Beyond Air, Inc.
Q4 2024 Earnings Call Transcript

Published: 24 Jun 2024

[Operator:]

Good afternoon, and welcome, everyone to the Beyond Air Financial Results Call for the Fiscal Quarter Ended March 31, 2024. At this time, participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. And now, I would like to turn the call over to Garth Russell, LifeSci Advisors. Please go ahead.

[Garth Russell:]

Thank you, operator. Good afternoon, everyone, and thank you for joining us. Today after the market closed, we issue a press release announcing the fiscal year 2024 operational highlights and financial results. A copy of this press release can be found on our website, www.beyondair.net, under the News & Events section. Before we begin, I would like to remind everyone that we will be making comments and various remarks about future expectations, plans, and prospects, which constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Beyond Air cautions that these forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated. We encourage everyone to review the company's filings with the Securities and Exchange Commission, including, without limitation the company's most recent Form 10-K and Form 10-Q, which identify specific factors that may cause extra results or events to differ materially from those described in the forward looking statements. Additionally, this conference call is being recorded and will be available for audio rebroadcast on our website, www.beyondair.net. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, June 24, 2024. Beyond Air undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this call. I would also like to mention, considering the corporate update being provided to you today and a relatively short period of time until the company is going to announce its Q1 fiscal year 2025 financial results, management has decided to forego hosting a standalone conference call next month. The company's results will still be thoroughly communicated via press release and 10-Q filing with the SEC. With that, I'll now turn the call over to Steve Lisi, Chairman and Chief Executive Officer of Beyond Air. Steve?

[Steve Lisi:]

Thanks, Garth, and good afternoon to everyone joining us today. Joining me on the call is Doug Larson, Chief Financial Officer, and we're both happy to be here today. I'm excited to report that we closed out our fiscal year 2024 with positive momentum as revenues for the fiscal fourth quarter grew more than 20% sequentially and we reported several positive metrics across our growing lineup of existing customers and sales pipeline, which I will touch on in a moment. First, I would like to offer a short review of the road we've taken to get to this point. The launch of LungFit PH following FDA PMA approval in the fall of calendar year 2022. Immediately after FDA approval in mid-2022, our engineers worked diligently to expand the device's compatibility with additional ventilators already installed in the market and made certain other improvements that address the feedback received from real-world use and customer input. In the spring of 2023, we had received all we needed from FDA to make our system what we believe is the best on the market, with two notable exceptions

[Douglas Larson:]

