InspireMD, Inc.
Q3 2013 Earnings Call Transcript

Published: 13 Nov 2013

[Operator:]

Greetings, and welcome to the InspireMD Quarter Ending September 30th, 2013 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Garth Russell of KCSA Strategic Communications. Thank you, Mr. Russell, you may begin.

[Garth Russell:]

Thank you. Before turning the call over to Management, I would like to make the following remarks concerning forward-looking statements. All statements on this conference call, other than historical facts, are forward-looking statements. The words anticipate, believe, estimate, expect, intend, guidance, confidence, target, project, and other similar expressions typically are used to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and may involve and are subject to risks and uncertainties, and other factors that may affect InspireMD’s business, financial conditions, and other operating results which include, but are not limited to, the risk factors and other qualifications contained in InspireMD’s interim report on Form 10-K, quarterly reports on Form 10-Q, reports filed on Form 8-K, and other reports filed by InspireMD with the SEC, to which your attention is directed. Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. InspireMD expressly disclaims any intent or obligation to update these forward-looking statements. During this call, we may also present certain non-GAAP financial measures such as non-GAAP net income and certain ratios that use these measures and our press release with the financial tables issues earlier today which is located on our website at inspiremd.com. You will find our definitions of these non-GAAP measures and a reconciliation of these non-GAAP financial measures with the closest GAAP measure and a discussion about why we think these non-GAAP measures are relevant. These financial measures are included for the benefit of investors and should be considered in addition to and not instead of GAAP measures. At this time, it is now my pleasure to turn the call over to Alan Milinazzo, President and Chief Executive Officer of InspireMD. Alan, the floor is yours.

[Alan Milinazzo:]

Thank you, Garth. Welcome, everyone, and thank you for joining our earnings call for the quarter ended September 30th, 2013. On today’s call, I’ll provide some detail about the four key performance areas that I outlined in our inaugural conference call we held in September. Those areas are

[Craig Shore:]

Thank you, Alan, and thank you all for joining us. As Alan mentioned, the Company has been extremely busy announcing positive news and moving forward with this enhanced strategy to drive future results. Revenue for the quarter ended September 30th, 2013 was approximately $1.6 million, compared to $500,000 for the same period in 2012. Although revenue performance year-over-year is significant, the more appropriate way to measure the positive impact of our current strategy is the improved revenue trend sequentially from last quarter to this quarter. Gross profit for the quarter ended September 30th, 2013 totaled $800,000, compared to $300,000 for the same period in 2012. The increase in gross profit is attributable to an increase in revenue of approximately $1.1 million, partially offset by an increase in cost of revenues of approximately $500,000. Gross margin for the three months ended September 30th, 2013 was 51.7%, a decrease from 54.8% in the three months ended September 30th, 2012. If the non-recurring effects of the consolidation of our manufacturing facilities in the three months ended September 30th, 2013 are removed, gross margin for the three months ended September 30th, 2013 would have been 63.1%. Total operating expenses for the quarter ended September 30th, 2013 were $4.7 million, an increase of 31.7% compared to 3.6 million for the same period in 2012. The increase was primarily due to startup costs associated with initiating the MASTER II Trial, as well as increased sales and marketing expenses as we begin to build the appropriate sales infrastructure for future growth. The loss from operations for the quarter ended September 30th, 2013 was $3.9 million, an increase of 18.4% compared to a loss of $3.3 million for the same period in 2012. Total financial expenses for the quarter ended September 30th, 2013 were approximately $100,000, a decrease of 98.6% compared to $4.2 million in the same period in 2012. The decrease in financial expenses resulted primarily from the absence of any non-cash revaluations of our warrants or amortization expenses during the three months ended September 30th, 2013. In contrast, during the three months ended September 30th, 2012, we recognized approximately $4 million in non-recurring, non-cash costs associated with our previously retired convertible debt and associated warrants. If the non-cash effects in the three months ended September 30th, 2012 as well as the non-cash effects in the three months ended September 30th, 2013 are removed, financial expenses for the three months ended September 30th, 2012 would have totaled approximately $200,000 as compared to approximately $20,000 of financial income for the three months ended September 30th, 2013. The net loss for the quarter ended September 30th, 2013 totaled $3.9 million, or $0.12 per basic and diluted share, a decrease of 47.4% compared to a net loss of 7.5 million, or $0.44 per basic and diluted share in the same period in 2012. Non-GAAP net loss for the quarter ended September 30th, 2013 was $3 million, or $0.09 per basic and diluted share, an increase of 15.7% compared to a non-GAAP net loss of 2.6 million, or $0.15 for the same period in 2012. The non-GAAP net loss for the quarter ended September 30th, 2013 primarily excludes $900,000 of share-based compensation. The non-GAAP net loss for the quarter ended September 30th, 2012 primarily excludes $4 million in non-recurring, non-cash costs associated with our previously retired convertible debt and associated warrants, and $1 million in share-based compensation. At September 30th, 2013 cash and cash equivalents were $11.4 million, compared to $14.8 million at June 30th, 2013. The decrease is in line with our anticipated burn rate of slightly over $1 million a month. This amount does not include the $10 million received in venture debt from Hercules Technology Growth Capital. Lastly, as we announced on our last quarterly call, we’ll be changing our fiscal reporting year-end from June 30th to December 31st. The three month period ending September 30th was the first half of the transitional six month fiscal year from July 1st to December 31st, 2013. This change will allow us to better align our financial periods and annual budget planning with our business cycle, as well as assist the investment community in following our progress moving forward. With that, I’d like to turn the call back over to Alan.

