Uroplasty's (UPI) CEO Rob Kill on Q1 2015 Results - Earnings Call Transcript

Jul.25.14 | About: Uroplasty, Inc (UPI)

Uroplasty, Inc. (NASDAQ:UPI)

Q1 2015 Earnings Conference Call

July 24, 2014 4:30 PM ET

Executives

Doug Sherk - IR, EVC Group

Rob Kill - President and CEO

Brett Reynolds - CFO

Analysts

Brooks O'Neil - Dougherty

Jose Haresco - JMP Securities

Larry Haimovitch - HMTC

Tim Clarkson - Van Clemens & Company

Operator

Good day ladies and gentlemen. Welcome to the Uroplasty First Quarter Fiscal 2015 Financial Results Conference Call. Today’s call is being recorded. At this time, I would like to turn the conference over to Mr. Doug Sherk. Please go ahead, sir.

Doug Sherk

Thank you, Catherine and good afternoon everyone. Thank you for joining us for Uroplasty’s conference call to review the financial results for the first fiscal quarter of fiscal year 2015, which ended on June 30, 2014. The news release announcing the results crossed the wire this afternoon shortly after the market closed and is currently available on the Uroplasty Web site. We have arranged for a taped replay of this call which can be accessed by phone. This call is also being streamed live on the Investor Relations section of our Web site at www.uroplasty.com and will be archived there.

Before we get started, during the course of this conference call, Uroplasty’s management may make projections and other forward-looking statements regarding future events including but not limited to statements about sales, reimbursement for procedures performed with our products, the potential market opportunities for our products and new product initiatives. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from anticipated results. These risks and uncertainties as well as others are more fully discussed in the Company's annual report on the Form 10-K and other quarterly reports filed with the SEC.

Additionally, the statements made on this conference call are made only as of today, July 24, 2014, and we assume no obligation to update these forward-looking statements to reflect future events or actual outcomes, and do not intend to do so.

And with that, I'd like to turn the call over to Rob Kill, President and Chief Executive Officer of Uroplasty.

Rob Kill

Good afternoon everyone and thank you for joining us today. With me on the call is Brett Reynolds, our Chief Financial Officer. Urgent PC revenue grew 19% in the first quarter of our fiscal year 2015, demonstrating once again the growing recognition by physicians and the value provided by the only non-drug, non-surgical treatment option for OAB patients. We have 778 active customers in the United States for Urgent PC during the quarter compared to 735 active customers one year ago. And active customers defined as one who placed an order in the current quarter. We also brought on 89 new customers and reengaged another 30 customers in the quarter.

Approximately 80% of our 43 sales territories have now been served by the same sales representative for at least nine months. As the time and territory continues to grow for our new reps, so does the level of productivity. We feel that we are very well positioned to achieve increased productivity over the course of the fiscal year. Additionally, the impact of our investment in six clinical specialists in the back-half of last fiscal year, to better train and in-service our customers on the appropriate procedure technique for Urgent PC contributed positively to our performance. Our top 50 accounts at average utilization of 22.3 boxes in the first quarter, an increase from 19.7 boxes in the year ago period. Utilization by all of our accounts averaged 5.1 boxes, up from 4.9, same time last year.

International sales growth of 48% for Urgent PC resulted from a more focused sales strategy as we transition to a direct sales model in Switzerland and the Nordic countries as well as increase our efforts on the sale of Urgent PC to treat fecal incontinence as we do have the CE Mark for this use in European markets. We also continue to build increased market awareness for Urgent PC, most notably the American Urological Association and the Society of Urodynamics, Female Pelvic Medicine and Urogenital Reconstruction, also known as SUFU, both of whom are the two leading professional societies in urology listed percutaneous tibial nerve stimulation as a recommended third line therapy in their updated treatment guidelines.

