Earnings Call: H2 2020

Apr 22, 2021

Earnings release

Greetings, and welcome to Monakea's Full Year Results 2020 and 2021 Quarter 1 Sales Conference Call. At this time, all participants are in a listen only mode. A brief Q and A session will follow the formal presentation. Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly. It is now my pleasure to introduce your host, Mr. Rob Gershon, CEO of Monakia Technologies. Please go ahead, sir. Thank you, Marin, and welcome everyone to Mauna Kea's second half and full year of 2020 financial results and Q1 2021 sales results conference call. I'm joined on the call today by Christophe Lambuffe, our Chief Financial Officer. Let me start with a brief introduction of what we will cover during our prepared remarks. I will start with a brief summary of our sales performance for the second half of twenty twenty. I will then discuss our sales results for the Q1 of 2021. I'll also provide a brief review of our recent highlights for the second half of twenty twenty and Q1 2021 periods. After these opening remarks, Christophe will provide you with a detailed review of our financial results for the 2020 second half and full year, as well as the significant balance sheet enhancement activity that we announced earlier today. I will then provide an update on our progress with the formal evaluation to identify new clinical indications for commercial focus, which was one of our 3 strategic priorities in 2020. And finally, I'll share some closing remarks, including a brief summary of the key growth drivers and assumptions supporting the revenue outlook for 2021, which we introduced in this afternoon's press release. Then we will open the call to your questions. As reported on January 21, our total sales for the second half of twenty twenty increased 27% year over year to €4,400,000 Second half of twenty twenty sales results were driven by 113% increase in system sales and a 15% increase in service revenue, which partially offset a 10% decline in sales of consumables compared to the prior year period. We are encouraged by the continued improvement in business trends in each of our primary markets around the world. Though understandably, there is varying degrees of recovery depending upon the market. Specifically, the recovery in China has been faster than what we have seen in other primary markets. Procedure trends are running in excess of 90% of their pre COVID-nineteen levels. System sales in the APAC region increased 21% over the second half of twenty twenty and we expect continued improvement in business trends in China to result in improving capital equipment demand as we move through 2021. The U. S. Recovery has been encouraging overall, albeit not entirely broad based yet, as we are seeing pockets of strength and softer trends depending upon the region of the U. S. In question. That said, our U. S. Business trends have shown progressive improvement since May of last year and we reported high single digit growth in procedures over the second half of twenty twenty. Importantly, 4th quarter procedure trends showed marked improvement over the 1st 2 months of Q4, increasing in the low double digits year over year before slowing in December as U. S. Elective procedures were impacted by the rise in COVID-nineteen cases. The pace of recovery in our EMEA and rest of world regions has been slower than in APAC and the U. S, although again, the trends have varied depending on country. Within EMEA specifically, we are seeing modest improvement in procedure trends in our commercial accounts, while the recovery in business trends in our academic and research focus accounts has been much slower. Overall, while sales of consumables to consumers in the EMEA and rest of world regions declined 25% over the second half of 2020, we did see a material improvement in demand trends in the Q4 compared to the Q3, which is encouraging. While procedure and adoption trends in our primary commercial markets around the world were significantly impacted by the global crisis caused by COVID-nineteen in the first half of twenty twenty, we have experienced a significant improvement in the business environment over the second half of twenty twenty with particular strength demonstrated in the Q4. We delivered 4th quarter sales growth of 41% year over year. The 41% growth was broad based with sales to U. S. Customers increasing 44% year over year and sales to OUS customers increasing 37% year over year in Q4. We believe our Q4 performance reflects strong execution of our strategy, continued improvement in our underlying business and procedure trends and measured improvement in the global capital equipment environment. Importantly, we also delivered strong financial results over the second half of twenty twenty. We reduced our operating loss by 11% year over year, driven by solid management of operating expenses, which declined 3% year over year. Turning to a review of our Q1 sales results, which we announced in our press release today. Total sales for the Q1 of 2021 were €1,600,000 up 7% year over year. 1st quarter sales results were driven by a 14% increase in sales of consumables and an 8% increase in service sales, partially offset by a 2% decrease in system sales compared to the prior year period. The change in total sales for the Q1 of 2021 by geographic region was driven primarily by a 188% increase in sales to customers in the EMEA and rest of world regions, offset partially by lower sales to customers in the U. S. And APAC regions, which decreased 22% and 6% respectively year over year. The operating environment remained difficult in the Q1 as the slower procedure trends we experienced in December carried over into the Q1. In the U. S, after a slow start to the quarter, we saw improving procedure trends in the