Vision-Sciences' CEO Discusses F4Q 2014 Results - Earnings Call Transcript

Apr.29.14 | About: Vision-Sciences, Inc. (VSCI)

Vision-Sciences, Inc. (NASDAQ:VSCI)

F4Q 2014 Earnings Conference Call

April 29, 2014 8:30 AM ET

Executives

Lisa Wilson – Investor Relations

Howard I. Zauberman - President, Chief Executive Officer & Director

Keith J. C. Darragh –Vice President of Finance

Lewis C. Pell – Chairman

Analysts

Joseph Schuler – JAS Investors

Ralph Weil – R. Weil Investment

Operator

Good day, ladies and gentlemen and welcome to the Vision-Sciences Fiscal Q4 2014 Conference Call. At this time, all participant lines are in a listen-only mode. Later, we will be running a question-and-answer session, and instructions will follow at that time. (Operator instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today’s program, Ms. Lisa Wilson. Ms. Wilson you may begin.

Lisa Wilson

Good morning. Thank you for joining Vision-Sciences’ financial results conference call for the fourth quarter of fiscal year 2014. Today’s call will include remarks from Howard Zauberman, President and Chief Executive Officer; and Keith Darragh, VP of Finance. They will be joined by the company’s Chairman Lewis C. Pell for the question and answer period.

A number of forward-looking statements a non-GAAP financial measures will be made during this presentation. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on Vision-Sciences’ current expectations and are subject to a variety of risks and uncertainties that could cause the Company’s actual results to differ materially from the statements contained in this presentation. There is no assurance that any future results or events discussed in these statements will be achieved.

Non-GAAP financial measures excluding non-cash and non-operational activities and are used to access the non-GAAP financial measures are meant to be useful to investors and should not be consider measures of the Company’s liquidity. A reconciliation between non-GAAP financial measures and GAAP financial measures is included in the Company’s press release.

Any forward-looking statements represent the Company’s views only as of today and should not be relied upon as representing our views as of any subsequent date. For the benefit of those who maybe listening to the replay, or archived webcast this call was held and recorded on April 29, 2014.

With that, I will turn the call over to the Howard Zauberman.

Howard I. Zauberman

Thanks Lisa and good morning everyone. In the fourth quarter of fiscal 2014 Vision-Sciences recorded revenue of $5 million, the highest quarterly revenue in the company’s history and a milestone in our – for suitable leadership in the endoscopy marketplace. We achieved fourth quarter revenue growth of 19% year-over-year and revenues for fiscal 2014 increased 12% over fiscal year 2013.

Our fiscal year sales of over $17 million, was also a record result for the company. Moreover, we continue to realize positive results from the sustained focus on our medical business and cost control efforts. I will revenue the noteworthy events from the quarter that have been key to Vision-Sciences’ success, in its strategic repositioning.

First I’ll ask Keith Darragh, our Vice President of Finance to review the financial results. Keith.

Keith J. C. Darragh

Thanks Howard. For the fourth quarter of fiscal 2014 our net sales was $5 million up 19% as compared with $4.2 million in the fourth quarter of fiscal 2013. Our Medical segment sales increased by 20%, as we achieved year-over-year growth in all of our markets. Net sales of Stryker were up $242,000 or 22% in the fourth quarter of fiscal 2014 driven by Stryker's demand for our sells.

Gross profit was $845,000 down 31% as compared with $1.2 million in the fourth quarter of fiscal 2013. Gross margin decreased to 17% as compared to 29.2% in the fourth quarter of last fiscal year. The year-over-year decline was attributable to the one-time non-cash inventory charge of $537,000 for slow moving and obsolete materials. Excluding this charge, our non-GAAP gross profit was $1.4 million with a non-GAAP gross margin of 27.7%.

For the fourth quarter of fiscal 2014, our operating loss was $2.2 million up $269,000 or 13% over the same period of last fiscal year. On a non-GAAP basis our operating loss was $1.8 million and improvement of $268,000 or 13% over the same period of last year.

Turning to our full year results as Howard noted, we achieved record sales of $17.1 million in the fiscal 2014 and increase of 12% over fiscal 2013%. Our Medical segment sales had a strong year with growth increasing by 22% in fiscal 2014, the year-over-year growth was largely driven by our performance in the urology and pulmonology markets which were up 47% and 40% respectively in fiscal 2014.