Thanks, Steve, and good afternoon, everyone. Our financial results for the fiscal year ended March 31st, 2024, are as follows. Revenue for the 2024 fiscal year was $1.2 million as compared with zero revenue in our previous fiscal year. We are showing a $1.3 million loss in gross margin, which is worth me spending a bit of time on. That figure is close to $2 million lower than our expectations from a year ago, and probably your expectations as well. For those of you who listened in for the third quarter call, none of this will be a surprise, but it's worth repeating. There are three main drivers of this margin shortfall. First, we incurred costs related to upgrades of the LungFit devices for the last two quarters of fiscal year 2024 and will continue to incur costs for the next few quarters as we complete the upgrades of all devices. Second, we prebuilt several hundred devices that are currently being upgraded. So we have depreciation of devices that are not currently generating revenue. Depreciation explains almost half of the margin variance. This effect disappears as we place units in hospitals and is not a drag on cash. Third, we're suboptimal in our physical warehousing infrastructure. But as we expand our customer base in each region, this effect will dissipate. Research and development expenses for the fiscal year ended March 31, 2024 were $24.4 million, compared with $16.8 million for the previous fiscal year. The increase of $7.6 million was attributed primarily to an increase in development costs with just over half of that increase for external costs for trials and professional fees. G&A expense for the fiscal year ended March 31, 2024, was $37.3 million, compared with $34.7 million for the previous fiscal year. The biggest moving parts in the net increase of $2.7 million were due to increases in headcount. Other expense for the year ended March 31, 2024, and March 31, 2023, were losses of $1.3 million and $7.3 million, respectively. The $6 million improvement was mainly due to the $7.1 million year-on-year decrease in non-product related litigation, an additional $1.1 million of interest income, and $0.7 million pickup from the change in fair value of our warrant liability, partially offset by an increase in interest expense of $2.9 million. For the year ended March 31, 2024, the company recorded a net loss of $64.3 million, of which $60.2 million, or $1.82 per share, was attributable to the shareholders of Beyond Air Inc. compared with a net loss of $59.4 million or $1.86 a share for the fiscal quarter ended March 31, 2023. Net cash burn in the quarter ended March 31, 2024, was $12.8 million. We continue to expand our pool of LungFit devices in addition to making payments on our VCAP study, continue to work on the development of our transport ready device, human trials in Beyond Cancer, and advances in our autism program. Finally, in March we entered into a security purchase agreement with Roth Capital and Laidlaw. In that offer, we sold just over 9.6 million shares of common stock with a one-for-one callable warrant at $1.66 per share. The warrant has a $2.25 exercise price and can be called upon us achieving $4.5 million of revenues in the quarter ending March 31, 2025. We received net proceeds of $14.6 million at the end of the quarter from this purchase agreement. As of March 31, 2024, the company had cash, cash equivalents, and marketable securities of $34.5 million. As Steve mentioned in his earlier remarks, we are executing a plan to preserve capital and extend our cash runway. We'll start seeing the impact of that plan in our second fiscal quarter, which starts a week from today. Finally, as Garth mentioned in his opening remarks, given that the timeline between this call and the close of the next quarter are so close, we're not planning on hosting a Q1 conference call next month. And with that, I'll hand the call back over to Steve.

[Steve Lisi:]

Thanks, Doug. Before we open the call up for questions, I would like to address one more item. Two weeks ago on June 7th, we filed suit in New York State Supreme Court against Airgas for breach of contract. There will be information in the 10-K that will be available shortly after this call. As this is a pending litigation, I will not be making any further comments on this matter. We will now take any questions you may have.

[Operator:]

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Marie Thibault with BTIG. Please proceed with your question.

[Marie Thibault:]

Good evening. I want to start off here with a question about the fiscal fourth quarter we just completed and try to understand why we didn't see more of a sequential lift in revenue between fiscal third and fiscal fourth quarter? And as part of that I would also love to understand some of the assumptions built into the fiscal 2025 outlook?

[Steve Lisi:]

Sure. Thanks, Marie. Like we said in the prepared remarks, it was a little -- a decision that we made to make sure that what we were upgrading got tested out with our current customers and we wanted to make sure that everything was working well before we went out to the broader market and brought new customers in and it's important to upgrade our existing customers. So that process took a little longer. So we didn't really get as many new customers as we had anticipated. I think that's the main reason. I wouldn't say it's the only reason, but that would be the main reason.

[Marie Thibault:]

Okay, and some of the assumptions in the fiscal 2025 outlook?

[Steve Lisi:]

Well we're assuming that our pipeline is accurate in terms of potential hospitals over the next nine months and that our success rate, which we can measure fairly decently given the experience we've had in the market that we're in a normal range of that. Not to mention we have someone new who's going to be leading this team starting in two weeks and we have a lot of confidence in our new Chief Commercial Officer and the strategies that he will bring to us. So I think those are some of the assumptions. I mean, it's important that we have a database of targets and we have an expected win rate. And I think that with our machine and the shape that it's in, I think we're going to be just fine.

[Marie Thibault:]

Okay. Given we're five, six days away from the end of your fiscal first quarter, any chance you can give us some color around how that quarter is doing, especially since we won't get to hear from you publicly next quarter?

[Steve Lisi:]

Yeah. I mean, it's certainly better than last quarter. Our growth in this quarter will be better than our growth from 4Q over 3Q, that's for sure. Not just a little bit, but the growth rate will be significantly better.

[Marie Thibault:]

Okay. Last question from me and then I'll let others jump in. Thanks for the update on cash burn. Can you remind us on the debt financing you did a couple of quarters ago, the tranches that are remaining. Do you still have access to the full amount? I know there were some milestones around that. Are those -- is that funding still available to you?