last 2 months of the quarter. March trends were notably strong as cases increased more than 60% year over year and our U. S. Customers performed the largest number of cases in a month since the Q3 of 2019. Consumable sales to our distribution partner in APAC declined in the high single digits in Q1, but we remain encouraged by the underlying procedure trends in this region, which continue to drive solid consumable demand each year, albeit with variability in the timing of orders on a quarterly basis. We also reported the sale of 4 new systems to the APAC region in the Q1, which supports our cautious optimism in the measured pace of recovery that we continue to expect in the APAC region as we move through 2021. Q1 sales results in EMEA and Rest of World regions were stronger than expected, especially given the continued challenge related to COVID and the slower pace of recovery in these regions. Consumable sales were driven by demand from existing customers using Cellvisio in the area of IBS and PANCYST. We also had a capital sale in the period compared to no system revenue in the prior year period. While we are pleased with the 6 system sales to customers in OUS markets in Q1, the 63% increase in total Selvisio system shipments was driven by strong system placement results in the U. S. In Q1. Specifically, we delivered 7 new system placements in the U. S. To U. S. Customers driven by the company's new targeted strategy in the U. S. GI market, which is focused on high volume upper GI clinicians. Turning to a review of our recent operating progress and milestones. With respect to our growing body of clinical validation for Silvisio, we announced 4 noteworthy publications in recent months. In November, we announced the publication of a peer reviewed meta analysis of an international Delphi consensus report based on a systematic evidence based review of endoscopic ultrasound, EUS, guided needle based confocal laser endomicroscopy for pancreatic cyst lesion evaluation, or PCL. The meta analysis was published in the European Journal of Gastroenterology and Hepatology and concluded that confocal laser endomicroscopy clearly outperformed endoscopic ultrasound fine needle aspiration or eUSFNA for short in terms of diagnostic accuracy and supports the use of needle based confocal laser endomicroscopy as a safe and effective tool in the diagnostic algorithm of pancreatic cysts. The consensus report was published in a peer reviewed journal, Endoscopy International Open, and reflected a high level of agreement pertaining to the expert consensus statements and establish that EUS guided NCLE is a minimally invasive procedure that improves the evaluation of PCLs and should be systematically considered when EUFNF is indicated for PCL evaluation. The consensus report also concluded that the use of nCLE as an adjunct to the standard EUSFNA could positively impact patient management and improve healthcare resource utilization by reducing the number of misdiagnoses and preventing redundant follow-up investigations and unnecessary surgery. Clearly, we are pleased with the findings of these publications as they provide further support that Zalvisio plays a key role in the evaluation of pancreatic cysts and can significantly improve the speed and accuracy of reaching a conclusive diagnosis. We expect to leverage this growing body of evidence in our discussions with hospitals to help them appreciate the benefits to patients of incorporating Selvisio when performing endoscopic evaluation of pancreatic cysts. With more than 75,000 procedures each year in the U. S. Alone, we believe this represents a compelling annual addressable opportunity for Solvisio going forward. In February, we announced 2 publications that further validate the value of our technology in the field of pancreatic cyst diagnosis and importantly risk stratification. The first study was published in a peer reviewed journal, Gastroendoscopy, reporting the successful development and application of artificial intelligence algorithms for NCLE diagnosis and risk stratification of intraductal papillary mucinous neoplasms or IPMNs. The authors demonstrated that deep learning models derived from NCLE images were more accurate in diagnosing and risk stratifying advanced neoplasia in IPMNs compared with the current standard diagnosis and society guidelines. The second study was published in the Journal of Clinical Gastroenterology and concluded that NCLE appears to be an effective and safe technique for the diagnostic evaluation of PCLs. Indeed, nCLE was associated with a sensitivity of 85%, a specificity of 99%, a diagnostic accuracy of 99% and post procedure pancreatitis rate of just 1%. We believe Selvisio combined with artificial intelligence holds tremendous potential to improve patient management, thanks to its ability to accurately classify and stratify patients with pancreatic cystic lesions. We also made an exciting announcement in December, specifically an exclusive scientific and clinical research collaboration with Telix Pharmaceuticals Limited. The Telix and Mauna Kea Scientific and Clinical Research Collaboration is called the Imaging and Robotics in Surgery Alliance or IRIS Alliance and was created to further develop the combined technological capabilities of both companies. The IRIS Alliance was formed based on the belief that the use of cancer specific positron emission tomography or PET imaging agents, including dual modality tracers that combine PET and fluorescent or optical techniques in conjunction with confocal laser endomicroscopy may significantly improve surgical and clinical outcomes in patients with urologic cancers. The Iris Alliance endeavors to combine the strengths of Telix's molecular targeting together with Selvisio's real time in vivo cellular