front, whether it's clinical data, how is the process going, how's the company doing, and the like. I would say various customers are reacting in various ways, but I am pleased.

cautiously so, that we're still able to move things forward, even in the midst of a challenging time.

Okay, thank you Scott. Thanks for it. Thank you. The next question will be from the line of Chris Pascale with Neffron. Your line is now open. Thank you.

Thanks for taking the questions. Scott, how do you think about the timeline for the headwinds you're facing to normalize? In other words, if you accept that there isn't a change of control event at the conclusion of your review and it's something more akin to a recapitalization, how do you think about the time gap that you're attempting to bridge before you're back on solid ground again?

Yeah Chris, you know as I said, answering the prior questions.

This is 100% of our focus, literally. And we are, you know, peddled down on every facet and form of our strategic review process. We are keenly aware that time is not our friend. And...

Very difficult to project to project precise timing But I can tell you it is again a hundred percent of our focus and we're looking to resolve this situation quickly Okay, you characterize the cost-cutting measures as coming primarily from GNA

Given some of the comments about customers perhaps being hesitant to pull the trigger or given the uncertainty the moment.

in the sales organization still resource to play offense and pursue new business and that the right level of resource to have for the sales piece of the business at the current moment.

Yeah, Chris, I would share that there is some impact there. I think I mentioned commercial in my prepared remarks, but we think it's right-sized for where we are today organizationally. We feel as though we've made prudent decisions there that are consistent with this.

strategic process that we're in the midst of, but also very cognizant of our need to manage expenses very carefully and preserve cash.

Thanks. Thank you, Chris. The next question will be from the line of Suraj. Kaliya with Oppenheimer. Your line is now open.

Scott, can you hear me all right?

Scott, can you hear me all right? I can, Sir Raj, thank you.

Perfect. He's got, so let me go back to the base hex and I've talked offline at least a couple of times and you know you've been kind enough to...

to try to answer at least that question. Scott, let me just in this forum just ask this question. Since the time of your preannouncement and this public disclosure of this process, your stock has lost almost 70% of its value.

So Scott, help us understand what was necessary to actually disclose this process going on.

that any potential suitor

is going to look at. I haven't still connected the DOTS card as to what was the legal requirement for disclosing to everyone, hey, we are doing this process.

Yeah, Siraj, you know, we were we were confronted with

A situation that changed pretty rapidly, we thought it was the right thing for investors to do the pre-announcement. And we debated whether it would be correct to share that we were engaged with Goldman.

or have investors ask questions about, hey, do you understand where you're at and you're doing nothing about it? And we made the choice to be forthcoming and open with investors. We are very pleased with our partners at Goldman.

And I would say, Siraj, we just chose the path of transparency. Have the debate, understand your question, and that's where we landed.

Scott, when do you expect this process to end because of your prepared remarks? An impair phrasing, you said at the end of the process, we will at least be capitalized. Forgive me if I got that wrong. I guess I'm trying to understand what do you envision is the duration of this process?

How do you define being capitalized at the end of the process at a bare minimum? Thank you for taking my questions.

Yeah, of course, and thank you, Siraj. I, you know, look, I think most everybody on this call has probably been around strategic processes enough to know that they're very difficult to project from a timing perspective.

things have been flow and M&A is a very binary game and either something either happens or it does not. So I don't think it's prudent for me to try to project a specific timeframe. But part of the overall work that we are doing is to consider.

capitalizing the company should that be the best path for shareholders and we have the runway and it has a hundred percent of our focus and that's what we are doing.

Thank you.

The next question will be from the line of Marie Cybel with BTIG. Your line is now open.

Hi Scott, appreciate you hosting the call and taking questions. I wanted to ask a quick follow up to Rick's question on cash runway. In April you told us that the cash balance should get you to first quarter of next year. Are you able to confirm or reiterate that timeline? Not exactly sure how the expense reduction that you mentioned.

here of impacts that cash runway. Yeah, thank you, Marie. I would just kind of reiterate that we have the cash on hand to get through this process. That's what we're focused on, given that we have taken the decision to suspend guidance.

