Axe Compute Inc. (AGPU) Q4 2016 Earnings Report, Transcript and Summary

Welcome to the Fourth Quarter 2016 Financial Results and Business Update Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded, March 15, 2017. I would now like to turn the conference over to Kim Golodetz. Please go ahead, ma'am.

Thank you. This is Kim Golodetz with LHA. Thank you all for participating in today's call. Joining me from Skyline Medical are Dr. Carl Schwartz, Chief Executive Officer Chairman and Peter Alex, Vice President of Sales. Joining us for the Q&A portion of today's call we also will have Bob Myers, Chief Financial Officer. Earlier today Skyline Medical issued a news release announcing 2016 fourth quarter and full year financial results along with a business update. If you've not received this news release or if you would like to be added to the Company's email distribution list, please call LHA in New York at 212-838-3777 and speak with Caroline Curren [ph]. Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements regarding the operations and future results of Skyline Medical. I encourage you to review the company's filings with the Securities and Exchange Commission, including without limitation the company's Forms 10-K and 10-Q which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Factors that may affect the company's results include, but are not limited to product demand, market acceptance, impact of competitive products and prices, product development, commercialization or technological difficulties, the success or failure of negotiations and trade, legal, social and economic risks. All forward-looking statements speak only as of today's date, November 15, 2017 and except as required by law, the company assumes no obligation to update these forward-looking statements whether as a result of any information, future events, changed circumstances or otherwise. With that said, I would like to turn the call over to Dr. Carl Schwartz. Carl?

Thank you, Kim and my thanks to each of you for joining us this afternoon. Today I would like to highlight some recent activities at Skyline Medical. Skyline Medical and staff work tirelessly through 2016 to set a viable business strategy and build a strong foundation for growth in 2017 and beyond. We are starting to see the positive results of our efforts including the purchase by a top ranked U.S. Hospital of its fourth and fifth STREAMWAY systems for its headquarters location during the fourth quarter. Overall we sold four units during this quarter bringing our installed base to 100 STREAMWAY systems. I want to express my gratitude to all our shareholders for voting firmly for some very difficult initiatives over the past few months including our reverse stock split and two increases in the authorized shares. These initiatives permitted us to raise a total of 6 million in growth capital during the fourth quarter in recent weeks while maintaining our NASDAQ listing. We assure these were vital actions to ensure Skyline's viability and allow us to continue bringing the innovative and exceptional STREAMWAY system to patients and clinicians. The funds we raise will allow us to invest in sales and marketing activities, research and development and possibly acquire or in-license additional products. Let me briefly review our achievements during the fourth quarter and 2017 to-date. During our last conference call I told you that we exhibited in September at Vizient Clinical Connection Summit, an innovative technology exchange and that we hope to be awarded a contract with them. Vizient is a general purchasing organization or GPO and is the largest member driven healthcare performance improvement company in the country. They have annual purchasing volume of almost $100 billion. Their annual summit provides medical technologist suppliers with the opportunity to demonstrate their products and gain correct direct feedback from onsite clinical experts and healthcare providers on the impact of their products may have on improving clinical care or safety or on-ways that may benefit the organizations patient care and business models. We received Vizient's innovative technology award after that summit with conditions at some of the - STREAMWAY way is offering unique and incremental benefits over other products available on the market today. As a matter of perspective we were informed that there are only 63 active innovative technology contracts and only one in four requests for contracts reaches agreement status so we feel especially honored. This was a followed by the award of a contract allowing us to sell the STREAMWAY system to Vizient members. Since their program started there have been more than 2200 submissions in only 193 contracts launched. Securing both the contract with Vizient and it innovative technology award, our watershed events for skyline. The contract provides new avenues to reach member organizations as potential customers for STREAMWAY and we are currently working with Vizient to finalize marketing materials. Note that there are extensive resources assembled by Vizient to increase contract participation by its members with more than 350 acute sales force representatives, 79 of non-acute representatives and more than 500 consulting associates. Later in the call Peter Alex, our VP of Sales will tell you of ways we are getting visibility for STREAMWAY among Vizient membership in addition to our sales and marketing strategies. Among the strategies Peter will expand upon is the migration of STREAMWAY marketing through a highly efficient electronic and digital strategy. In addition to our usual sales target of operating rooms we have also refined a STREAMWAY sales and marketing focused on the radiology marketplace particularly on paracentesis and thoracentesis procedures which involve a large volume of fluids. These customer acquisition activities include a heightened presence for Skyline at radiology conferences. As a result of these efforts we are seeing a dramatic increase in the number of institutions seeking to trial a STREAMWAY system which bodes very well for our future sales. For example earlier this month we exhibited at the AAHRA Association for Medical Imaging Management Spring Conference and where we garnered many excellent sales. Our initiatives are bearing fruit, we now have 2.6 million queued in the outstanding quotes and this number is climbing. I'm pleased to reported in recent weeks we added four regional sales managers, we are currently have a dedicated U.S. sales force of six individuals and I want to affirm our plans to add 25 to 30 commission only independent reps by the end of 2017. Before I turn the call over to Peter Alex I'd like to update you on various sales and regulatory initiatives and agreements. I'll start with Canada. We recorded our first sale in Canada just this week, we received the Health Canada Medical Device License to market and sell the STREAMWAY system there in November of last year and we plan to roll out our product via a network of distributors. We have determined that it is in our best interest to use direct sales via a company and independent sales representatives to maximize the uptake of STREAMWAY. We expect this approach to result in a better control over the process, more trialing, faster sale decisions and improved economic to Skyline. Canada represents a large market with approximately 10,000 operating rooms ad approximately 1500 hospitals across 13 provinces. In late [Technical Difficulty] nationally recognized testing laboratory TUV, its ort of our STREAMWAY system conformed to the European Union's newest medical devices directive. We expect certification to this standard will be completed later this quarter. This certification will then be part of a technical file. It will be submitted to our notified by recommendation for our CE Mark which will allow us to sell STREAMWAY in European Union member states and certain other countries around the world. We expect this process to be completed in approximately four weeks. Note that our distribution agreements with GLG for the UK, Poland and Central Europe are in place and roll out of the STREAMWAY system those geographies is awaiting receipt of the CE Mark. The diagnostic product we envision developing with GLG for use in conjunction with STREAMWAY is still in the research and feasibility phase of development. After signing a letter of intent last August with Electronic On-Ramp negotiations are ongoing. So in summary we expect to resume revenue growth in 2017 as we increase the size of our direct organization, tap into the Vizient opportunity, expand into new geographies in North America and overseas and advanced initiatives like the one with Monroe. Pete?

