Viveve Medical, Inc.

Scott Durbin – Chief Financial Officer Patricia Scheller – Chief Executive Officer

Josh Jennings – Cowen Jeffrey Cohen – Ladenburg Thalmann and Company Anthony Vendetti – Maxim Group Charles Haff – Craig-Hallum Brian Marckx – Zacks

Thank you, operator, and good afternoon everyone. Thank you for joining us today to discuss our second quarter financial results.

Before we begin, let me remind you that on today's call we will be making forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement.

This includes remarks about the Corporation's projections, expectations, plans, beliefs and prospects. These statements are based on judgments and analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

These risks and uncertainties are described more fully in our annual report on Form 10-K and other filings we make with the SEC, which are also available on our website. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date.

Joining me on the call today is Viveve's Chief Executive Officer, Patricia Scheller, and following our prepared remarks, we will open the call to your questions. I'll begin today's call with a brief review of the second quarter.

Since launching commercially in the third quarter of 2015, we continue to see strong sales momentum globally. Revenue for the second quarter of 2017 was totaled approximately $3.1 million from the sale of 45 systems.

27 of these systems were sold in the U.S. market through our direct sales force.

Q2 also saw our largest quarter of disposable sales with approximately 3,300 treatment tips sold globally. During Q2, total sales were attributable to the following regions; 62% from North America; 22% from Europe and Middle East; 15% from Latin America; and 1% from Asia Pacific.

Gross profit for the second quarter of 2017 was just over $1.2 million, or 40% of revenue. This compares to gross profit of $534,000, or 34% of revenue, in the second quarter of 2016.

Total operating expenses for the second quarter of 2017 were $10.3 million. Spending on research and development during the second quarter of 2017 was $3.4 million, and was associated with engineering and development work related to product design improvements.

Selling, general and administrative expenses for the second quarter of 2017 were $6.9 million, primarily due to sales and marketing efforts to build brand and market awareness worldwide, and expenses associated with being a public company. Net loss for the second quarter of 2017 was $10.4 million or a loss of $0.54 per share.

Today, the Company has a strong balance sheet due to our recent $35 million equity financing and the $20 million drawn from our term-loan with CRG, which we announced in May. Finally, we’d like to reiterate our guidance regarding full year 2017 revenue expectations.

With continued momentum in U.S. and expectations for a strong second half of 2017 internationally we expect our current worldwide installed base of 304 systems to increase significantly and expect full-year revenue for 2017 to again be between $14 million and $16 million.

With that, I'd now like to turn the call over to Patricia Scheller, our Chief Executive Officer.

Thank you, Scott. Good afternoon, everyone, and thank you for joining us.

Today we're pleased to report we delivered another quarter of strong results. In the second quarter of 2017 we’ve seen continued robust demand for the Viveve System and Geneveve treatment.

And achieved several key milestones. I’ll start by reviewing the quarter's achievements, and then provide an update on the regulatory status of our pending investigational device exemption to achieve an expanded indication in the U.S.

I’ll then discuss our new strategic partnership with InControl Medical and we will finish with a brief question-and-answer session. Sales momentum globally continued to be strong, with utilization rates rising substantially, as evidenced by our increase in treatment tip sales.

This quarter we sold a record number of treatment tips, achieving a 46% increase over the first quarter of this year. The increased utilization rate reflect our efforts to work closely with our physician customers to educate the market on women health issues and the impact that Geneveve treatment can provide to their patients.

In the U.S. demand is growing, as evidenced by the 27 Viveve System sold this quarter.

Due to the positive reception of the Viveve System, since our launch in the U.S. earlier this year, we have expanded our sales and customer support organizations.

Our U.S. field sales force has nearly doubled in size to 23 infield representatives to address the demand of interested physicians across all target practices including a aesthetic medicine, gynecology, urogynecology and dermatology.

This significant expansion of our U.S. sales team positions us well for continued success.

Our international system sales volume was higher in the second quarter and our distribution partners in Asia Pacific, Europe, and Middle East and Latin American markets anticipate continued growth in console placements and system utilization in the second half of 2017. Overall we are extremely pleased with our financial achievement in the second quarter, and look forward to continuing to build on the strong foundation we have established.