Gross profit was $4.5 million, up 4% as compared with $4.3 million in fiscal 2013. Gross margin decreased 210 basis points to 26.3% as compared to 28.4% last fiscal year. Excluding the inventory charge our non-GAAP gross profit was $5 million, with a non-GAAP gross margin of 29.4%. Our operating loss increased by $1 million, or 12% to $7.4 million in fiscal 2014. On a non-GAAP basis our operating loss was $6.9 million, a decrease of $1.6 million or 19% compared to fiscal 2013.

At March 31, 2014, cash and cash equivalents were $1.2 million and working capital was $6.9 million, as compared to cash and cash equivalents of $788,000 and working capital of $7.0 million at March 31, 2013. We reduced our net cash burn from approximately $9.7 million in fiscal 2013 to $6 million in fiscal 2014, an improvement of $3.7 million. We achieved this by managing our cost structure and improving our operating loss, and by reducing our working capital needs. We will continue to identify areas of opportunity to further improved our overall cost and cash burn.

With that, I’ll turn the call back to Howard.

Howard I. Zauberman

Thanks Keith. I’m very pleased with the results of fourth quarter of fiscal 2014. As already mentioned, we posted record revenues of $5 million, representing 19% growth over the same quarter last year. These results are clearly moving in the right direction. Our impression of results for both fourth quarter and fiscal 2014, which was a record year for the company, can be attributed to the principle strategy implemented by our new management team. We concentrate on strategic growth areas an increasing operational efficiency.

The first of these strategies involves our continuing effort to redirect an refine the Vision-Sciences’ sales team, this includes regular performance assessment and the addition of new sales professionals in critical territories as needed, because sales force execution is integral to our overall success, we are focused on understanding how we drive sales and examining those traditionally successful areas, where we believe there is potential for growth and where historically we’ve had the most success.

These are ENT and TNE in the office and ambulatory setting, and critical care/pulmonology in the ICU setting. A greater understanding of the needs of the vision in these areas also enables us to generate meaningful new products; we’ve reorganized our product development process to focus on helping our customers meet their clinical need. And to provide cost effective solutions to enable them to address the economic changes occurring in healthcare. As a result we will be introducing several new products both scopes and accessory products. Based on our current customer focus in their place of practice.

We continue to be pleased with our relationship with Stryker those efforts contributed to the 14% growth in our urology revenues for the fourth quarter. We have mutually agreed to extend our exclusive agreement with Stryker for our cystoscopy product line until we ongoing decisions are complete, which we anticipate concluding shortly.

Our goal is to maximize sales and profit potential of this important product line. We look forward towards strong presence at the American urology association leading in mid-May. Were our presences along with Stryker’s will continue to have a positive impact on our Urology business. This fiscal years show strong international growth our EndoSheath Technology to the urology market achieving that 31% sales increase. We continue to see higher demand of our urology products in France, which grew 46% in fiscal year 2014 and Belgium which grew 85%.

Under our December 2013, agreement the 21 century oncology we are is preferred vender of choice for endoscopy equipment use for the evolution on treatment procedures in multiple therapeutic in cancer care areas. The agreement covers our advance fiber optic and video base endoscopic imaging products, including flexible our endoscopes, TNE bronchoscopes and cystoscopes.

Full of which are utilized in the diagnosing treatment and management of head and neck the esophageal lung and bladder cancers among other diseases. We have begun outfitting a number of 21 centuries, 150 treatment centers in the U.S. with our platform technology and we are looking forward to continuing the rollout to the remaining U.S. centers.

We continue to achieve positive medium coverage with articles if future the efficacy and safety of our EndoSheath Technology. Medium sizes keyed into current events this quarter such as pension safety awareness week and the growing crisis hospital space with [indiscernible] by issuing simultaneous press releases to bring attention to our safety and efficacy profile. In appearance by our board member Dr. Cheryl Pegus on National Television, also brought attention to our company.

In addition, the prestigious British Medical Journal featured a peer reviewed article entitled, A 21st Century Nosocomial Issue with Endoscopes, in which the authors identify our sterile disposable EndoSheath technology as a safe, cost-effective alternative to conventional flexible endoscopes.

The authors first postulate that reprocessing conventional flexible endoscopes is “time consuming, labor intensive, expensive and most importantly susceptible to failure.” Infections resulting from scope contamination or significantly under reported due to limited surveillance in reporting and lack of immediate clinical symptoms of patients. These infections break the trust between patients and doctors and place a financial burden on healthcare institutions.