This recent recommendation is an addition to positive comments on PTNS by the panel of voiding dysfunction experts convened in May. As you may recall, these experts contended that Urgent PC should actually be a second line therapy alongside medications due to its safety, efficacy and low overall cost to the healthcare system. The panel’s comments were published in the June edition of Urology Today, which was distributed at the AUA conference. We believe these developments validate the fact that Urgent PC’s PTNS therapy should be offered to all refractory OAB patients as the benefits outweigh any burden or risk associated with the treatment.

On the reimbursement front, we continue to pursue expanded coverage for Urgent PC based on the growing body of clinical evidence. We’ve made progress after the positive tech assessment from Blue Cross and Blue Shield Medical Advisory Panel that concluded the use of PTNS for the treatment of voiding dysfunction meets their evidence based criteria as a safe and effective treatment for overactive bladder. We now have positive coverage for over 30 million lives across the independent BC, BS companies, up from approximately 20 million one year ago.

As for NGS, which remains the only one of eight Medicare administrative contractors to not have a positive coverage decision for PTNS, we continue to engage with them to help them understand the important role PTNS plays in treating OAB patients. Most recently we provided them the details of the AUA and SUFU recommendation for PTNS, noting that the other recommended OAB therapies already receive NGS coverage. As part of our education effort, we highlighted how the AUA and SUFU recommendation resulted from a review of recent clinical literature on the positive outcomes realized by PTNS patients. We will continue to pursue this until we receive a positive coverage decision from NGS.

Turning to new product development, a draft of our study design for fecal incontinence has been submitted to the FDA and we expect to meet with the agency in early fall. After this meeting, we would then develop and submit the specific study design, and our goal remains to initiate our pivotal study for fecal incontinence by the end of our current fiscal year. We continue to monitor 30 patients enrolled in our U.S. pilot study, and outcomes continue to be favorable.

Now I would like to the turn the call over to Brett to give some additional detail on our financial results for the quarter and then I will come back and finish with some closing remarks about the business and our outlook the rest of the year.

Brett Reynolds

Thank you, Rob. Good afternoon everyone. The first quarter of fiscal 2015 was another solid quarter with total revenue growth of 9%. Driving this overall growth was Urgent PC with global revenue of $4.1 million, an increase of 19% over the $3.4 million revenue in the year ago quarter. U.S. Urgent PC revenue totaled $3.1 million compared with the $2.8 million in the same quarter of prior year, representing growth of 13%.

Urgent PC sales outside of the U.S. totaled $930,000, which represent a growth of 48% over Q1 last year. As Rob mentioned, our direct sales efforts in Holland, Switzerland, the U.K. and the Nordic countries drove the increase. Global Macroplastique revenue of $2.1 million was down 4% as compared to the first quarter of last year. As we have said in the past, we expect quarterly variations in revenue from this product line but believe that revenue for the full fiscal year will be similar to last year.

Total U.S. revenue was $4.5 million, up approximately 6% as compared to the 4.3 million of revenue last year. Total international revenue for the quarter was $1.9 million, an increase of 19% over the prior period. We ended the quarter with 43 sales reps in the U.S., which means all of our territories were filled. This compares to 38 sales reps in the year ago period. We have six clinical specials in the field during the first quarter of this year with these physicians added in the second half of last year.

We expect the higher and additional six clinical specialists this year with the majority of new clinical specialist expect to be hired in the second quarter. In the first quarter of this year, we sold 3,999 lead set boxes of Urgent PC in the U.S. as compared to 3,601 boxes in the first quarter last year. This growth was due to both higher utilization for active customer as well as an increase in the number of active customers. Utilization increased approximately 5% over the prior year quarter, going from 4.9 boxes sold per customer to 5.14. Active customers increased by 6% in the quarter going from 735 active customers a year ago to 778 this quarter.

Looking out at the remainder of fiscal ’15, we continue to expect total revenue growth to range from 9% to 12%. Global Urgent PC revenue is expected to grow approximately 15% in fiscal ’15, while total Macroplastique revenue is exactly similar with ’14. Our gross margin was 87.6% in the first quarter, about 40 basis points higher than a year ago period and in line with our expectations. Operating expenses for the period totaled $7.8 million compared to $6.7 million in the same quarter last year. Selling, general and administrative cost increased approximately $645,000, primarily due to full staffing in the sales team in the current quarter as well as the expense related to the six clinical specialists we added in the prior year.