Thank you, Carl. As Carl mentioned Skyline management and staff have been sharply focused on business strategy to enhance our brand and position us for strong growth in 2017 and beyond. The business strategy continues to prioritize our market differentiator, the direct brand experience while seeking ways to standardize the purchasing of the STREAMWAY and to position Skyline Medical into broader market channels. We are extremely optimistic towards our growth potential as severe as several critical milestones were met in recent weeks. First as we discussed on our last conference call in January we set goals on hiring and training regional sales managers which we completed this month. This milestone achievement put Skyline medical on a stronger position to support our install base, grow STREAMWAY sales across the health system, manage the Vizient contract rollout and heighten the need to standardize the STREAMWAY as an environmentally friendly approach to patient safety and staff safety. Another important facet of the new sales organization is the ability to focus on a longer range new construction, have representation to manage remodelling projects and improve our procedure room retrofit strategy. We can now focus field based activity from product demonstration through project design installation and most importantly beyond the sale. This is the first phase in building a consultative highly technical and clinical sales team to support decision makers in our multiple call points. We are now set to embark on our second phase to add 25 to 30 independent reps by the end of 2017. Our geographic coverage is now managed regionally in the Midwest, Northeast, mid-Atlantic, Southeast, South and West each region carries unique healthcare market factors allowing us to diversify our strategy with more purchase options which include straight purchase, leasing, 0% financing options, paper [ph] procedure agreements while a variety of other collaborative acquisition methods are being explored in partnership with specific high volume sales opportunities. All this not only multiplies our opportunities that make Skyline Medical a more complete healthcare company. In an environment that is looking for patient benefits, improved outcomes and a safer work environment. It is important for the sales team to expand our footprints of the STREAMWAY units, managing growth consumption rates on single use disposables for every in-room procedure and foster a renewed level of engagement with the marketplace. The team is making an immediate impact by adding $750,000 in outstanding quotes in just the past two months to add to a pipeline that is expected to increase from the current 2.6 million in recognized opportunities. These quote opportunities are spread across 2017 through 2018 account budgets. All the new sales organization with our Vizient Innovative Technology Award and Skyline Medical has immediately broadened our reach and access into the marketplace. Carl touched on many of the significant reasons why our national agreement contract with Vizient is a big deal. Our new partnership with Vizient provides Skyline Medical the ability to promote our STREAMWAY by way of increased efficiency, with purchasing and contracting apartments, increased visibility across end users and decision makers and increased credibility up front with our brand. Specifically we benefit from reduced contracting expenses. Since this is a national agreement we negotiated once which will reduce our overall administrative costs and streamline our sales process. Reduced selling costs, Vizient provides over 900 representatives and associates to support Skyline efforts and will provide us with marketing communications tools to reduce our expenses and target our brand message directly. Predictable sales and purchasing patterns, this provide Skyline with access to Vizient's large membership enabling us to plan and forecast more effectively. Flexible sourcing strategies and contracting programs, this benefits not only Vizient members but delivers incremental sales volume beyond a single unit sale to include sales promotions and parameters for large purchase orders. Innovative technology, as a recipient of the Innovative Technology Award the STREAMWAY system has been identified as an innovative product in the direct clinical care of patients and offers incremental benefit to patient and healthcare worker safety. This is different from just being on contract like other vendors. This is right to the core of the STREAMWAY value proposition and makes our product novel and truly unique. Member focused organizations, this will open opportunities from an education and corporate perspective allowing us to network at multiple levels and sponsor events. Subject matter experts, Vizient's contract experts fans pharmacy, nursing administration and supply chain which will allow our STREAMWAY solution to connect with member needs. Important, extensive supply chain catalog, members can access and activate contract information quickly through their online contracting database, the supply chain workflow tool which elevates our brand exposure and accelerates the requisition