[Alan Milinazzo:]

Thanks, Craig. Briefly, the financial results outlined by Craig begin to show that the operational and organizational changes we have made in the past two quarters are showing early signs of positive results. We intend to remain focused on our four key performance areas and monitor our progress daily, and look forward to updating all of you quarterly as we move forward in building a successful and highly valued business. Lastly, I wanted to take this opportunity to thank Asher Holzer and Eyal Weinstein for serving on our Board of Directors and for the many contributions from Asher as a co-founder of InspireMD. Both Asher and Eyal will not be standing for re-election at this year’s Annual Meeting, but will serve out their respective terms through the end of 2013. We continue to evaluate industry leadership which can strengthen our Board governance and enhance our performance as an organization. The addition of Mike Berman and Dr. Campbell Rogers to our Board of Directors in 2013 is already having a very positive impact on the organization. With our 12 month results in hand, additional funding in place, and continued improvement in our operations, we are looking forward to a successful close to the year and a bright 2014. This concludes the prepared remarks, and now we are ready to open the call for questions.

[Operator:]

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) One moment please, while we poll for our first question. Our first question comes from Josh Jennings with Cowen & Company. Please proceed with your question.

[Josh Jennings:]

Hi. Good evening, gentlemen. Thanks for taking the questions. I guess first I wanted to ask one on the 12 month MASTER trial data and the mortality benefit trend that was sustained and was durable out to 12 months. Can you give us just a sense and color of the international customers and how they responded to six month mortality benefit trend results and now, and how that could potentially, you know, benefit even more from a marketing perspective, but with the 12 month data that’s—that you now have secured?

[Alan Milinazzo:]

Yes, thanks, Josh. So, the interim look at six months, I think a lot of the physicians use six month results as interesting, but not conclusive, and this really goes back. You know, a number of companies—at Medtronic we started doing this with the Endeavour program at four months. Really the—I think the key timeline for physicians we talk to is they want to see the acute results because that’s a good predictor. If you look at numerous studies around acute results, ST segment resolution in particular, TIMI flow infarc size, they often correlate with long-term benefits; but long-term is defined as 12 months. And so, from our standpoint, we’ve really had, you know, a lot of physicians interested in what we’re talking about with six months, but sort of

[Operator:]

Our next question comes from Kathy Reiss with Empire Asset Management. Please proceed with your question.

[Kathy Reiss:]

Hi. Good afternoon. Thanks for having the call. I was wanting to focus back on MASTER II. I know that patient enrollment is just starting and I don’t want to get too granular, but maybe to help a little bit with our timing expectations. Are the sites already recruited? Or, is that recruitment still ongoing?

[Alan Milinazzo:]

So Kathy, we have 70 sites approved by the FDA, 35 in the U.S. and 35 outside the U.S; so we’ve identified those sites. We also are identifying additional sites should we want to increase the number of sites. We’d want to have those sites qualified. Obviously, we’d have to go back to the FDA to ask for additional sites, but our timeline—the 18 months we spoke about earlier, we started in July. So, our timeline is to fully enroll MASTER II by the end of 2014, and again, that is with the 70 sites.

[Kathy Reiss:]

Good, thank you. That’s very helpful.

[Operator:]

(Operator Instructions) We have a follow-up question from Josh Jennings from Cowen & Company. Please proceed with your question.

[Josh Jennings:]

Hi. Thanks again. I wanted to also ask a question on—second question on MASTER 12 month data and how you’ve—the response—the feedback you’ve gotten from KOLs and European adopters on the control group TLR and TVR rates. You know, they were inexplicably low outside of any historic norms, and is that realized in the clinical community from your standpoint? Are docs looking at and understanding that the separation there was outside of historic norms?

[Alan Milinazzo:]

Yes. I think, Josh, going back to, you know, the design of MASTER I and that this is similar for MASTER II, because our control is any stent on MASTER I that physicians, when they were randomized to a control stent, they could do whatever they would normally do, there was likely an inherent bias that the treatment of that patient in the control group was standard therapy. And so, more likely than not, those physicians weren’t—may not have been as aggressive in terms of bringing patients back if there was minor discomfort on follow-up. This was noted by a couple of the investigators and we sort of validated it as we went around. So, you could say that, based on the design of the study, there could be some inherent bias. This was helpful for us to understand going into MASTER II because it can allow us to better train our physicians who are participating that, even in those situations, we really still want to have those patients come back for—you know, for a look. But, the best explanation we have, Josh, is that just given the design of the study, which is a very—you know, very strong design in that it really does demonstrate MGuard versus current therapy, we think that that may be one of the trade-offs. The only other limitation in MASTER II, as a reminder, is that, because it’s an FDA trial, the limitation on our investigators for the control is an FDA approved stent. So, we’ll be limiting the universe of control stents to only FDA approved stents.

[Operator:]

(Operator Instructions) One moment while we poll for more questions. There are no further questions in queue at this time. I would like to turn the call back over to Management for closing comments.

[Alan Milinazzo:]

Okay. Thank you very much. Well, in closing, I want to thank everyone for joining us today. We appreciate your continued support and interest in InspireMD and we look forward to continuing to update you on the progress that we’re making. Have a good afternoon.

[Operator:]

This concludes today’s teleconference. You may disconnect your lines at this time, and thank you for your participation.