Avinger, Inc. (AVGR) Q4 2023 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reveals significant challenges: declining gross margins, increased financial losses, and uncertain market entry in China. The delay in sales force productivity and the pressure to meet revenue milestones further exacerbate concerns. Despite potential market opportunities in China, the current financial health and execution risks suggest a negative stock price reaction.

Key Financial Performance

Total Revenue $1.9 million for Q4 2023, down from $2.0 million in Q4 2022 (5% decrease). The decrease is attributed to lower sales despite an expanded sales force.

Gross Margin 20% for Q4 2023, down from 34% in Q4 2022 (14 percentage points decrease). The change reflects lower production activity and increased non-cash stock compensation expense.

Operating Expenses $5.0 million for Q4 2023, up from $4.5 million in Q4 2022 (11% increase). The increase is primarily due to higher sales headcount and corporate expenses related to the Zylox-Tonbridge transaction.

Net Loss $5.0 million for Q4 2023, compared to $4.2 million in Q4 2022 (19% increase). The increase in net loss is linked to higher operating expenses.

Adjusted EBITDA Loss of $4.3 million for Q4 2023, compared to a loss of $3.8 million in Q4 2022 (13% increase). The increase in loss is attributed to higher operating expenses.

Cash and Cash Equivalents $5.3 million as of December 31, 2023. This figure does not reflect the subsequent $7.5 million raised in March 2024.

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Operating Highlights

New Product Launch: Avinger has advanced commercial activities on two innovative new peripheral devices, Tigereye ST and Pantheris LV.

Tigereye ST: Tigereye ST is a low-profile 5 French system designed for chronic total occlusions (CTOs) in peripheral vasculature, with a full commercial launch initiated in late Q3 2023.

Pantheris LV: Pantheris LV is an image-guided atherectomy system for larger arteries, with a limited launch initiated in Q3 2023 and expected full launch mid-2024.

Market Expansion: Avinger announced a strategic partnership with Zylox-Tonbridge to distribute products in Greater China, enhancing market access.

Sales Force Expansion: Avinger expanded its U.S. sales force by over 25%, adding six sales professionals to strengthen market presence.

Operational Efficiency: Zylox's investment and partnership are expected to improve Avinger's gross margin and reduce costs over time.

Cost Structure Improvement: Avinger anticipates sourcing finished products from Zylox on a cost-plus basis, potentially reducing cost of goods sold.

Strategic Partnership: Avinger formed a multi-faceted partnership with Zylox-Tonbridge, including equity financing and exclusive distribution rights in Greater China.

Coronary Product Development: Avinger is focusing R&D on its first coronary product application, with an IDE filing anticipated in Q3 2024.

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Risk or Challenges

Strategic Partnership Risks: The partnership with Zylox-Tonbridge involves risks related to regulatory approvals, as Avinger must successfully register Zylox as a manufacturer with the U.S. FDA. Failure to achieve this could hinder the partnership's benefits.

Financial Risks: Avinger has a net loss of $5.0 million for Q4 2023, indicating ongoing financial challenges. The company also has a significant debt obligation, with CRG Partners holding approximately $60 million in preferred equity.

Market Competition Risks: Avinger faces competitive pressures in the vascular device market, particularly as it expands its product offerings and sales force. The success of new products like Tigereye ST and Pantheris LV is critical to maintaining market position.

Supply Chain Challenges: The reliance on Zylox for manufacturing and distribution in Greater China introduces supply chain risks, including potential delays in product availability and regulatory compliance.

Economic Factors: Economic conditions could impact Avinger's revenue growth and market expansion efforts, particularly in the context of the healthcare industry and reimbursement rates for new devices.

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Guidance & Outlook

Strategic Partnership with Zylox-Tonbridge: Avinger announced a multi-faceted strategic partnership with Zylox-Tonbridge, which includes an equity financing agreement where Zylox will invest up to $15 million into Avinger, with the first tranche of $7.5 million already funded.

Expansion of Sales Force: Avinger has expanded its U.S. sales force by more than 25%, adding six sales professionals to enhance its sales footprint and presence in key markets.

Launch of New Peripheral Devices: Avinger has advanced commercial activities for two new peripheral devices, Tigereye ST and Pantheris LV, which are expected to drive growth.

Development of Coronary Product: Avinger is focusing on developing its first coronary product application, with plans to file an IDE application with the FDA in Q3 2024.

Revenue Expectations: Total revenue for Q4 2023 was $1.9 million, with expectations for growth driven by the expanded sales force and new product launches.

Gross Margin: Gross margin for Q4 2023 was 20%, with potential improvements anticipated as manufacturing capabilities are established with Zylox.

Net Loss: Net loss for Q4 2023 was $5.0 million, with ongoing investments in sales and product development expected to impact short-term profitability.

Cash Position: Cash and cash equivalents totaled $5.3 million as of December 31, 2023, with an additional $7.5 million raised in March 2024 from Zylox's investment.

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Shareholder Return Plan

Equity Financing Agreement: Zylox will invest up to $15 million into Avinger through the purchase of preferred and common stock in two tranches. The first tranche of $7.5 million has already been funded at a purchase price of $3.66 per share.

Second Tranche Investment: The second tranche of $7.5 million will be funded upon achieving key milestones, including Avinger achieving $10 million in aggregate revenue over four consecutive quarters.

CRG Partners Transaction: CRG Partners exchanged its Series A preferred stock with an aggregate liquidation preference of approximately $60 million for new Series A-1 preferred stock valued at $10 million.

Debt Extension: CRG extended principal payments on Avinger's debt by three years, from Q1 2024 to Q1 2027.

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Key Q&A

Q:How long does it take for products to get approved to start commercialization in China?

A:Zylox is anticipating that the clearance process for our products will take somewhere around nine to 15 months. We hope they will have regulatory clearance for our products and can start selling into the China market sometime in '25.

Q:How big is the Greater China opportunity for peripheral vascular catheters? What is the competition out there?

A:The atherectomy market in China is not as well developed as in the U.S. There are only a couple of products approved in China currently. Zylox sees an opportunity to be an early mover in establishing and growing this market.

Q:Do you have enough resources and capacity to help Zylox with product in China?

A:Yes, we have the manufacturing capability to support our growth and incremental demand from Zylox. We currently operate on one shift and have extended our lease for a year to support Zylox's business.

Q:How long would it take for the new sales personnel to be productive?

A:It typically takes around six months for new hires to start contributing to our growth as they build their pipelines and gain clinical proficiency.

Q:How long would it take to get from $1.9 million to $2.5 million per quarter?

A:We look to deliver that kind of growth as we go through the second half of the year and into '25.

Q:Review of Unclear Management Responses

A:Management's response regarding the timeline to reach $2.5 million per quarter was vague, lacking specific details on the factors influencing this growth.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

AVGR Transcript

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