process the word of the unit. Competitive contract process, the contract process integrated qualitative and financial factors to identify products with the best member value. Now that we're on contract STREAMWAY will be more accurately compared against our competition and differentiate ourselves with unique value propositions of direct to drain. Finally market leadership, Vizient represents the largest purchase volume PPO in the country and connects us to more touch points, decision makers and end users in multiple departments beyond just the OR interventional and [indiscernible]. We will be recognized as a complete facility based fluid management solution versus just a niche product. Vizient is just the start of our group purchasing organization strategy and we expect our partnerships to expand throughout 2017 and into 2018 within the U.S. and into Canada but in landing the largest U.S. GPO first we're able to target many of the leading teaching institutions and community hospitals some of which are already current customers and our strongest supporters. Just this week, we broke into the Canadian healthcare market with our first STREAMWAY from an Ontario based health system. We have identified some critical launch details involving Canadian healthcare system requirements and how to access this market with the greatest control. Since Health Canada's requirements for medical devices are in alignment to Europe and Australia, the direct experience will bolster our strategy into broader international markets with our anticipated CE Mark. As Carl mentioned our initial launch in Canada will be managed directly as we control our brand messaging and maintain a targeted, cost effective and more profitable sales focus across the provinces. Once we establish entry into the provinces and checked independently we will continue to align our strategy to the sales requirements and distribution methods. The process in Canada involves committee product review generally from the onset of the STREAMWAY. We have active discussions in British Columbia, Alberta, Ontario and Halifax Nova Scotia with a national healthcare system governed by each province and operated generally using an RFP process or a plus proposal process, our relationship with Vizient and our U.S. government sales experience will complement this product acquisition in initial sales distribution model. As in the U.S. we feel that the Canadian intervention radiology and ultrasound specialties looking for alternatives to expensive glass evacuation bottles and messy canisters will translate well with Canadian healthcare market. For example the paracentesis procedure removes [indiscernible] fluid in the peritoneal cavity or abdomen, [indiscernible] fluid is excessive abdominal fluid or patients require pallets [ph] of treatment due to liver disease. The STREAMWAY with continuous flow for patients, reduced risk of infectious waste fluid exposure for staff and economic value versus traditional inflection and disposable methods, makes using the STREAMWAY for paracentesis procedures an attractive technology. I look forward to providing you with more successes in the months ahead as our initial sales in Canada springboards us into the Canadian provinces and broader international markets. The last area that I wanted to cover is regarding our digital marketing and media strategy. As you know the way in which we are receiving information is changing at a rapid pace with social media. Digital solutions are allowing us to target prospective STREAMWAY customers and those well beyond our network. We are actively using LinkedIn, Twitter, Facebook and have been incorporating YouTube, search engine optimization and digital advertising with Medical Society Publications. We have had extreme success, sales leads and inquiries are generated through these forums and it complements our highly regarded webpage which is clear on messaging and has impactful videos. These strategies have brought us into the mainstream and have creatively developed and managed by Arch Clark [ph] Management Director. You can find links to each of our website next to the investor information. In summary we accomplished a significant milestone of building a regional sales management team. Our next phase is to add 25 to 30 independent sales representatives to expand our U.S. and international coverage by the end of 2017. Quoting an outstanding quote unit volume is climbing and that will translate into sales revenue and increase disposable sales. The Vizient innovative technology or in our Vizient national agreements will open new channels of access for our sales team and bring national recognition of the STREAMWAY. It provides an entirely new pathway into major teaching hospitals, community hospitals and other members. Our first sale in Canada has entered, we are optimistic for international momentum in 2017. Digital marketing strategy is working and growing and followers which will share our brand globally. All these initiatives are supporting our innovative STREAMWAY, we're optimistic about 2017 and thank you the shareholders. With those comments Operator we're ready to take questions.