Research shows using EndoSheath technology and it’s simplify cleaning and disinfection procedure offer “a vast improvement over current decontamination procedures” that can reduced scope turnaround time by up to 31 minutes. In addition to safety and convenience, the authors also note the economic benefit of EndoSheath technology, which by design is “more cost effective, reduces repair cost and decreases investment in multiple scopes that are out of operation while being cleaned.”

The author states in a follow-up letter to the editor of BMJ that “given the current body of evidence the used of Sheath scopes achieve the best conditions possible, given the pressures of the clinical environment.” We believe that the market of our patented EndoSheath technology will continue to grow as medical professionals search for a sterile and reliable product to safeguard patients.

As the attention of the medical community becomes increasingly focused on the most significant current risks facing the healthcare industry, we in turn will continue to work diligently to demonstrate how our EndoSheath technology preempts the hazards of inadequate reprocessing by encasing our flexible endoscopes in a sterile, protective EndoSheath micro-barrier. Over time, we hope the paradigm will shift to our all flexible endoscopic procedures; we’ll employ our EndoSheath technology to protect patients against the hazards of inadequate endoscopic reprocessing.

All of these circumstances contribute to the growing body of data on the clinical efficacy of our EndoSheath technology as a durable microbial barrier and further support the advantages of using our sterile disposable technology over conventional difficult to clean and disinfect endoscopes.

As we look forward, we will continue our efforts to maximize sales and profit potential of our EndoSheath Technology, with a focus on increasing operating efficiency and further margin improvement. Furthermost, is our mission to focus on the innovative technologies that improve patient care and reduce costs to the healthcare system.

With that operator, please open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And I’m saying no participants in the question and answer queue at this time. I do have a question just now from the line of Joseph Schuler from JAS Investors. Your line is open.

Joseph Schuler – JAS Investors

Good morning. And congratulations I would in everyone on good turnaround or can growth in revenues and I’m just wondering at what level is needed for the company to reach a break-even and I’m sure it depends on the mix et cetera. But its $20 million, it’s a $30 million and when do you think this might be obtained. Thank you.

Howard I. Zauberman

Good morning. Thank you for the question. So without giving forward-looking predictions, we do – we are working to reduce our burn, we did a recently good job reducing our burn by over $3million of this past year. We are working diligently to continue that and would expect at least similar progress of this fiscal year, but would not anticipate a break-even until a later to date. But if you see that trend that we are moving towards you could forecast be yourself we are will be.

One of the things that we’ve are concentrating on doing, two things one it is were diversely looking at our cost in our spending and looking for ways to reduce those. And second, we are looking to not only growth sales, but grow sales in our most profitable categories.

And we are – a number of activities that we have to increase our gross profit margin that will be a major focus this year and by making sure that the push products through our most profitable channels and drive that those gross profit margin that way and then look aggressively at costs both at the manufacturing cost as well as our TNE expenses and the drug down of burn in that way. So we certainly plan on continuing the improvement that we have, but we will not break the breakeven this year. This coming fiscal year.

Joseph Schuler – JAS Investors

Thank you.

Operator

Thank you. Our next question comes from the line of Danny Frank [ph]. Your line is open.

Unidentified Analyst

Good morning, Howard. Can you gives some idea of the new products that your talking about or thinking about and also in the Stryker arrangement do you – are they looking for or are you discussing with them expanding the number of products that they would put into their channel.

Howard I. Zauberman

Good morning, Danny and thanks for the question. So the new products, we don’t want to be specific before we are ready to launch them, but what I can tell you is that there will be new launches in May so there are some important meetings, medical meetings coming up in May and we will be present and during those meetings we will begin to roll out our new products.

They are in medical categories that we currently sell in, so we are not centering outside of our current space. And they are going to chose through the channels that we currently have established, whether or not that’s our direct sales force or our distributor network et cetera, but we are not creating new channel and we are not visiting new customers.

These are product that are targeted to current customer that had the opportunity to understand of this past year, understand their unmet needs and how we could fill those and that’s with was our – are under products that we launch, but really very soon, we are talking about just a couple of weeks and we’ll be taking those announcements.

Unidentified Analyst

I think Howard, are these going to have – are these products that will be at the same selling point or are they – so in which case the guy is buying a scope for one use and then he would buy this scope for another use or this product for another in which case it would double the hardware sales to the customer or is it and adjunct addition to an existing product?

Howard I. Zauberman

These are both improvements to existing products as well as adjunctive where we would enable position to currently use our products due to more with these new products, more procedures, or same procedure for using more of our products. We’ll help to drive up revenue and profitability while with these introductions.