R&D cost increased approximately 430,000 due to higher clinical study activity as well as certain one-time cost related to management changes in the quarter. We had approximately $600,000 in expenses during the first quarter for severance and sales meetings and these expenses won’t repeat again during the remainder of the year.

Our operating loss of 2.2 million in the first quarter compares with a $1.6 million operating loss in the same quarter last year. Excluding non-cash charges for share-based compensation, depreciation and amortization, the non-GAAP operating loss was 1.8 million in the quarter compared to 1.5 million in the prior year. We continue to expect that our cash operating loss for the full year will be between $3 million and $4 million.

At June 30, 2014 we have cash, cash equivalents and investments of $10.6 million and we believe that this is a sufficient amount of resources to execute our operating plan for existing product lines for the foreseeable future.

I’ll turn the call back to Rob. Rob?

Rob Kill

Thanks Brett. In summary, we are off to a strong start with our first quarter revenue performance matching our expectations, and we are reaffirming our guidance for the full fiscal year. We’ll continue to invest in advanced training for the sales team as well as in adding clinical specialists to drive increasing levels of customer utilization of Urgent PC. We’re also expanding distribution for Urgent PC into new channels such as continuous care of retirement centers and GYN docs, who tend to be the de facto primary care physician for many female patients. The goal behind these strategies is to drive sustainable 15-plus percent revenue growth for Urgent PC.

At the same time, we know that our sales organization is currently an underutilized asset and that they sale only two products. And the average annual U.S. territory size is approximately $425,000 in revenue. We believe that the sale rep in a medical device business like ours should be managing this territory in the $1 million range. And we have several better approaching this level with our existing product portfolio and our goal is to expand average productivity of our sales team to that level over-time.

We also need to make our sales reps much more meaningful to their physician customers, and so we now have significant business development efforts underway that are focused on strategies to expand our product portfolio be it through distribution partnerships, licensing agreements or acquisitions. Our goal remains the same. We want to create increasing shareholder value by accelerating Uroplasty’s growth trajectory.

This concludes our formal remarks. Now, Brett and I would be happy to take your questions. So, operator could you please open the call for Q&A.

Question-And-Answer Session

Operator

Absolutely gentlemen (Operator Instructions). And we will go to Brooks O'Neil with Dougherty & Company. Please go ahead.

Brooks O'Neil - Dougherty

Good afternoon guys. I have a couple of questions I’ve tried to listen carefully to your remarks. But I was just curious if you could talk a little bit about your comfort level with sort of the current expense levels? Or maybe ask a little bit differently. How quickly do you think you can achieve reasonable leverage on current expense base as you look forward through the year?

Brett Reynolds

Hi Brooks, it’s Brett here. In my comments I had mentioned that in Q1, there were a number of expenses that won’t be repeating throughout the year sales leading 600,000. So, that takes the expense level from 7.8 down to about 7.2 million in total and if you look forward that’s there there’ll be pluses and minuses by line item but little bit of growth after you deduct the one time in this quarter.

Brooks O'Neil - Dougherty

Yes. And clearly some growth as you add those six clinical specialists here in the second quarter?

Brett Reynolds

Yes. I mean cash loss of the 3 million to 4 million embedded in that is revenue growth, again to that 9 to 12% overall range that we expect. And last year there was growth by quarter and we expect that this year.

Brooks O'Neil - Dougherty

Yes, as the sales force matures, I’m guessing with any luck at all. How many of the sales guys are in the upper band of that 0.5 million to 1.0 million that Rob was just talking about?

Brett Reynolds

I don’t know the exact band. I don’t have the numbers in front me from 500 to 1 million. But it’s a smaller percentage of the sales force and that the average territory size is 425, but there is a significant number who are well above the 500, 600, 700K range. What give you the specifics, Brooks I don’t have the sales rep.

