Executives
Lisa Wilson - Director, IR
Howard Zauberman - Interim CEO
John Vittoria - Interim VP, Finance
Analysts
Irwin Gomberg - Irwin Investments (ph)
Nat Prentice - Altium Wealth Management
Vision-Sciences, Inc. (VSCI) F1Q 2014 Earnings Call August 13, 2013 8:00 AM ET
Operator
Good day, ladies and gentlemen, and welcome to Vision-Sciences’ Fiscal First Quarter, 2014 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator instructions) As a reminder, today's conference call is being recorded.
I’d now like to turn the conference over to your host Ms. Lisa Wilson, Investor Relations for Vision-Sciences. Please go ahead.
Lisa Wilson
Good morning, and thank you for joining Vision-Sciences’ financial results conference call for the first quarter of fiscal year 2014. Today’s call will include remarks from Howard Zauberman, Interim Chief Executive Officer; and John Vittoria, Interim Vice President of Finance and Principal Financial and Accounting Officer. They will be joined by the Company’s Chairman, Lewis C. Pell, for the question-and-answer period.
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 13, 2013.
With that, I would like to turn the call over to Howard Zauberman.
Howard Zauberman
Thanks, Lisa and good morning everyone. In the first quarter of 2014, we achieved modest top-line growth and reduced our net loss. This is the first step towards resetting Vision-Sciences’ foundation and building a long-term plan that rewards shareholders, which I will be discussing in greater detail later on the call.
But first I would like to introduce John Vittoria, our Interim VP of Finance. John joined Vision-Sciences as Interim VP of Finance in June, 2013. Prior to joining the company John was VP of Finance and Accounting at Biodel, a biopharmaceutical company and before that he held several senior level positions at both manufacturing and distribution companies.
With that, I’ll turn the call over to John to review the financial results.
John Vittoria
Thanks, Howard and good morning everyone. For the first quarter of fiscal 2014, our net sales were up 8% to $3.7 million as compared to $3.4 million in the first quarter of fiscal 2013. Medical segment sales were up 21%, the increase was primarily due to a 76% increase in sales to urology market as compared to the prior year quarter, largely driven by shipments of our flexible ureteroscopes to Stryker and a 68% increase in EndoSheath sales. These increases were partially offset by decrease in sales in the ENT, pulmonology and spine categories of 19%.
Gross profit increased by 18% to $1.1 million in the first quarter of fiscal 2014, as compared to $900,000 in Q1 of fiscal 2013. Gross margins for the 2014 quarter increased 300 basis points to 30% as compared to 27% in the first quarter of fiscal 2013. The improvement is attributable to implementation of certain cost cutting measures, as well as favorable manufacturing absorption from higher production volume in the 2014 quarter.
SG&A expenses were up 12% to $3.1 million in the first quarter of fiscal 2014. The $300,000 increase was primarily due to higher stock-based compensation charge and the recognition of one-time service charge related to the departure of our former CEO.
As a percentage of net sales, SG&A was 84% for the first quarter of fiscal 2014, as compared to 80% for the same period last year. Excluding the one-time service charge, SG&A as a percentage of sales would have been 78%.
Research and development expenses decreased by $100,000 or 14% in the first quarter of fiscal 2014. As a percentage of net sales research decreased to 11% as compared to 14% for the same period last year.
Operating losses increased by $100,000 to $2.4 million during the first quarter of fiscal 2014, as compared to $2.3 million during the first quarter of fiscal 2013. The increase was primarily attributable to the aforementioned stock-based compensation and severance charges totaling approximately $400,000.
At June 30, 2013, cash and cash equivalents were $1.3 million and working capital was $7.1 million. This compares to cash and cash equivalents of $800,000 and working capital of $7 million at March 31, 2013. We also had 1 million of capital available under a $20 million convertible debt with Mr. Lewis C. Pell, our Chairman.
We expect that our cash and cash equivalents at June 30, 2013, together with the $1 million of capital available under the convertible debt and a new capital commitment of $5 million under an agreement dated June 20, 2013 with Mr. Pell should be sufficient to fund our operations through at least July 1, 2014.
With that, I turn the call back over to Howard.
Howard Zauberman
Thanks, John. When I joined the company in May, Vision-Sciences was clearly not meeting its full potential. Despite the strong value proposition of the EndoSheath technology, which allows doctors to perform an endoscopic procedure within a sterile sheath environment, revenues were below expectations. As a result, we have initiated a comprehensive strategic assessment of the business in which we will identify key product and process areas that require improvement, and key drivers that will position us for long-term success. We will establish plans in each area with short-term goals and important near-term objectives.
The results of this ongoing assessment will enable us to adjust our business strategy and operational plan, which we believe will lead to increased value for our shareholders. We’ve already begun this process in our operations and quality areas, and recently initiated a new product innovation effort as well.
Vision-Sciences is comprised of talented professionals, many of whom have a long history and tenure with the company. To augment this team, we have been filling gaps with executives with strong finance, healthcare and medical device experience.
As I mentioned, John Vittoria joined us in June as our Interim VP of Finance. I am also pleased to welcome Jerry Zukowsky, as VP of Operations and R&D. Jerry has over 20 years of leadership experience in medical device industry. Prior to joining the company, he was Director of Operations at AngioDynamics. Previously, Jerry held the role of VP of R&D at NAMIC, a division of Pfizer and subsequently Boston Scientific. He is certified in the Lean process and Six Sigma, and one of his responsibilities will be to work with our team to improve quality and reduce costs.