I would now like to pivot to our U.S. regulatory process.

As previously, mentioned the Viveve’s current FDA clearance in the United States is for general surgical procedures for a electrocoagulation and hemostasis. To obtain a new U.S.

indication for the improvement of sexual function, that is consistent with approvals in most countries around the world. So Viveve has submitted an investigational device exemption or IDE to the FDA under a de novo 510(k) pathway for a multi-center U.S.

pivotal trial that we call Viveve II As you may recall, late in the first quarter the FDA provided us with feedback regarding our IDE submission. The agency requested that the Company complete some additional preclinical work to further demonstrate the safety of radio frequency energy on tissue damaged by vaginal birth.

I'm pleased to report that the initial ex vivo study requested by FDA has now been completed with extremely good histological results. Additionally we had a face-to-face meeting with the FDA review panel on July 18.

It was a very successful meeting, during which we sought feedback on the design of our pre-clinical work and are pleased again to report that we believe we have executed a pre-clinical protocol that we believe would be acceptable to the FDA. Based on the agency’s feedback on the ex vivo study, for which we will receive a final report in mid-August.

We plan to re-submit our IDE by the end of the third quarter, allowing for one additional round of question, we anticipate we will initiate the Viveve II study in the fourth quarter of this year, if the FDA approves our IDE. In keeping with our stated mission, to enhance women's lives by providing clinically proven high-quality products that improve their overall health and well-being.

Today we are very excited to announce the execution of an exclusive distribution agreement with and strategic investment in InControl Medical. This partnership represents an exciting and significant milestone for Viveve.

Our equity investment in InControl Medical and resulting exclusive U.S. distribution rights for all their products in the professional sector expands Viveve’s portfolio of effective proven products that address common and significant conditions affecting women’s health.

InControl Medical is the only company that has FDA cleared medical devices for stress, urge, and mixed incontinence, as well as products to improve pelvic floor muscles. The addition of these products, the InTone, InToneMV, ApexM, and Intensity to Viveve’s portfolio significantly enhances our commercial strategy with a range of high quality products that are used by healthcare professionals within Viveve's currently targeted specialties and further our market opportunity for continued growth and success.

According to the National Association for Incontinence, an estimated 25 million adult Americans suffer from some form of urinary incontinence, and 75% to 80% of these people affected are women. We believe based on third-party research that there are four million women who are actively seeking treatment and could be immediate candidate for these devices as recommended by their healthcare providers.

Again, these providers are the same practitioners targeted by Viveve’s U.S. sales organization.

The InControl Medical products that improve patients’ pelvic floor strength and health complement the effectiveness of Viveve's Geneveve treatment that currently has regulatory clearance or approval in over 50 countries for the treatment of vaginal introital laxity and/or the improvement of sexual function. In the United States, the Viveve System is cleared by the FDA for general surgical procedures for electrocoagulation and hemostasis.

Adding these proven incontinence treatment products as well as the other InControl Medical devices that improve pelvic floor strength to the Viveve’s portfolio aligns with our U.S. commercial strategy expands and complements our product portfolio.

While enhancing our ability to increase awareness of and provide solutions for incontinence and other prevalent conditions that impact woman’s health and quality of life. Our U.S.

sales organization is being trained this month on the InControl devices and will begin sales of these products on September 1. In summary, I'm pleased with the progress we've achieved in the second quarter, excited about the tremendous opportunities that lie ahead and thankful to work with a dedicated and talented team of individuals that make this progress possible.

As a result, we believe we are well positioned to demonstrate continued success throughout 2017 and beyond. At this time, I'd like to turn it back over to the operator for a limited question-and-answer session.

Hi, good evening. Thanks for taking the questions.

I was hoping to just start with the utilization level that you reported a record number of treatment tips, any further detail just in terms of whether that was broad based increases in the utilization rates U.S. versus O-U.S.

or any trends you can call out based on the account type in plastic versus OB/GYN versus derm?

Hi, Josh. It's Scott.

Thanks for that question. I'll take the first part of that and let Pat talk to the back half of it.

