Mauna Kea Technologies : Transcription de la conférence téléphonique sur les résultats financiers complets pour le premier semestre 2020 et son chiffre d'affaires préliminaire de ventes du troisième trimestre 2020

Transcription

Mauna Kea

Technologies Conference Call, 22.09.2020 EV00113390

Tuesday, September 22, 2020

Mauna Kea Conference Call, 22.09.2020, EV00113390

Presentation

Operator

Ladies and gentlemen, welcome to the Mauna Kea Half Year Results 2020 Conference Call. At this time, all participants are in listen- only mode. A brief question and answer 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 Mauna Kea Technologies. Sir, please go ahead.

Rob Gershon

Thank you, Greg, and welcome everyone to Mauna Kea Technologies' First Half of 2020 Financial Results and Preliminary Third Quarter 2020 Sales Results Conference Call. I am joined on the call today by Christophe Lamboeuf, our Chief Financial Officer.

Let me start with a brief agenda of what we will cover during our prepared remarks. I will start with a brief summary of our sales performance for the first half of 2020. I will then discuss our preliminary sales results for the third quarter of 2020, which we elected to disclose in the interest of full transparency in light of the investment communities focused on the pace of recovery from the global pandemic.

I will also provide a brief review of our key operating highlights for the first half of 2020 period. After these opening remarks, Christophe will provide you with a detailed review of our financial results for the first half of 2020 and balance sheet condition as of 30th June, 2020, as well as the significant balance sheet enhancement activities that occurred in July. I will then provide an update on our progress with the formal evaluation process to identify new clinical areas for commercial focus, which was one of our three strategic priorities in 2020. Then we will open the call to your questions.

As reported on 20th July, our total sales for the first half of 2020 decreased 47% year-over-year to €2.1 million. First half of 2020 sales results were driven by a 7% increase in Services revenue, which partially offset declines in sales of Systems and Consumables of 59% and 52%, respectively, compared to the prior year period. The sharp decline in sales over the first half of 2020 was a direct result of the significant impact on procedure and adoption trends in our primary commercial markets around the world as a result of the global crisis caused by the coronavirus or COVID-19.

While our sales were significantly impacted by COVID-19 during April and May, we have seen a pronounced improvement in our underlying business trends as we move through the second quarter as restrictions were lifted and practices began to reopen. Specifically, we saw US procedure volume return to pre-COVID levels for the month of June, and importantly, we had seen continued improvement in US procedure volumes during the first two months of the third quarter, which I will discuss in more detail shortly.

In the face of unprecedented challenges to our business trends at the hands of COVID-19, the organisation has performed admirably, and I am very proud of the significant progress we have made over the first half of 2020 and in recent months toward our goal of enhancing our financial condition and maximising our capital resources to support the company's strategic growth initiatives.

Specifically, we have implemented a series of significant cost-cutting actions designed to tightly control operating expenses. We secured non-dilutive financing of $0.7 million or €0.64 million and €4 million through the US Paycheque Protection Programme and the French state-guaranteed loan programme, respectively. And we announced the drawdown of the €6 million second tranche of our financing agreement with the European Investment Bank. Collectively, these actions should provide sufficient liquidity to manage the business through the third quarter of 2021.

Turning to a review of our preliminary third quarter sales results, which we announced in our press release today. While not our standard disclosure and reporting practice, we elected to provide this incremental intra-quarter update in the interest of full transparency as we understand the investment community's keen focus on the pace of recovery from the global pandemic.

As I mentioned, we are very encouraged by the continued improvement in business trends in each of our primary markets around the world, though, there is understandably a varying degree of recovery depending on the market. Specifically, the recovery in

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Mauna Kea Conference Call, 22.09.2020, EV00113390

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-19 levels in recent months and we expect continued improvement in business trends in China to result in improving capital equipment demand as we move through Q4 and into 2021.