I don't think it's appropriate for us to put down new markers other than to say what we're focused on and we have the runway to get through it. So hopefully you can appreciate that and that's where I'd like to leave the commentary for now.

Certainly, okay, understand. And then a quick clarification on the cost reduction that was mentioned 19 to 23 million on an annual basis. Is it all coming out of op-backs or does that also include some efficiencies on working capital and things? I just want to sort of right size that number. And is it also a comparison to the

the cost cuts are complimentary to the process that we're in the midst of. We are preserving to the maximum possible degree, our R&D pipeline, our clinical pipeline, and customer service efforts. We are cutting more deeply in GNA, travel some impact to commercial as we mentioned just a little bit ago.

And we debated that look forward to 24 because we will be largely through the NRE or non-recurring engineering work of cost down, which would make the cut look about $10 million larger if we were to compare to 24.

If that's part of your question, Jake, how about if you help Marie tie out the other bits of her question there? Sure, Scott. Thanks. Marie, so the 19 to 23 million does not include the impact for working capital. I'd leave that with the first part of your question.

realize about 55% of that savings in the current fiscal year and that the 19 to 23 is a one right on a four year basis everything.

All right, that's very helpful. Thank you Scott, Anne Jake, and Endust of luck with Let's Go Head. Thank you.

That's very helpful. Thank you Scott and Jake and best of luck with what's ahead. Thank you Thanks, Marie

The next question is from the line of case and bedener with Piper Sandler. Your line is now open.

Hey, good afternoon. I wanted to start with maybe a follow up on a prior question. I guess just with what's unfolded here over the past month as you pre announced and indicated a hired a strategic advisor and Goldman. You said perspective orders earlier in this call perspective orders are in some.

maybe what the sentiment is like in the walls of Uray right now. I know not an easy conversation, but these topics are important here with the state of the business going forward.

Yeah, yeah, happy to. Why don't I flip the order and invite Zig to chime in on the customer part. It's difficult, Jason, to be candid with you. We are very transparent as an organization. We care deeply about our mission and about our team.

So it is a challenging environment. At the same time, I would tell you, our team believes so fervently on the patient impact that we're having on cancer patients every day. They are inspired by the clinical data that our customers generate.

And there's a whole bunch of positive things to look forward to in the midst of a difficult time of taking the cost-cutting actions that we have taken. From a customer perspective, I would just say broadly, our customers generally take

years to make a decision to buy a meridian system.

There are exceptions to that. It has gone faster. But generally speaking, our customers are looking at and doing diligence over a couple year period of time. So it is, even though you might say gee, what do customers think at this moment?

They don't take the decision likely, and they have done very deep research and compared Meridian to virtually every other technology out there. And they're not in the instances that we have seen and that we're talking about here. It doesn't appear that they're very quickly.

Turning tail on that decision and we're in very close contact with our customer base. Let me pause and see if zig wants to come over top. Scott, I agree with that. Jason, again, we haven't lost any or had no cancellations within our backlog.

We're certainly aware the reality is facing our customers right now working closely with them on their installation timeline. In some instances the timing of shipment is a bit difficult for us to forecast and I think that's in line with us to spend the guidance.

Okay, all right. That's helpful. Maybe just picking up on that point with the complete polling of guidance. Maybe I missed it and it's totally possible, but I would just like to understand what's changed in just the last few weeks that.

caused us to go from revised guidance on revenue and EBITDA to no guidance whatsoever. I mean, why not just pull the guidance entirely to begin with? It doesn't sound like, you know, anything today is a indication of further deterioration in revenue recognition process or the backlog. So I guess if you could do it over, would you have pulled guidance to begin with?

pretty rapidly. If you look at the end of last year, we saw a signal of how our distributors behavior was changing, how customarily prior to that we would ship a system to them and they would send cash quickly.

We're leaving the working capital requirements on the business. Then we saw these inflated construction costs.

that really happened very quickly early in this year, which is what led to our pre-announcement. Monday morning quarterback, could have we done some things different? I'm certain of that. But we made a very measured decision at the time with the facts that we had in hand. And we have had,

I can't tell you how many conversations with customers in the intervening period and very thoughtfully again contemplated whether this was the right move here in light of the fact that we have not lost any orders. But we think with the facts and circumstances it is appropriate today.

and the prudent move to suspend guidance. Okay. I'm going to squeeze one more in here just to...