[Steve Lisi:]

So the milestone, the first milestone funding is not available to us, but there is another pool of money that could be available to us if we so choose to have a discussion with our lender.

[Marie Thibault:]

Okay. And can you tell me how much that is?

[Steve Lisi:]

Doug, what was that number?

[Douglas Larson:]

So 10 was the second tranche, 12.5 the third tranche.

[Steve Lisi:]

12.5. So the 10 is not available anymore. The 12.5 is potentially there.

[Marie Thibault:]

Okay. That's helpful. Thank you.

[Steve Lisi:]

Thanks, Marie.

[Operator:]

Our next question comes from the line of Yale Jen with Laidlaw & Company. Please proceed with your question.

[Yale Jen:]

Thanks for taking the questions. My first question is that, given that you guys are going to be more conservative in terms of the R&D expenses, so how should we think about from housekeeping perspective, the trend for fiscal 2025, both in R&D as well as in SG&A?

[Douglas Larson:]

Thanks. I'll take that one. So, in our modeling and in the plan that Steve and I put together, we were looking for kind of north of 15% of our operating cost reduction year-on-year. And we've got a plan to attain that. There's more of that in R&D. So we're looking at north of 20% reduction in overall R&D spend year-on-year. And then in SG&A, somewhere between 5% and 10%. And a little bit lower -- a little bit lower in SG&A, obviously, because our selling is in there and we didn't want to touch that part and give David a chance to get the market running.

[Yale Jen:]

And also that in terms of the revenue for fiscal 2025, should we anticipate greater portion of the revenue on the second half of this fiscal 2025 versus the first?

[Douglas Larson:]

Yes, sir. Yes, wrapping up the -- as Steve was saying, higher next quarter -- higher growth next quarter than last quarter, and then continuing that trend through Q3, Q4.

[Yale Jen:]

And maybe the last question here is that the -- for the last quarter, that the reported quarter that you indicated, was there any new accounts or mostly just the renewing of the existing accounts and what do you anticipate at least starting from fiscal 2025? Do you anticipate more new accounts instead of, again, renewing? Or how should I see the mix? How should we see the mix at least from [indiscernible]

[Steve Lisi:]

Yes, [indiscernible] lot of new accounts, yes. I mean that's the only way we're going to increase the revenues. Our existing customers -- there could be a little bit of growth there if they're going to use more than anticipated, but that's marginal. We don't anticipate a hospital making an estimate and then going over by 50% or 100%. I mean, that's extremely rare. So it's really new hospitals that are going to drive growth. So we signed new hospitals in our fiscal fourth quarter. We've signed more new hospitals in this fiscal first quarter that we're about to end that we did in our fiscal fourth quarter. And we anticipate to continue that trend, right? The growth rates quarter-over-quarter will get bigger. Eventually they'll flatten out because we'll get too big in the quarter, so it will be tough to keep got that going. But the number of hospitals being assigned should continue to rise over the next several quarters. If not into fiscal 2026, we should see that trend continue significantly.

[Yale Jen:]

Okay, great. Thanks a lot. I appreciate the colors on the development.

[Steve Lisi:]

Great. Thanks, Yale.

[Operator:]

And our next question comes from the line of Matt Kaplan with Ladenburg Thalmann. Please proceed with your question.

[Matt Kaplan:]

Hey guys, thanks for taking questions. Steve, maybe if you can help us understand in terms of where you are with respect to the software upgrades across the existing devices?

[Steve Lisi:]

Yes. So Matt, we have two lines that are contract manufacturers, so we are building new systems on one and we're upgrading old systems on the other. So that process will continue for the next couple quarters. Instead of upgrading all of them on both lines, we want to make sure that we have a line making new ones from scratch as well. So the technicians over there building it don't get rusty, right? Because it's a different process when you're upgrading versus building new ones. So we have a line for each so it will continue for the next couple of quarters.