Brooks O'Neil - Dougherty

No, it’s all right. I was just curious. So you think with the addition of the clinical specialist and additional time and territory you might be able to move a decent percentage of the organization towards that number. Obviously, you commented about your initiating efforts to broaden the product portfolio as well. But these are all designed to try to drive some incremental revenue growth as you move forward.

Brett Reynolds

Yes. We expect the productivity to increase with the existing products. We’ve got reps who are carrying -- nearing the $1 million territory size there. But we also expect to continue our search to put other products in the bag for our reps to make them more meaningful to their customer base.

Brooks O'Neil - Dougherty

Okay. Thanks a lot.

Brett Reynolds

You’re welcome. Thanks for your questions.

Operator

Thank you. And we will go to Jose Haresco with JMP Securities.

Jose Haresco - JMP Securities

Hi guys. Good afternoon.

Brett Reynolds

Hi, Jose.

Jose Haresco - JMP Securities

One thing I noticed was that you made the statement that you are hiring six more clinical reps this year. Should we assume that those are working really long because it wasn't that long ago when -- maybe even less than six months ago, when we weren't really sure what the impact of those reps of those clinical reps or clinical support teams would have on revenue. So maybe; one, tell me if I am right about that. And number two, could you maybe give us a little bit granularity on what metrics you might be tracking in those territories that have clinical reps that drive that thesis forward? Is it revenue per office, per visit, per rep? I mean what’s making them really effective, and then how are you measuring it?

Brett Reynolds

So we made the decision last quarter, Jose, and communicated that we will be adding the six clinical specialists based on the trail we had with the six previous ones. We also said that -- we assigned them a specific set of accounts and measured utilization with those accounts, and the growth rates in those assigned accounts was about double what it was in other accounts. And so we measure -- we tracked the success. And the reason we’re making the investment is due to increasing revenue growth and increasing utilization in accounts where we have assigned or dedicated these clinical specialists.

Jose Haresco - JMP Securities

Okay, great. And I am sorry if I missed this. But what timeframe should we assume that these people are going to come on-board over the next three months, six months?

Brett Reynolds

We said over the remainder of the year, but majority of them would be here in the second quarter.

Jose Haresco - JMP Securities

Okay.

Brett Reynolds

The area we identified and we’re actively recruiting.

Jose Haresco - JMP Securities

Okay. Has the hiring profile for those types of people changed, or is the model is still pretty much the same from what you started with in terms of background and the plan?

Brett Reynolds

No, it’s the same as it was before. We had success with the six we hired and that’s why we’re investing more. We are looking for folks who have strong clinical background whether it’d be nurse, nurse practitioners, we hired a PA one of the roles. And we’re looking for folks who have that strong clinical background, who also have a passion for the way that our products can change care within these practices.

Jose Haresco - JMP Securities

Okay, great. Thank you very much.

Brett Reynolds

Thank you.

Operator

Thank you. And we’ll continue on to Larry Haimovitch with HMTC.

Larry Haimovitch - HMTC

Good afternoon gentlemen. I have several questions, one on Macroplastique, I think Brett you’ve mentioned you expect the trend for the full year to be roughly flat with what it has been in the past. Did I get that right?

Brett Reynolds

Correct. Quarterly variations, but for the full year, flat.

Larry Haimovitch - HMTC

So, essentially we have a product that’s not growing very well. And Rob, I am sorry if I may be misunderstood or didn’t catch this correct but I’m understanding that you would like to add some more products to the sales reps bag. Did I catch that right?

Rob Kill

You did.

Larry Haimovitch - HMTC

Okay. So, I am little confused because obviously your flagship product right now is doing quite well. You are making tremendous progress. You have made tremendous progress with reimbursement. You are opening up new accounts. You are getting higher utilization, obviously all the trends are going very, very well. Are you considering at all, Rob, that adding another product or perhaps two would distract the sale force when they are in the growth phase right now? Things seem to be growing quite well. Your old product on the other hand is not doing anything in terms of providing any benefit for the Company in terms of growth at least, certainly providing cash flow I am sure. Understand the strategic thinking here of bringing on more products when you really have just an enormous opportunity with the product that you are currently selling.