We're thrilled with the level – of the level of the utilization worldwide and certainly nearly 3,300 treatment tips exceeded and we continue to meet our expectations from a utilization perspective. The vast majority of that utilization is taking place outside the United States right now since we're so new from a console placement perspective in the U.S.

And Asia continues to be very strong from a utilization perspective. So again the vast majority of that’s coming outside the United States right now.

As we continue to grow and mature the U.S. installed base with Asia-Pacific being a large, large component of the utilization rates.

Great, thanks for that. And then one of the follow-up just on the international system placements that you generated in the quarter, I know you do have the DMT distributor agreement for the Asia territory.

And they are on the multi-year contract, they didn't sound like you made any real incremental orders this quarter when you called out the Asia-Pac revenue contribution. How should be thinking about those orders flowing through in the back half of the year and should we be thinking about for the full year 2017 year-over-year increase in international system placements?

Yes, as we talked about on in Q1 on our first quarter conference call. We continue to believe strongly that the international year-over-year growth 2017 over 2016 will be there.

We face many timing issues around the world in various countries, China being one of them. And we continue to believe in DMT and its distribution network, which has distribution rights as you mentioned for China and Hong Kong.

And they have minimum purchase requirements this year for 75 systems. So our comments related to the back half of 2017 being strong internationally.

We firmly believe that and continue to expect our top line revenue to be within guidance and the O-U.S. growth year-over-year.

Great. Maybe if I could just ask one more just guidance you reiterated $14 million to $16 million for revenue and I was – sorry if I missed this but the distribution agreement with InControl and the selling starting in nearly September, I was hoping to just hear about it, it sounds like training for the sales force will occur imminently and how should we thinking about that model and revenues in the fourth quarter as well as into 2018?

Thanks a lot.

Yes, so appreciate the question. The guidance around InControl’s not going to come yet for 2017 we are just literally signed the deal of getting as we said the commercial organization trained here in the next few weeks with a plan to launch the products in September.

So we're not giving guidance in terms of the ICM or InControl’s contribution to 2017. And we haven't given any guidance yet broadly speaking around Geneveve or InControl obviously for 2018 but we will do that as we approach the end of this year.

So long winded way of saying, we’ll give guidance around InControl’s contribution to the Viveve's revenue and financials for 2018 but not for the remaining part of 2017.

Great. Thanks again.

Thanks Josh.

Hi, Scott and Pat, can you hear me okay?

Yes, Jeff.

Hi, Jeff.

Thanks for the robust discussion, just a few questions if I may sort of like – first is probably work through the present composition by territory was that your overall composition of your revenues?

It was yes, dollars.

Okay. Overall consoles and tips, correct?

Correct.

Okay, and as far as the tip number for the quarter which was extraordinarily higher versus our estimates, was that tips sold or was that the number of the procedures that you believe and currently should you rectify – [indiscernible] the difference between the two?

Yes, as we it was for tip sold. We continue to report on a quarterly basis tip sold.

Given the global distribution network we have Jeff it's very difficult for us right now to get utilization rates out of – across a large number of countries through our distribution partners, its installed base grows. And we begin to see steady levels of utilization and as that installed base matures we’ll have further and provide further clarity around actual procedure numbers.

But it's very difficult to get ex-U.S. and we're too early in the U.S.

right now.

Ex-U.S. is your sense that there have may been previous inventory that was work down and there was a need for higher order numbers or do you think that it’s been pulling through fairly consistently over the past number of quarters?

It’s been pulling through fairly consistently if you recall we sold almost 2,000 treatment tip ex-U.S. last quarter and that rose to 2,500 this quarter.

So it continues to be very, very strong utilization rates. And then again back to Josh's question with Asia driving the vast majority of that.

Okay. And could you provide any further color on the – what the field sales organization is going to look like with the announcement from today it is said that there is 23 now in the field and hopefully those numbers suffice over the next two or three quarters as far as the changes?

Yes, thank you, Jeff. So the sales organization has essentially tripled since we started in January and we have to absorb these individuals into the organization.

So we believe that over the next six to nine months. The numbers will stay relatively constant and keep in mind it doesn't represent some of the clinical staff that support the sales organization that does our incremental to that number.

Okay. Perfect.