imaging to bring dual modality molecular imaging to the operating theater for the first time. The iris alliance aims to significantly transform the urologic surgeon or urologist the way they will evaluate, target, excise and confirm surgical margins at the cellular level. Our collaboration will further empower surgeons to fight cancers and save lives. We expect to begin preclinical and clinical feasibility studies in 2021. Finally, we had 2 notable changes in our leadership team in recent months, 1 at the board level and 1 on our management team. In December, we welcomed Ms. Jacqueline Tandam as an independent director. Ms. Tandam replaces Doctor. Jennifer Tsang, who tendered her resignation from the Board after 3 years of service. Jacqueline currently serves as the Chief Financial Officer of Mya Menace, a biotech company based in the Netherlands. Jacqueline brings more than a decade of experience advising, financing and leading innovative European healthcare firms. Jacqueline's expertise will be important as the company accelerates the commercialization of the Salvisio platform and executes on its strategic roadmap. In late March, we welcomed a new Director of R and D, Fred Benengus. Fred brings to Mauna Kea deep medical device expertise and an established track record in launching platform technologies with a specific focus in image diagnostics, robotics, artificial intelligence, digital health and cancer treatment. Fred co founded Intrasense, a public medical device company specializing in imaging diagnostics and most recently was the R and D Director at Quantum Surgical, which has a surgical robotic platform for cancer. With that, let me turn the call over to Christophe for a detailed review of our financial results. Christophe? Thanks, Rob. Given Rob's discussion on our sales results along with the detailed disclosure in our Q4 and full year 2020 sales press release on January 21, 2021, my commentary today will focus on our full financial results with some specific commentary on second half of twenty twenty. Total revenue for the second half of twenty twenty increased €800,000 or 20% year over year to €4,800,000 compared to €4,000,000 last year. Total operating expenses for the second half twenty twenty decreased €300,000 or 3 percent year over year to €9,100,000 compared to €9,300,000 in the second half of twenty nineteen. As a result, operating loss for the second half of twenty twenty period decreased by 11% year over year and the net loss decreased by 15% year over year. Turning now to a review of our financial results for the full year 2020. As detailed in our press release this afternoon, total revenue decreased €600,000,000 or 7% year over year to €7,900,000 Additionally, as noted in our earnings press release this afternoon, the income statement at December 31, 2019, has been restated to take into account a change in the presentation of the amortization of systems made available to customers under paper use contract in the U. S. €300,000 of amortization are now included in cost of goods sold compared to sales and marketing previously. As of December 31, 2020, this amortization was €300,000 and are reponded in cost of goods sold. Gross profit for the full year 2020 decreased €500,000 or 10% year over year to €4,400,000 compared to €4,900,000 in 2019. Gross margin for the full year of 2020 was 67.1% compared to 65.6% in 2019. Total operating expenses for the full year 2020 period decreased €1,200,000 or 6% year over year to €17,800,000 compared to €19,000,000 for the full year 2019. The decrease in total operating expenses was primarily driven by a €600,000 decrease in sales and marketing expenses, a €400,000 decrease in administration expenses and a €300,000 decrease in share based payments, offset partially by a €100,000 increase in research and development expenses compared to 2019. Current operating loss for the full year 2018 was €12,000,000 compared to an operating loss of €13,000,000 for the full year 2019 period. The decrease in operating loss was driven by the €500,000 decrease in gross profit, offset by the €1,200,000 decrease in total operating expenses and by the €300,000 increase in other income compared to the prior year period. Net loss for the full year 2020 period was €200,800,000 compared to a net loss of €15,300,000 for the full year 2019 period. The decrease in net loss was primarily driven by the decrease in operating loss as well as a €1,400,000 decrease in interest and other expenses compared to the prior year period. Turning to a review of the balance sheet. As of December 31, 2020, the company had a cash balance of €8,600,000 and total long term debt obligations of €26,200,000 compared to €10,000,000 of cash and €15,500,000 of total long term debt obligation as of December 31, 2019. The change in cash during the 12 months ending December 31, 2020 was driven by €8,000,000 of cash used in operating activities, €1,000,000 of cash used in investing activities, offset partially by a €7,700,000 of cash from financing activities. Finally, earlier today, we announced the establishment of an equity financing facility with Kepler Cheuvreux. In accordance with the terms of this agreement, Kepler Cheuvreux has undertaken SUBSCRIBE for a maximum of 6,000,000 shares at its own initiative over a maximum period of 24 months, subject to the contractual conditions being met. As of December 31, 2020, the company had $8,600,000 cash available, which given its sales prospect and the various sources of financing, repayable advanced research tax credit, will enable it to meet its deadline until August 31, 2021. With the implementation of this financing, the facility offers an indicative amount of CHF 9,300,000 of net proceeds based on the most recent closing stock prices. Together, this new transaction