We also welcomed John Wlassich, as Director of Advanced Technologies. He has over 20 years experience in product and process development with a strong track record of delivering advanced technology products to the marketplace. Prior to joining the company, John was VP of Engineering at Nomir Medical Technologies and had been responsible for key operations at Gillette in both their Boston and Berlin facilities. John holds a PhD from MIT in electromechanical engineering.
We are excited by the new members of our team who have joined the existing leadership at Vision-Sciences. We also realigned the Company’s direct sales efforts, and asked everyone in the field to refocus their efforts to get out there and sell. They are now focused on the areas and customers where we have historically been successful, and which, we enjoy strong brand recognition and product royalty.
New sales targets have been identified based on a similar profile of customers who have bought our products in the past. As a result, the sales force is now spending significantly more time on office-based practices and ambulatory surgery facilities.
Our focus will remain on ENT and TNE in the office setting and critical care pulmonology in the ICU setting. We believe that it makes good sense to pay attention to our key customer base as our top-20 direct sales customers are all in the ENT market. Our credibility and recognition are growing in pulmonology in the critical care setting and in TNE, but today our brand recognition is strongest among ENT physicians.
We’re already seeing evidence of sales improvement from this reemphasis on our core customers. Our sales pipeline is being rebuilt and looks good at this stage and I’m confident our team can deliver on their commitment and accountability to our company. Our goal is to rebuild credibility with customers that want to buy our products and to better serve them by initiating programs to improve quality, drive down costs and advanced product innovation.
With respect to our partnership with Stryker Endoscopy, we’re pleased with their ongoing progress. Their strong presence in hospitals ensures that our brand remains visible even while our sales force is focused on our specific target markets. Stryker appears to be satisfied with the performance of our EndoSheath system and we expect their sales success to continue throughout this fiscal year.
Overall, I believe we are on the right track. During the quarter, we launched the 7000 Series Vision System video processor platform worldwide and all of our territory managers now have access to it for demonstrations. It is the first endoscopy platform to include video, audio, archiving and workflow enhancements in a single standalone unit. Key features of the 7000 System included high resolution imaging and multiple video playback options. We are selling this improved model alongside the prior version, so physicians can choose the level of technology to fit their needs and budget.
We benefit from strong support from our Board of Directors and our key investors, who together remain committed to the success of this business. We also have a very strong team at Vision-Sciences. They are reinvigorated and excited about the positive changes that we are working to effect and I want to thank them all for their dedication and hard work. We believe we could turn this company around and create an exciting growth business.
With that operator, please open the calls for questions.
Question-and-Answer Session
Operator
(Operator Instructions) Our first question comes from Irwin Gomberg of Irwin Investments (ph). Please go ahead.
Irwin Gomberg - Irwin Investments
Could you update us on SpineView and also on those sales this quarter?
Howard Zauberman
This is Howard Zauberman. We are not expecting any revenue from SpineView over the reminder of this fiscal year. Our understanding is SpineView is currently doing customer preference evaluations of their product. We have provided them product to do those evaluations and those studies are underway.
Irwin Gomberg - Irwin Investments
Wouldn’t the technology ramp much quicker if they were kind of a larger spine company?
Howard Zauberman
I really can’t comment on SpineView and their success. I am sure they are working very hard to prove their technology and perhaps you should direct your question directly to them.
Operator
(Operator Instructions) Our next question comes from Nat Prentice of Altium Wealth Management. Please go ahead.
Nat Prentice - Altium Wealth Management
I wondered to what degree you’ve seen anything coming out of the medical community that would support the EndoSheath as moving towards a standard of care.
John Vittoria
Yes, the changes domestically, the changes in the healthcare policy over the past few years should be stimulants for the success of our business. I think that’s true in twofold. One is infections. Patients who comeback now and in the future comeback to hospitals, acute care facilities with postoperative infections on the expense and the cost of the responsibility of that acute care facility. And so anything that can reduce re-infection or infection during procedures ought to be valued highly by the acute care facility.
So, of course the EndoSheath technology plays right into that by providing a sterile environment for doing endoscopic procedures. We are the only company that provides that system to acute care facilities or through our Stryker relationship of our product. So that should be a real benefit for us.
The other is cost reduction and as you know there is a lot of pressure on acute care and healthcare system in general to reduce costs and our product enables, because of our shorter clearing process, instead of having an extensive reprocessing and cleaning process for standard endoscopes, our sterile sheaths allow for a very short and quick turnaround time. That too should reduce costs, enable better throughput on endoscopy suites and should be a real benefit. So, I think those two drivers now more than ever should enable our company to be successful and of course we need to execute on those.
Howard Zauberman
We have a new system. If a hospital makes a mistake for example it’s punitive where they have to pay for the mistake. In the past, if they made a mistake, they would rebuild. Now they can’t do that. So if there is an outbreak of sterility problems, the hospital is at risk and that’s a good point for us too.
Operator
And with no further questions at this time, I would now turn the conference back over to Mr. Howard Zauberman for any closing remarks.
Howard Zauberman
Thank you. This quarter we began the process of turning the company around. It’s not going to happen overnight, but I firmly believe we can get the company back on the growth trajectory and reestablish our position as an innovator and a leader in endoscopy. Thank you for your ongoing support.
Operator
Ladies and gentlemen, this does conclude today’s conference. You may now disconnect and have a wonderful day.
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