With respect to Stryker we our discussions are underway and because of confidential relationship that we have with them. We wouldn’t want to disclose anything in particular, I’ll then just say that we have a very good relationship, they’ve done a very good job with our new ureteroscopes, their sales force Ureteroscopy is done primarily in acute care facilities, hospitals and that is where their sales force just focus. Our cystoscope product line – it’s not could be as primarily done in the U.S. in office space procedures, in office space practices and that’s where we want to key that we can improve that the results that we’re receiving.

So we’re looking to drive additional revenue of the product profitability from that line and I’m sure and just very short period of time we’ll be completing those negotiations and making their announcement.

Unidentified Analyst

Okay, and then one other question anything you can tell us about sales of the SpineView or is anything starting to happen there yet or when you anticipate something happening there?

Howard Zauberman

Yes, so I think we noted this before that SpineView is needs to address reimbursement before they can begin to glow up their business, until that time we’re not anticipating any sales or any significant sales to them. So, they’re focused on reimbursement once they get that, that we’d hope that their business and subsequently our business would reach benefits of that.

Unidentified Analyst

Okay, thank you.

Operator

Thank you. Our next question comes from the line of Ralph Weil from R. Weil Investment. Your line is open.

Ralph Weil – R. Weil Investment

Hi, good morning. When did the 21st Century Oncology agreement really take effect in terms of product being shift and how significant is that been in your improvement then might there be other groups like 21st Century Oncology that we might be trying to solicit. And the second question is I heard from your, what you said that the Frankston, Belgium is showing very significant growth now maybe this is also very small base, but why are they growing so rapidly, is that due to the medical environment or are there other external facts that is in those countries, which make this happen or help make this happen.

Howard I. Zauberman

Thanks, Ralph, thanks for the questions. So the 20% we signed for the vendor agreement in December, so starting in January, February, and March. The first quarter that the agreement wasn’t affect our fourth quarter was when we begin actually outfitting a number of their facilities with our products. They have sort of 140 – 150 U.S. sites, we’ve penetrated a little less than 10% of those with our systems in the fourth quarter. And we continue to see good penetration now in the beginning of our first quarter for this fiscal year.

So we would expect that will continue. With respect to is to say our strategy that the other large groups that we are focused on, the answer is absolutely. We think our technology fits these large private practices whether their hospital owned, or private equity owned, or doctor owned, we think they fits – our technology fits very well with them from a both an efficacy standard of cost effectiveness basis. And we are in discussions with a number, but at the moment we are focusing up on right now that we are very helpful and will be able to make progress on.

With respect to the international growth, we have had a very good success internationally in Europe this past year. I think a couple of thoughts, one is the economy in Europe, is improving and that’s certainly helpful to us.

Second is that as you know a number of European countries have socialized medicine, in those countries they are very conscious – cost effective procedures and they for instance in France, which is our largest country outside the U.S. They have really valued the cost savings associated with the EndoSheath technology. So we’ve been very successful in France, in Belgium as we mentioned. I could tell you we’ve been very well this year in the U.K. as well, all of these are very cost conscious especially when it comes to healthcare and we think that’s a major driver for our growth there.

Keith J. C. Darragh

And Ralph this is Keith. I just wanted to mention that business the international segment is up 21% in fiscal 2014 versus last year. So we’ve seen some really good growth in that segment.

Howard I. Zauberman

Let me finally say with respect to international that there are some major territories where we do not have sales or distributors selling our product. Probably the most glaring [ph] of which is Germany, we’re focused on making sure this year that we establish a good distribution channel in Germany where we believe our technology will be adopted and valued greatly.

So we’ve got – we’ve seen historic over the past years, good growth, there are – we think there is opportunity to continue to grow internationally by opening new territories that we haven’t yet begun to introduce, whether or not that’s in Europe or in other past of the world. And so we are positive, we think international will be a contributor to our growth going forward.

Operator

Thank you. And I’m seeing no other questioners in the queue at this time. I would now like to turn the call back to Howard.

Howard I. Zauberman

Thank you, actually full year growth we now have direct dividends that our repositioning strategy is having a positive impact. The on going validation of why Vision-Sciences technology is critical in today’s healthcare environment? Further supports the value proportion of our technology. We’re confident that we can address a significant unmet medical need in a cost effective way. Thank you for your on going support.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This now concludes today’s program and you may all disconnect. Thank you and have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!