Vision-Sciences, Inc. (NASDAQ:VSCI)
Q1 2015 Results Earnings Conference Call
August 5, 2014 8:30 a.m. ET
Howard Zauberman - President & Chief Executive Officer
Gary Siegel - Vice President, Finance
Lisa Wilson - Investor Relations
Good day, ladies and gentlemen and welcome to the Vision-Sciences Fiscal Q1 2015 Conference Call. At this time, all participant lines are in a listen-only mode. Later, we will be conducting 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, Lisa Wilson with Investor Relations for Vision-Sciences. You may begin.
Good morning. Thank you for joining Vision-Sciences’ financial results conference call for the first quarter of fiscal year 2015. Today’s call will include remarks from Howard Zauberman, President and Chief Executive Officer; and Gary Siegel, Vice President of Finance.
A number of forward-looking statements 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.
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, this call was held and recorded on August 5, 2014.
With that, I will turn the call over to the Howard Zauberman.
Thank you, Lisa and good morning everyone. In the first quarter of fiscal 2015, net sales increased 3% to $3.8 million as compared to $3.7 million in the first quarter of fiscal 2014, mostly due to higher sales of our bronchoscopy products in the critical care pulmonology markets. We achieved revenue growth versus the same period last year for our domestic business of 70% excluding sales to Stryker and our international business of 24%.
Importantly, after redirecting our sales efforts, we realized 22% growth in our medical business for fiscal year 2014. While we are still in a turbulent situation, we intend to focus this year on our path to profitability by continuing to drive down costs. In other words, we want to do more than just grow, we want to grow into profitability. Among the most significant events this past quarter was our decision not to renew the agreement with Stryker Corporation for the marketing distribution and sales of our cystoscopy product line.
Our rationale for bringing the sales responsibility for these product in-house is that 85% of cystoscopy procedures are performed in doctor's offices or other ambulatory settings. The Stryker endoscopy sales team are focused on the operating room in the acute care hospital setting. Therefore, we believe that our domestic sales team are better positioned to take advantage of this opportunity. So far the transition is going well and we have seen at least a 70% conversion of former Stryker customers who are now buying EndoSheaths directly from Vision-Sciences.
We expect this to continue to increase through our sales forces efforts, gaining further momentum as Stryker finishes selling its on hand inventory of EndoSheath disposables and other products.
In addition, we expect to see improvement in our gross profit margin as a result of this change over the next quarter or so, becoming more significant once the transition is fully complete. Our relationship with Stryker remains strong and the exclusive supply agreement for our flexible ureteroscope continues to be in effect through December 2015. I will go into greater detail on this and other noteworthy events in the past quarter, all of which continued to contribute to Vision-Sciences' emergence as a leader in our field.
First I would like to introduce Gary Siegel, our new Vice President of Finance, who will review the financial results. Gary?
Thank you, Howard. For the first quarter of fiscal 2015, our net sales were $3.8 million, up 3% as compared with $3.7 million in the first quarter of fiscal 2014. Sequentially, however, net sales in the first quarter decreased by 25% from the fourth quarter of 2014. Medical segment sales increased 1% in the first quarter of fiscal 2015 versus the prior year quarter. A significant increase in pulmonology sales was largely offset by the impact of lower sales of our cystoscopes and related EndoSheath disposables, peripherals and accessories to this Stryker this past quarter due to the transition that Howard mentioned. As well as lower sales in the TNE and ENT markets.
Gross profit was $1.1 million, up 6% as compared with $1 million in the first quarter of fiscal 2014. Gross profit as a percent of net sales increased to 30.6% for the first quarter of fiscal 2015, an increase from 29.6% in the prior year period. The increases in gross profit and gross profit as a percent of net sales are attributable to a favorable product mix and our cost savings measures.
Selling, general and administrative expenses were $2.5 million in the first quarter of 2015, a decrease of $600,000 or 18% as compared to the first quarter of 2014. The decrease was attributable to lower compensation expenses. As a percentage of net sales, SG&A decreased to 66% for the first quarter of fiscal 2015 as compared to 84% for the same period last fiscal year.
Research and development expenses were $536,000 in the first quarter of fiscal 2015. The $117,000 increase over the same period last fiscal year was primarily attributable to higher product development costs. As a percentage of net sales, R&D was 14% versus 11% for the same period last fiscal year. For the first quarter of fiscal 2015, our operating loss was $1.9 million, a $551,000 or 21% improvement over the same period last fiscal year.
Our net loss improved to $2 million, or a loss of $0.04 per basic and diluted share, compared to a net loss of $2.4 million or a loss per basic and diluted share of $0.05 in the prior year period. At June 30, 2014, cash and cash equivalents were $1.3 million and working capital was $6.2 million, as compared to cash and cash equivalents of $1.2 million and working capital of $6.9 million at March 31, 2014.
On June 16, 2004, we issued a convertible promissory note to Lewis Pell, the company's Chairman, that allows us to borrow up to $5 million, if necessary, to support the operations for a period of one year. In June, the company drew down $1 million and as of June 30, 2014, the company has $4 million remaining under this agreement.