[Matt Kaplan:]

So kind of mid-fiscal year you'll be completed with the upgrades and then we should think about…

[Steve Lisi:]

I would say mid-fiscal year. I would say more towards the end of the fiscal year. Remember our fiscal year will be -- it's nine months from the end of this fiscal year, so it's going to be at least the next two or three quarters where we're going to continue doing these upgrades, but also building new ones. So we don't anticipate any issues not being able to meet demand. If we do, that would be a high class problem to have. And we do have the ability to crank up the new machines being built on our new machine line if need be. But of course, as you know, it doesn't happen overnight. So if we do see that demand coming, we would have to make that decision three, four, five months ahead of that to ramp up. So you'll get a pretty good idea. It's not like we get shocked that that 17 hospitals signed in two weeks that we weren't anticipating. That doesn't happen here. So, we'll get some good time to make those decisions, right? We have -- we can see hospitals three, six, nine months out of the pool of hospitals that we're targeting. So right now we think what we're manufacturing and retrofitting is good. And if we can place all of those systems, we'll certainly do a hell of a lot better than the $10 million for this fiscal year. But again, we're anticipating to hit that number, but we are building a little bit more than what that number would translate to. So if we were to place all of our machines, we'd certainly be able to beat that number. So we're not in a deficit capacity in terms of supply.

[Matt Kaplan:]

Okay. And then, how should we think about -- and where you focused on driving growth? Is it more kind of breadth or depth of use at existing accounts? So breadth meaning, expanding customers and depth meaning, use at existing customers or both?

[Steve Lisi:]

So I think it's both, but to new customers is going to be the real driver. I mean, it -- again, a hospital knows they're using 10,000 hours a year or 15,000 hours or 3,000 hours or 25,000 or what have you, they're not going to come back to us and say, hey, we're using 50% more than we thought. We love your machine. I mean, there can be some increase there. Maybe they're switching over from a [Flowland] (ph), for example. They're switching over from that product to use nitric more. But again, it's not going to be some massive, massive move. I think that getting recommendations from existing customers from hospitals that they work with in certain areas is really where we're starting to build the business. So I think it's the referrals that helps us the most. We just also recall that we do have a partner overseas in Asia and we expect before the end of this calendar year to hopefully get some European partners. So there will be some shipments going out to, at least, Asia this fiscal year.

[Matt Kaplan:]

And then last question in terms of the PMA supplement which is under review. I guess initially we had thought about calendar year's second half of this year. What's pushing it to the fourth quarter and what do you think that impact will have on your revenue ramp or upon approval of the PMA for the cardiovascular indication?

[Steve Lisi:]

Okay. It's still second half Matt. I wish it was the third quarter or to the fourth quarter of the calendar year, but it's still in the second half and you know FDA takes their time and I don't think it's going to impact. I think that the guidance that we have given even the prior guidance and the current guidance doesn't include any impact from cardiac surgery on the label in fiscal 2025. Certainly for fiscal 2026, it's something that we anticipate having in the back. But again, this is the process with FDA. That's why we said second half, it would have been great if it was a September, October -- September, October would be great. Maybe it's going to be October, November now, kind of timeframe, we'll see. And there's no guarantees of that, Matt, as you know. I mean, this is just based on our most recent communications with FDA. This seems like the timing, but there can be more questions. This is not a drug review, as you know. It's not a -- there's no PDUFA date, right? There's no exact date. This is on the medical device side. So, it's never a hard target. It's always a moving target. And again, based on what we know from FDA, it should be the December quarter where we get a decision. But again, I'll update you if that changes.

[Matt Kaplan:]

Great. Thanks, Steve.

[Steve Lisi:]

Thanks, Matt.

[Operator:]

Thank you. At this time, we are showing no further questions in the queue, and this concludes our question-and-answer session. I would now like to turn the call back over to Steve Lisi for any closing remarks.

[Steve Lisi:]

I want to thank everybody for listening in. We're pretty excited about the point that we're at right now. We should happen a little sooner, but sometimes you've got to wait for the good stuff, right? I look forward to speaking to you all in the future.

[Operator:]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.