along with strong expense management and the €8,600,000 of cash on our balance sheet at year end provides sufficient liquidity to manage the business through the Q2 of 2022. With that, I'll turn the call back to Rob. Rob? Thanks Christophe. So turning to an update on the progress with the formal evaluation process to identify new clinical indications for commercial focus, which is one of our key strategic priorities. As discussed on our recent calls, we are currently undertaking a formal process to evaluate new clinical indications to identify the company's next area of commercial focus. To the extent this process is successful, we believe it will result in us uncovering the next application for commercial focus that will serve as the future growth engine of the company. In March of 2019, we identified interventional pulmonology as the first potential new clinical application that we put through this process. As a reminder, the primary goal of the formal process is to evaluate the commercial opportunity interventional pulmonology presents in terms of market potential, clinical value, product feasibility and overall strategic value for our company. We have moved through each stage of this formal evaluation as we've moved through each stage of this formal evaluation, we have been increasingly encouraged by the potential opportunity in the interventional pulmonology market, given the very high incidence rate of lung cancer, the highest mortality rate among all cancer types. And the fact that we have a unique solution to help improve the current lung biopsy standard of care. The development of Selvisio's needle based probe, AQFLEX, allows the physician to penetrate and visualize inside the nodule or lesion in real time and in vivo. We also believe that Accuflex could improve the diagnostic yield and reduce the need for unnecessary invasive procedures for diagnosing or staging lung cancer. We continue to believe one of the most compelling aspects of the interventional pulmonology market for Mauna Kea is that Silvisio, when used in combination with robotic and advanced navigational platforms, has the promise of improved targeting in situ tissue characterization and increased diagnostic yield. To that end, in December of 2019, we announced a collaboration with the lung cancer initiative at Johnson and Johnson, which is working to develop new diagnostic and therapeutic approaches for this disease with significant unmet need. This is an exciting collaboration for Maunakea. We have made significant progress in 2020, including the pilot clinical study that we initiated last summer. Enrollment of this first in human study combining NCLE and robotic navigational bronchoscopy at Fox Chase Cancer Center in Philadelphia using both Selvisio and J and J's Monarch platform from Auris Health for the diagnosis of peripheral lung nodules is anticipated to be completed during the first half of twenty twenty one. We look forward to expanding our collaboration activities with J and J and we'll share updates as appropriate as we move through 2021. While we are proud of the progress we have made since we started the formal evaluation of interventional pulmonology, not the least of which is the collaboration with J and J's LCI team on the potential application for our technology in the endalumino robotic space. As discussed on our previous earnings calls, the strategic evaluation is not limited to our efforts in the endolumino robotic space. In fact, we continue to evaluate multiple other interesting new clinical applications within interventional pulmonology for Selvisio that we are taking through the formal evaluation process and we look forward to updating investors as these efforts progress as we move through 2021. In closing, we remain confident that our commercial strategy is well founded and our results in recent quarters continue to reflect that our new targeting strategy in the U. S. GI market focused on high volume upper GI clinicians is working. We are driving adoption of Selvisio in this targeted group and importantly, we are seeing higher utilization per system from these new customers as their upper GI procedures represent a high percentage of their total procedure mix. We expect strong execution of this strategy in 2021 to result in the U. S. Region representing the largest contributor to total company sales growth year over year. Outside of the U. S, we will continue to focus on leveraging our strong distribution relationships and our KOL support in EMEA and certain APAC markets. Assuming the global capital equipment recovery continues to progress as we move through 2021, we expect to drive total sales growth in the range of 25% to 30% year over year in 2021. We also expect to invest strategically while still leveraging our operating expenses this year. With that, Maren, we will now open the call for questions. Thank you. Yes. We have first question from Sebastien Malefos from ODDO BHF. Sir, please go ahead. Hi, gentlemen. Thank you for taking my question and thank you for your presentation. Can you maybe elaborate a little bit on how you see the dynamic in 2021, especially in the U. S, considering that the year is off to a modest start. So can you please come back on the reason why Maybe because of the pandemic, obviously, but can you maybe give us a bit more details on how you see the dynamic going forward in the U. S. Market to reach your expectations for this year, which seem pretty strong? Yes. Thanks, Sebastien, for your question. So the dynamics in the market, certainly, we are impacted by COVID-nineteen. As I indicated in the prepared remarks, COVID-nineteen impacted cases at the end of Q4 in December and carried over to January February of Q1. Then we saw a marked improvement in March of 2021, where our case