With that, I will turn the call back to Howard.
Thank you, Gary. As I discussed earlier, in May we assumed responsibility for sales and marketing of the Vision-Sciences' cystoscopy product line. This is a significant step in the execution of our overall strategy to turn the company around and achieve profitability. We successfully launched the cystoscopy product line at the American Urology Association Meeting in the middle of May. Early measurements indicate that the transition has been successful so far.
After just two months, at least 70% of former Stryker cystoscopy customers have converted to buying EndoSheath disposables from Vision-Sciences. We expect to see improvement in our gross profit margin by selling the product line directly to these converted customers, as well as to new customers which we hope to gain through our direct sales force's efforts with doctors' offices and other ambulatory settings where approximately 85% of cystoscopy procedures occur. We estimate that urology sales will be flat until the transition has been completed and Stryker has worked through its inventory.
Urology continues to be our largest business segment and represents and 15% of our worldwide medical sales this past quarter. As I mentioned, our exclusive supply agreement for the flexible ureteroscope with Stryker continues to be in effect. We expect the entire urology segment to continue to be a strong performer. We are pleased with the success of our pulmonology business which grew over 300% this quarter, including the successful launch of our next generation video bronchoscope, the BRS-5100, at the American Thoracic Society annual meeting in San Diego.
This new system is the latest addition to our innovative endoscopy product line for the critical care and pulmonology market. It features design improvements for instrument maneuverability, suction capacity and handling ergonomics, intended to enhance physician ease of use while maintaining unparalleled efficiency, cost efficacy and patient safety elements of our sterile disposable EndoSheath technology. The BRS-5100 bronchoscope is fully compatible with our 7000 series Vision System.
This all-in-one, ultraportable endoscopic imaging platform provides high resolution, CCD-based imaging with full screen presentation and enhanced user interface with workflow efficiency tools. Additionally, the platform includes plug-and-play simplicity for video, still and audio documentation, including frame-by-frame review or historical image comparison, ideal for patient progress review.
Turning to other product lines. We believe the softness in the ENT, TNE market this quarter was due more to our heightened focus on successfully executing the launches of the cystoscopy and new bronchoscopy products, rather than to a lack of interest in the market. Putting in different terms, the shortfall this quarter reflects sales of three to four fewer systems than our internal forecast and, thus, not a significant decrease.
As Gary mentioned, our medical sales grew just 1% compared to the same quarter last year. We attributed this short decline in sales to Stryker of 58% this past quarter following our decision to sell the cystoscopy equipment ourselves. Domestic sales excluding our sales to Stryker, increased 70% quarter-over-quarter. International sales increased 24% quarter-over-quarter, where we have 21 distributors throughout Europe to Middle East and Australia.
As I mentioned before and what to reemphasize, we are still in a turnaround situation. We realigned our efforts in fiscal year 2014 which resulted in an increase of 22% for our medical business. In fiscal year 2015, we are focused on improving profitability and driving domestic and international revenue as we seek to narrow the gap towards achieving financial viability quarter-over-quarter. Among our initiatives to improve profitability, we are working with vendors to reduce our cost. Examining the manufacturing process to implement lean manufacturing techniques. Incorporating process excellence into our manufacturing efforts exploring outsourcing opportunities.
Aligned with this effort to grow the business, we have hired a Vice President of Sales, Mark Calak. Mark has over 30 years of experience in the medical device industry and a strong track record for sales management, where we has grown revenue and built highly successful sales systems. Since joining us this spring, Mark has already assisted in the successful execution of the pulmonology product launch as well as in the strong kickoff of the urology product transition from Stryker to Vision-Sciences.
We are pleased to have Mark join the company as we have had been without a domestic sales leader for over a year. We continue to build on our strategy of providing cost effect sterile, endoscopy for healthcare facilities. And we believe the market for our patented EndoSheath technology will continue to grow as medical professional search for a sterile and reliable product to safeguard patients. In addition, we believe that with the unique patient safety elements of our EndoSheath technology, we have a platform that can transform the way the care is currently administered.
As we advance further into this fiscal year, we will continue our cost savings efforts, focusing on operating efficiency and market improvement. We will also explore ways to maximize sales and profit potential in our EndoSheath technology and anticipate that the contribution from direct sales of our EndoSheath products will have a significant greater impact on our bottom line with each consecutive quarter.
With that, operator, please open the call for questions.
(Operator Instructions) And I am seeing no questioners in the queue at this time.
Throughout this period of transition and cost savings, we have always adhered to our mission of developing innovative technologies that improve patient care and reduce cost to the healthcare system. Our intent is to emerge as a strong dynamic company. A market leader in endoscopic technology. With an innovative, differentiated product offering, robust product pipeline and a solid team, we are confident that we are well on our way to achieving this goal. Thank you for your ongoing support.
Ladies and gentlemen, thank you for your participation in today's conference. This now concludes the program and you may all disconnect. Everyone have a great day.
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