And then lastly, just kind of to recap on the anticipated submit of your IDE any other changes we should be aware of – I know you had your last submission was the ex vivo study and you had a meeting on 18th of July. So which we now and at the end of Q3 you have a little bit of work to do prior to your resubmission, because you’re saying like the meeting on the 18th or any other issues or kind of open-ended discussions that are still existing out there just based on your opinion?

Yes, based on the discussion that we had with the FDA on July 18, we believe that the pre-clinical testing that we have recently done and the final report we expect to receive in mid-August should address the concerns that the agency convey to us that will be submitted to the agency by the end of August and we anticipate [indiscernible] and we put into our internal estimates another round of questions and hope to be starting this study at the end of this year, if the FDA approves our IDE.

Okay, got it. And then if that’s the case you could have a few handfuls of IRB and patients rolling in the first quarter.

Yes, that’s correct, Jeff. We’ve actually lined up the majority of the investigators already and they are standing by to have an investigator meeting and have a word with their IRBs to the study.

So we will roll it out as quickly as we can once we received the approval from the agency to start the study.

Okay, so it doesn’t sound like any shift in the timeline from last quarter at all?

No, as I said we remain hopeful that with one more round of questions we get there with the FDA.

Okay. Perfect.

That’s it from me. Thanks for taking the questions.

Thanks.

Thanks Jeff.

Thanks. I was just wondering, I know Pat you discussed this a little bit in the past that the – one of the benefits or side benefits that you are getting from this product is potentially treating stress and urinary incontinence.

I was wondering do you look at DU with InControl Medical as complementary or how does it fit in with your current product and how does it fit into your sales force?

Thanks, Anthony, great question. So we look at these two products as being very synergistic from a number of levels.

First of all the call points are the same – our existing sales organization already called on the individuals that are prescribing InControl’s products and the sales organization should be able to easily absorb this into their sales calls. And we think that because the mechanisms of action are different.

And if you look at the InControl products, they actually are addressing the musculature in the pelvic floor and helping to train women on how best to do those exercises for maximal benefit. And they have proven in their studies to have a demonstrated impact.

If you recall the mechanism of action for the Viveve system is in fact radiofrequency, energy-stimulating the fibroblast to effect neocollagenesis, which helps to rejuvenate the tissue. So our two products now will address different types of outcomes.

One will be muscular and one will be tissue based. And we think that the mechanisms of actions of the two devices were completely different are going to be very synergistic in the outcome for the patients.

So we look at them as being very much aligned and having a real reinforcement one to the other. Once it's used together.

Okay, yes. That's very helpful.

Thanks very much.

Thanks, Anthony.

Hi, thanks for taking my questions. Maybe I could just pick up where the last questioner left off, usually when I see partnerships or distribution arrangements signed it's not when a company is just started launching their own products.

So it seems to me like your 27 salespeople are just starting to hit the ground. And I'm just wondering if you think there's any risk that maybe those people maybe don’t push or focus on the Geneveve enough and what kind of governors are – precautions do you have in place that they're still going to be focused on Geneveve and not get distracted by what ICM’s products have?

Hi, Charles, great question. So one of the things that we actually were very impressed by with the fact that InControl has a significant amount of data supporting its products and has a strong track record of growing their business.

And I believe they shipped over 64,000 of Viveve systems out into the market already. And we felt that this would be a good way for our sales organization in fact to gain entree into accounts where the physicians are already looking to help their patients with products that strengthen their pelvic floor muscle.

And we are very hopeful that this will be a way to convert those customers [indiscernible] customers as well. And as you know, the best way to ensure that the sales organization does not lose focus is through the compensation plan.

And we do have a very robust plan in place to help remind our sales reps that they do need to continue their focus on the Viveve System and importantly the utilization of treatment tips associated with the sale of a system.

Okay, great thanks. That’s very helpful and then wondering, on international, with the Viveve System, I think you have been talking about South Korea and Brazil as relatively new geographies.

I'm wondering if you can give us any updates on how those are progressing.

Certainly, so we have as you know, very recently received an expansion to our indications for use in South Korea. And we are seeing a great deal of interest there.