They're interested in asking one more. Sorry. I know the receivables here, since you were talking about those there. They've been a challenge. Revenue cycle management has been a challenge.

Can you talk about the risk level around collections from customers and your distributors you're going forward? Do you anticipate bad debts or write-offs here rising going forward? Thank you.

Yeah, you know, to that last question and Jake, I'll give you a shot here after I answer if you want to add anything. Jason, our track record from a bad debt perspective, I think you and others probably know it well. I don't see.

a change in the current environment relative to that. We have always been able to gain payment from our customers. It doesn't always come as timely as we would like it to. And this is a pretty lumpy business, as you're well aware at this current phase of our...

I would agree we do believe that all of our receivables are collectible going forward. Thanks Jason.

Thanks for taking our questions.

Okay. Understand the focus on the strategic alternatives we've all been, but I just wanted to maybe ask some questions on the headwinds and if any efforts are still being...

put towards trying to address those headwinds. Like for instance, I think you mentioned financing, customers are having trouble getting those financing and I'm wondering if you're helping find alternative options for the financing. For instance,

Or if there's any other efforts being directed towards those customer related headlin. Yeah Brandon, I would share that we have worked with our customers to identify third party financing partners. We have looked to monetize our backlog.

We have worked in any variety of ways to reduce the work in capital needs of the business. I would say we have had very modest success on that front candidly over the past many months of efforts there.

So we have put forward significant effort. It has not provided significant relief at this point. Right, right. I understand it hasn't provided. I'm just still wondering if these efforts are still ongoing. Even.

with the focus on strategic alternatives. And my, for instance, I'll also can ask about the construction cost. There's any particular aspect with construction. Obviously, labor is going to be significant factor there, but if there's any particular materials that have outside effects, or if there's any steps that you really can take to try to mitigate some of those factors.

Yeah, that's a great question and a big part of the future of the company. And I know we've talked about this both publicly and with you, Brandon, on our follow up calls. The cost down project that we are pursuing. It is 1 of the highest priority things that we are. Doing as a company.

The intent of that project is to take about a million dollars out of our cost of goods and concurrently make the speed and cost of installation of Meridian commensurate with other conventional high-end LINACs out there.

That is one of the challenges that we face commercially is the time and expense that it currently takes to put a Meridian system in the ground. And we think we expand the opportunity, meaningfully, with the cost-down project. That project has been underway for some time.

And we think that is a project that we will be ready to launch somewhere in the early 2026 timeframe is our best estimate. It is a very big project, so timing is difficult to estimate, but that's how we're thinking about it. And I think it's also important for investors to know.

Some of what we do is incredibly difficult from a software perspective. Jim Dempsey and his team are just a marble from where I said. This work that we're doing is component-based and it's time and engineering work. I don't mean to trivialize the difficulty in any way, but it is very straightforward engineering work.

And we think the impact that that's going to have on our ability to compete in the market, adding all of the clinical data, all of the capability that we have, and taking those barriers down. We think that changes things materially for the company.

are all of the levers that can be immediately implemented? If there's any further levers that can be pulled in the coming six quarters. Yeah, there certainly are other levers that can be pulled, Brandon. I would say,

that various suitors and interested parties have different needs and different requirements. So we are striking a balance there. We believe we have struck it. If facts and circumstances change, there are always other actions that we can take.

We have done that scenario planning and I feel as though we're poised to make those decisions again if facts and circumstances warrant. Okay, yeah, thanks for taking our questions.

that scenario planning and I feel as though we're poised to make those decisions again if facts and circumstances warrant. Okay. Yeah. Thanks for taking our questions. Thanks, Brandon.

That is all the questions that are in the queue. I will pass the call back over to Scott Drake for closing remarks. Thank you, operator, and thanks everybody for joining us. We look forward to talking to you again on our Q2 call. Have a good evening. That concludes today's call. Thank you for your participation. You may now disconnect your lines.