The US 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 US in question. That said, our US business trends have improved in each month since May with June procedures exceeding pre-COVID levels. July procedure trends improving further compared to June and resulting in flat procedures on a year-over-year basis for the month, and further improvement in trends during the month of August, where we saw procedure growth on a year-over-year basis, very encouraging trends indeed.

The pace of recovery in our EMEA and rest of world regions has been slower than in APAC and the US, although, again the trends have varied depending on country. Within the EMEA specifically, we are seeing modest improvements 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, we are pleased with the improvement in business trends, which resulted in a notable recovery in our sales results for the third quarter. Specifically, as reported in our press release today, our preliminary sales for the third quarter are expected in the range of €1.8 million to €2 million, representing growth of 2% to 11% year-over-year. This reflects a meaningful improvement in sales trends when compared to the 72% decline in sales we reported for the second quarter of 2020.

Our preliminary third quarter sales results are comprised of US growth in the range of 1% to 3% year-over-year, and rest of world growth in the range of 4% to 19% year-over-year. The expected increase in third quarter sales compared to the prior year period was driven by an increase in Systems sales in the range of approximately 46% to 60% year-over-year, and an increase in Service sales in the range of 21% to 29% year-over-year, offset partially by a decrease in Consumable sales of approximately 27% to 23% year-over-year.

We are encouraged by the strong uptake in capital equipment demand during the third quarter, where we had System sales in each of our primary markets around the world. It certainly remained early days in terms of the global capital equipment recovery, but we are encouraged that our efforts to remain well positioned for the recovery, pay dividends during the third quarter. The System sale in the US was a direct result of the new commercial targeting strategy discussed on our year-end conference call in April and the System sales in the EMEA, rest of world region is a direct result of our strategic evaluation process, which I will share more colour on later in the call.

While we expect to report a year-over-year decline in Consumables sales for the third quarter, we remain encouraged by the overall improving trends in procedure demand in recent months and we expect to begin to transition from customers working through their inventory on hand in recent months to placing orders for consumables as we move through the balance of 2020.

We discussed our year-to-date operational progress in several areas on our call in late April, and we included a summary of operating progress over the first half of 2020 in our press release today. In the interest of brevity during today's call, I will call your attention to a few recent operating highlights and milestones.

Our portfolio of clinical validation had a notable addition in May with a publication in a peer-reviewed journal, Surgical Endoscopy. The publication was a review on the safety and efficacy of confocal laser endomicroscopy as a diagnostic tool for the evaluation of gastrointestinal pathologies conducted by the Technical And Value Assessment Committee, or TAVAC, of the Society of American Gastrointestinal and Endoscopic Surgeons, or SAGES. The publication and surgical endoscopy was based on the committee's systematic review of clinical studies on PubMed MEDLINE involving CLE in May 2018, as well as bibliographies of key references for relevant studies not available on PubMed.

The committee's objective was to evaluate the safety value and efficacy of CLE in the gastrointestinal tract. The results of the committee's analysis concluded that CLE offers an excellent safety profile with rare adverse events related to the use of fluorescent agents. It has been shown to increase the detection of dysplastic Barrett's esophagus gastric intraepithelial neoplasia, early gastric cancer, and dysplasia associated with inflammatory bowel disease when compared to standard screening protocols.

It also aids in the differentiation and classification of colorectal polyps, intermediate biliary strictures and pancreatic cystic lesions. We are extremely pleased by SAGES' endorsement of confocal laser endomicroscopy in the diagnosis and surveillance of gastrointestinal diseases, including GERD, Barrett's esophagus and pancreatic cysts. This peer-reviewed analysis reinforces the position of Cellvizio as an adjunct to the standard-of-care to effectively target biopsies and increase diagnostic yield, thereby improving patient outcomes and optimising clinical costs through increased diagnostic accuracy.