We do have a distribution partner in South Korea, and they are very excited about the new expanded indication. So we're starting to see the effects of that and I think that you'll see the momentum building in South Korea going forward and that, that should show up in subsequent quarters.

With regard to Brazil, we did launch into Brazil there has been some significant political turmoil in the region and there was a strike that occurred in the customs area, that have impacted imports into the country. And we've been working through that and our sales manager for Brazil is now very actively involved in building that market.

Okay, great. And I am sorry if you had mentioned this, but I was jumping in between calls here, but did you give any type of expectations for number of systems placements in the U.S.

by the end of the year or if can you give us some directional guidance here? Was 29 in the first quarter, and 27 in the second, I'm just wondering how we should kind of think about back half.

Should, we think about a acceleration in the back half for systems placements?

Thanks Charles, it’s Scott. We haven't given guidance on the unit numbers for 2017 but clearly with total revenue guidance between $14 million and $16 million we're expecting a very strong back half of 2017 both internationally and in the U.S.

So the short answer is we are continuing to expect growth in Q3 and Q4 from U.S.

Okay, thanks Scott.

Hi, congrats on the quarter.

Thanks Brian.

Yes, Scott, the gross margin was a little bit lower than what I was modeling and the number of treatment tips sold was quite a bit higher than what I was expecting. Was there, can you tell me, if most of the treatment tips were internationally sold.

Yes, the vast majority of the treatment tips sold in Q2 were outside the United States.

And in general was there any change in pricing U.S. or internationally or both?

On an average rate I guess?

Yeah, the pricing on consoles remains very, very consistent. In fact our ASP’s on console systems sold into the U.S.

direct actually increased. Ex-U.S.

given the nature of our distribution agreements remained constant and flat. We have had some pricing pressure outside the United States from a variety of new competitive entrants into the vaginal rejuvenation space particularly internationally and as such we have to faced some pricing pressure on our treatment tip ASP's outside the United States and we saw that a little bit in Q1 but we have several new entrants.

Coming to the vaginal rejuvenation space outside the United States, we've seen some additional pricing pressure in U.S. I mean outside the United States in Q2.

Scott I think your previous guidance included significant improvement in gross margin in 2017 versus 2016 as well, is that still what you expect?

Yes so, we've been working and I think we've talked about before very diligently, over the course of the last 18 months actually to work on our COGS. We continue to do that work, we will expect margin improvement in the back half of this year, as we've communicated previously.

Okay, Scott relative to the first half or relative to the prior year.

No, even relative to the first half.

Okay, great. Patricia relative to the IDE submission and your discussions with FDA, was there, is your feeling that you may have to do some additional pre-clinical work as well.

Thanks Brian. Yes we believe that the pre-clinical work that we have completed should answer the issues that the FDA raised in their prior letter.

We are still planning to submit that as I mentioned by the end of August. We do not know, whether there will be additional questions that the FDA then comes up with, but we do believe that the safety issues that they were concerned about with regard to the impact of radio frequency on vaginal tissues that has been damaged during the birthing process, is going to be addressed with these study that we have.

The initial findings from and they were very good.

Okay and then one on the InControl Medical partner, you expect that you will need to incur any infrastructure related expenses whether that’s fixed or whether it’s personal related.

No, on the expense side, no Brian, on the expense side, the beauty of this partnership is that it folds right into our existing commercial organization. And there is no need for any incremental expenses.

There will be some marketing expenses but no headcount et cetera.

Okay, so is it fair to say, that was pretty much the emphasis was to I guess speed operating leverage for likely …

That was certainly one reason, yes.

Okay, alright, do they have a consumable component as well?

They do not, so their systems as you learn more about them and I would encourage you to go to their website as Pat mentioned they have tremendous amount of clinical data and the only products improve for both stress, urge, and mixed urinary incontinence on the market today. And this is a product that is so to the patient, by the physician and it's at a price point and I'm going to call it across the board in a $1,000 range to the patient.

And it is as you'll find out electrical stimulation with patient feedback effectively. So the price point is in that range across the products, it's a little lower for some of the others but that gives you a sense of where it is.

Right, thanks a lot guys.

Thanks Brian.

Thank you Brian.