[Operator Instructions]. Our first question is from [indiscernible]. Please go ahead with your question.

Two questions, in press release and in the 10-K that was filed, you indicated you sold four STREAMWAY systems in the fourth quarter is that correct?

Yes.

Okay. It also indicated that that was the entirety of the sales for 2016 but you had reported that you had sold two systems earlier in the third quarter. So I don't know how four plus two equals four. How many systems actually were sold?

We actually sort four systems, it may be an error in that comment but we actually sold four systems in the final two quarters of 2016.

So the four in the fourth quarter may have included those two that were referenced?

Yes it's possible.

Second question, with everything that's going on obviously these agreement have been signed they're out of the way. It seems to be good things on the horizon but the insider ownership is almost non-existent I mean you have a - Carl has a position but most of the other officers, directors have almost no ownership why is there no confidence from management?

If I may answer as one of the officers I can tell you that I have a ton of confidence but I'm in a blackout period and I've been in a blackout period for many, many weeks and actually months because we were in a blackout period when we were doing the S3 and the S1 registrations. I was in blackout period for the 10-K and now we're in a blackout period for 10-Q. So unfortunately it doesn't allow us to buy very many times during the course of the year but I can assure you from my personal standpoint that I will be once we're out of blackout.

And what's - in the current blackout period around 10-K ends when for company?

The 10-K ends technically two days after filing which is two days from now however effective today we're going to a 10-Q for the first quarter blackout and that will last till two days after we filed the 10-Q. So we're probably looking into May.

Our next question is from Ben Reed [ph] with Maxim Group. Please go ahead with your question.

Could you go over the timeline for European approval again I missed that.

About four to six weeks I think with a couple weeks for the UV and about four weeks after that we expect to see something, fairly accurate.

That is accurate Carl. We've submitted our last item to our notified body TUV and now we're moving on to BSI for our documentation. We should hear from TUV with a final report within one to two weeks and then it usually takes somewhere between two to three weeks for BSI to complete it, so our hope is that somewhere in the next three or four weeks we will actually have our CE Mark finally.

So about three, four weeks hope to get the approval. Okay, all right. Thank you. very much.

Our next question is from [indiscernible]. Please go ahead with your question.

I've more questions in regards to the GPOs. Obviously you guys snagged the Vizient GPO which actually I want to congratulate you guys on. And the other GPO's mentioned that we can look forward to I know we did have a deadline or we did have a time period in the past where you got as of January 1 we should have solidified three GPOs, March 1st was solidified one, is there a timeline for any more GPOs down the pipeline. We are currently in the process of working with two other GPOs one of which would begin in September if we're successful. We have submitted all the paperwork for both these GPOs and we're in their hands now waiting for them to get back to us on contracts and questions.

Another question I have is in regards to institutional buys and even insider buys by officers, I know that you guys are way up there in the share price and obviously there's a lot of milestones up ahead, what exactly realistically will you guys be implementing for once - when it comes to share price and boasting that as high possible and for once to satisfying your institutional buyers than even for yourselves have bought in the [indiscernible] before reverse split.

Well obviously the meaning there is [indiscernible] and we can do that, the share price will take care of itself. We're very optimistic going forward. We think we put together a good team and we will begin to see results that have alluded to Skyline in years past. So I expect that if you notice whenever the good news with this company the stock takes off though probably more than that--

It takes off and eventually gets chopped down but I mean hopefully you guys have a game plan in regards to being consistent with announcing these milestones and keep this thing on a constant rally, but I do want to do want to congratulate you guys on a great conference call this time and you guys actually really making moves and doing the steps needed. Well congrats on compliance as well. I'll definitely be here wait alongside with you guys and hopefully make some money with you guys. Have a great day.

Thank you. We appreciate that.

[Operator Instructions]. We have no other questions in queue at this time. You may proceed with your presentation or any closing remarks.

Okay. Well so in closing I want to thank you all for your time today and for your interest in our company. We are in this position we have been in in a very long time. We're looking forward to executing on our milestones in 2017 and are optimistic about our future. Have a good day. Thank you.

Ladies and gentleman that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.