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Mauna Kea Conference Call, 22.09.2020, EV00113390

We made another important clinical announcement in June, though, this was regarding a clinical study of high strategic importance for Mauna Kea Technologies. On 24th June, we announced that we received authorisation from Fox Chase Cancer Centre's IRB to start a pilot clinical study combining nCLE and robotic navigational bronchoscopy, using both Cellvizio and the Monarch Platform from J&J's Auris Health, Inc. for the diagnosis of peripheral lung nodules.

The pilot clinical study is being conducted by Dr Christopher Manley, Director of Interventional Pulmonology and Assistant Professor of Medicine at Fox Chase Cancer Centre in Philadelphia and Prof Jouke Annema, Prof of Pulmonology Endoscopy at Amsterdam University Medical Centre. The main objective of this study is to assess feasibility and safety of Mauna Kea's AQ-Flex 19 Confocal Miniprobes during robotic navigational bronchoscopy in the analysis of peripheral lung lesions.

As discussed on prior calls, the AQ-Flex 19 Confocal Miniprobes is designed to be introduced into suspected lesions through a fine needle and is compatible with both conventional bronchoscopes and emerging endoluminal robotic bronchoscopes, such as the Monarch platform. It is the only cleared nCLE technology capable of imaging tissue microstructures in vivo in real-time and at the cellular level.

This study will include 25 patients with peripheral nodules and enrolment is underway and progressing favourably to-date. This pilot clinical study is being co-funded by the Lung Cancer Initiative at Johnson & Johnson and Mauna Kea Technologies, and represents a key milestone towards the third strategic priority that we have discussed throughout 2019 and 2020, which is focused on identifying the next area of commercial focus for the company. I will share a broader update on our progress towards this strategic objective later on the call, but we are understandably pleased with the beginning enrolment in this important clinical study and look forward to sharing updates on our progress in the coming months.

Finally, we made another important announcement in recent months, which is the appointment of Claire Biot, PhD, as an Independent Director to our Board. Dr Biot brings impressive leadership experience in the field of medical technologies from a commercial and market access perspective. Her current role as Vice President Life Sciences Industry at Dassault Systèmes, gives her a unique and very interesting vantage point on Mauna Kea's commercial growth opportunities.

So in summary, we are very pleased with the material improvement and business trends beginning in June and continuing in each month of the third quarter. We are encouraged that these improving business trends, combined with our strong execution toward our primary strategic priorities, focused on driving growth in the US and in select international markets, has resulted in a return to growth as evidenced by our preliminary third quarter sales results, which reflect total revenue growth in the range of 2% to 11% year-over-year.

We also made significant operating progress during 2020, which we believe enhances our ability to drive growth in the years to come. Most importantly, we have executed well in terms of controlling costs and improving our balance sheet. And we are proud to be an arguably the strongest financial condition we have been in at any point in the last few years, despite the challenging operating environment over the last six-plus months due to COVID-19 pandemic.

With that, let me turn the call over to Christophe for a detailed review of our financial results for the first half of 2020. Christophe?

Christophe Lamboeuf

Thanks, Rob. Given the detailed disclosure of our sales results in our second quarter and first half of 2020 sales recent press release on 20th July, my commentary today will focus on our full financial results for the first half of 2020.

Total revenue for the first half of 2020 decreased €1.3 million or 30% year-over-year to €3.2 million compared to €4.5 million last year. By way of reminder, in addition to our sales results, total revenue on our income statement includes other income comprised of research tax credit and a US PPP grant for a total of 1.1 million compared to 576,000 in the prior year period.

Gross profit for the first half of 2020 decreased €1.1 million or 43% year-over-year to €1.4 million compared to €2.5 million last year. Gross margin over the first half 2020 period was 67.2% compared to 62.7% in the first half of 2019.

Total operating expenses for the first half 2020 period decreased €1 million or 10% year-over-year to €8.7 million compared to €9.7 million in the first half of 2019. The decrease in total operating expenses was primarily driven by a decrease of €0.6 million or 29% year-over-year in research and development expenses, a €0.4 million decrees or 9% year-over-year in sales and marketing

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