volumes, Selvisio case volumes, increased over 60%. And that was a very encouraging trend and correlated directly with the impact of COVID-nineteen. It's important to note that in Q1 in the U. S, we were able to place 7 systems in Q1 to our targeted group of Solvisio potential customers. So these are the high volume upper GI physicians that generate a high volume of Silvisio procedures. And we're quite encouraged that we were able to secure 7 of those in the Q1 of the year as compared to I believe the number was 13 in the whole second half of last year. I might have that slightly off, Christophe can correct me, but we were quite pleased with that. It is the trends that we're seeing in utilization of our existing customers, coupled with the new customers that are being onboarded and those that are in the pipeline that give us a high level of confidence and conviction in the way in which the rest of the year will unfold. And just to further elaborate on the dynamics in the marketplace, so in the U. S, we see that COVID, that cases for our established base of customers are still operating at about the 70% to 75% volume rate compared to the pre COVID numbers. So COVID is still impacting it to that degree. In the other markets around the world, APAC, as I indicated in the prepared remarks, remains at pretty close to their pre COVID numbers. So that's very, very encouraging. In Europe, in EMEA, we're seeing that pre COVID level volumes remain at about 50% right now, but we're certainly encouraged by the performance of Q1. So all three regions will be contributing to the growth projections that we shared with you, with the U. S. Leading that growth and specifically U. S. Consumables will lead that growth as we continue to drive adoption of high volume users. Next question from Taron Banerjee from Gerspruck Nurse. Sir, please go ahead. Hi, gentlemen. Good evening and and thank you for taking my questions. Just I think 3 from my side quickly. I think Subatinib just touched on it briefly there. But in terms of your sort of positive outlook for 2021, I'm sorry if I missed it in the main remarks, but I just wanted to understand sort of the where you're taking those numbers from. I think it's 20% to 30% growth. And is that sort of derived from Q1 and extrapolating or otherwise? And secondly, on the balance in terms of the new facility with Kepler, would that therefore mean that you wouldn't be expected to draw down, I think, on the 3rd tranche of the EIB loan as well? And then finally, one quick point on the operational expenditure. I think you mentioned sales and marketing was a significant driver of the decrease. Would that be expected to return this year with sort of a return to normality in inverted commerce, if that is possible at all? Thank you. Sure. Okay. Thank you for your questions. So I'll take them in order and I'll have Christophe answer the second and third. But starting with the first, in terms of the positive outlook in 2021 and where that growth is being derived from and whether or not that's being extrapolated from Q1. So the growth is very much being driven by the successful execution of our strategies around the world and especially in the U. S. So as we've discussed on previous calls, we implemented a strategy, a very focused targeted strategy on high volume upper GI physicians in the U. S. And it is that strategy that in large part drove the growth that we experienced in the back half of twenty twenty, especially in the Q4 of 2020 and continues to fuel the growth that we are experiencing in Q1 and especially in the last month of Q1. So just as I indicated just a few moments ago, Q1 was off to a slow start, which started in December. So that continued in January, started to improve materially in February, and then we had the 60% growth in March, and March being our largest month of utilization for quite some time. So as we look out for the balance of the year, it is really based upon the execution of that strategy, coupled with our distributor partner in China and our efforts in EMEA and Rest of World, and our pipeline of activities in all three regions. And it's important to note that the U. S. Region is the region that we have made the largest amount of investment and have the highest expectations. And as such, we are expecting that the growth is going to be largely fueled by the U. S. Region and specifically fueled by the growth in adoption of the technology. And that is the recurring revenue that comes from consumables. So you could expect consumables to be the largest U. S. Consumables to be the largest contributor to growth. With that, I'll turn it to Christophe to talk about the balance sheet. Yes. On the balance sheet, I think the question was on tranche 3 of the EID loan that we contracted 2 years ago now. And yes, of course, there is a similar tranche, which is subject to certain conditions. But down the road, of course, we're still thinking of drawing this tranche as soon as the conditions are met. And the operating expenses and the sales and marketing expenses in 2020. Just to mention that it's not only the sales and marketing expenses that decreased, but the G and A as well. But as far as we are planning, we expect to grow 2025% to 30% in 2021. We also expect OpEx to increase as we invest in business growth. Perfect. Thank you very much. Thank you. We have no more questions. Okay. If there are no more questions, we want to thank everyone for joining the call. As always, we want to thank our Mauna Kea Technology committed employees that are doing a great job from an execution perspective, and we just wish everyone a safe and good rest of the year. And we look forward to our next update. Thank you very much. Thank you. Ladies and gentlemen, thank you all for your participation. You may now disconnect.