Rob Kill

Larry, our strategy is very straight forward. We want to accelerate the growth rate of this business faster than the rate we’re growing right now. We have a highly innovative proprietary product in Urgent PC that’s growing at double-digit rates. And we are looking for other innovative products to put in our bag that can grow at similar like rates if not faster, that allow our reps to have a more meaningful presence with their customers. And so we’ll continue to focus and grow Urgent PC the way we’re growing it. We expect to see some acceleration as we’ve said over-time. But we’re looking for other products to put in our bag to accelerate the growth of this business overall.

Larry Haimovitch - HMTC

Okay.

Rob Kill

[Multiple Speakers] end of last quarter, there is nothing different than what we explained at the end of last quarter.

Larry Haimovitch - HMTC

Okay, thanks. And one more question on NGS, it sounds like you are continuing to dialogue with them. If they continue to be so reticent to approve you as a product despite all the tremendous reimbursement you have around the country and all the clinical data you have and everything else. What other steps are available to you?

Rob Kill

There is quite a few, some that are less collaborative and our approach is -- we will continue to be to educate them and be collaborative with them. But at some point there are more aggressive approaches but we are not there yet and we don’t need to be. We think we got evidence that continues to demonstrate that PTNS should be covered. The recent upgrade to recommend status from AUA and SUFU is just another example of that. And we believe that we are taking the right approach with NGS at this point.

Operator

And we will go to Tim Clarkson with Van Clemens Investment.

Tim Clarkson - Van Clemens & Company

Good results. What do you think -- when you are comparing the salesman that are succeeding the best versus the ones that don't succeed so well. Is there a one particular objection that you see more often from the physicians that are resistant to trying the new treatments versus the ones who do or the ones who don't? Or what’s the secret sauce to getting these docs to really try this out?

Rob Kill

Well, I don’t think there is secret sauce but I think there is couple of things that need to happen. One is we have talked about this flawed product launch that left the perception in the marketplace that Urgent PC did not work, and so we’re having to climb that hill. And it’s an education process and so we are continuing to fight that good battle and the way you fight that is by increasing physician awareness. And that’s why things like the AUA/SUFU updated guideline like the panel of distinguished experts in the field who recently convened and produced a roundtable discussion around that those type of things to continue to educate and create greater awareness and change some of the perceptions that were created by a product launch that probably wasn’t executed in the way we would have liked it to execute.

Tim Clarkson - Van Clemens & Company

And just to kind of drill down on this, I am guessing that when you have a expert in there that’s helping the salesperson, the clinician who knows exactly where to put the needle in and what kind of expectations to build into the patient, and those kinds of things that you get a much more consistent success rate and outcome?

Rob Kill

You are right, and that’s what we talk about in the past. And that’s why we have invested in these clinical specialists who help not only train but continuous in-servicing within these practices because listen if you don’t have the appropriate procedure technique and if you don’t educate the patient, his commitment for 12 weeks because they may not see progress until week seven or week right, you are going to have issues and that’s what we had. And we are continuously working to fix that. And I think the continued growth of the product line demonstrates that we’re getting some traction, but it takes some time.

Tim Clarkson - Van Clemens & Company

Right, and then the docs they start getting the consistent outcomes than they become more confident about prescribing this technique.

Rob Kill

Correct.

Tim Clarkson - Van Clemens & Company

Okay, thanks I appreciate it.

Rob Kill

Thank you.

Operator

Thank you (Operator Instructions). With no additional questions, I would like to go ahead and turn things back over to management for any additional or closing remarks.

Rob Kill

Well, thank you again everyone for participating, and we appreciate your interest. And we look forward to updating you on our progress for our second quarter in this fiscal year in October.

Operator

Thank you. Ladies and gentlemen that does conclude today’s call. Thank you all again for your participation.

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