Stereotaxis, Inc. (AMEX:STXS) Q2 2023 Earnings Call Transcript

Stereotaxis, Inc. (AMEX:STXS) Q2 2023 Earnings Call Transcript August 10, 2023

Stereotaxis, Inc. misses on earnings expectations. Reported EPS is $-0.07 EPS, expectations were $-0.06.

Operator: Good morning. Thank you for joining us for Stereotaxis’ Second Quarter 2023 Earnings Conference Call. Certain statements during the conference call and question-and-answer period to follow may relate to future events, expectations and as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the company in the future to be materially different from the statements that the company’s executives may make today. These risks are described in detail in our public filings with the Securities and Exchange Commission, including our latest periodic report on Form 10-K or 10-Q.

We assume no duty to update these statements. At this time all participants have been placed in a listen-only mode. The floor will opened for questions and comments following the presentation. As a reminder, today’s call is being recorded. It is now my pleasure to turn the floor over to your host, David Fischel, Chairman and CEO of Stereotaxis.

David Fischel: Thank you, operator, and good morning, everyone. We are pleased to return to robust double-digit growth in the second quarter with a 28% year-over-year increase in revenue. System revenue in the quarter reflects partial revenue recognition on two Genesis systems, both of which are being installed this summer at hospitals in the US and Europe. During the second quarter, we received orders for two Genesis systems, one from a new greenfield hospital in Europe and the second as an upgrade of an AOB system to Genesis in the US. The net effect of the orders we received and the revenue recognized led to a slight increase in system backlog, which as of quarter end stands at $16 million. We expect similar or increased levels of system revenue in the upcoming quarters as our backlog is converted into revenue.

We also continue to see a healthy pipeline of replacement cycle and greenfield hospitals interested in our robotic technology, which is expected to continue to contribute to backlog and provide confidence in sustained year-over-year revenue growth. Genesis Systems sales remain the primary driver of our growth as we work towards advancing a robust innovation strategy towards commercialization. Our recurring revenue in the quarter was impacted by the loss of royalty payments that we no longer receive from Johnson & Johnson, as well as J&J catheter production shortages, which pressured procedure volumes. Each individually presented a high single-digit headwind to recurring revenue. The J&J catheter production shortages with pressure procedure volumes throughout the first half of this year, seem to have been resolved in July, and we expect procedures to rebound to more normal levels in the third quarter.

On our last call, we hinted at a special announcement we have planned for the Heart Rhythm Society Conference. A highlight of the last quarter was the announcement at that conference of a global strategic collaboration with Abbott to integrate Abbott’s latest insight X mapping system with Stereotaxis’ robots. The integration of our technologies makes the use of Abbott’s leading mapping system an attractive option for the community of robotic electrophysiologists who have long desired increased choice in lapping. It enhances the overall physician experience, streamlines procedural workflow and supports the improved treatment of patients who have come to lexarrhythmias. From a strategic perspective, this was a major leap forward in our effort to build an open ecosystem where the benefits of robotics can be paired with a broad range of diagnostic and therapeutic technologies.

It will also significantly support the launch and more rapid adoption of our proprietary next-generation ablation catheter MAGIC. There was significant excitement at HRS around our integration announcement, we had an opportunity to educate the broader Abbott commercial leadership team on our technology and Abbott dedicated its space in their booth to showcase our collaboration. Abbott Software is currently released in Europe, and last month, we celebrated the first integrated insight robotic procedures at Erasmus Medical Center in the Netherlands and Marine House St. Elisabeth Hospital in Germany. These sites continue to do integrated procedures and other sites are moving through the adoption process. We expect the integration to be available in the US late this year as Abbott software and connectivity cable are approved in the US.

The main drive for significant joint adoption bar technologies will take place concurrent with the MAGIC launch, but we anticipate a continued shift and diversification towards Abbot’s Insight system until then. We had expected to receive CE Mark and launched the MAGIC Catheter in Europe this summer. While our regulatory submission was in line with multiple historical precedents, and direct verbal feedback we had received from the European notified body, the notified body’s interpretation of the new MDR regulations led them to request first-in-human data prior to approval. We were surprised by the decision but have responded rapidly in designing a clinical protocol and putting together all the clinical trial documentation needed for submission to hospital ethics committees and relevant national authorities.

Acute data in a couple of dozen patients from one single center should be sufficient. To reduce dependency or risk of delays at any individual site, we have engaged and begun spinning documentation to multiple sites, several of which have first-in-human trial experience. We expect to start patient enrollment in the trial in the fourth quarter and complete the acute data collection on the couple of dozen patients rapidly, allowing a restart of the MAGIC CE Mark review early next year. The availability of this clinical data will ultimately support a more robust launch for MAGIC in Europe, as we plan to use the trial to gain experience, data and materials to support the launch. In the US, we are progressing with the submission of our IDE application.

In parallel, we are exploring with the FDA the possibility of an alternative regulatory route, which would accelerate our path to bring MAGIC to US physicians and patients. Beyond MAGIC, we continued to meaningfully advance our multipronged robust innovation strategy. These innovation efforts include a smaller self-shielding robot that frees us from the extensive planning and construction currently necessary to adopt robotics, a family of interventional guidewires and guide catheters that expand the benefits of our robots into new endovascular indications, a digital surgery, hardware and software offering, enabling broad operating room connectivity and a full electrophysiology product ecosystem being built in collaboration with MicroPort for the Chinese market.

Development and refinement of smaller self-shielding robot has gone well and is near completion. Commercial launch of the robot is predicated, however, on either the MAGIC catheter or our magnetic guidewire achieving regulatory clearance. We therefore want to balance pursuing regulatory approval for the robot early enough such that we derisk regulatory approval and ensure it is available when those interventional devices come to the market, but not too early, such that we lose the ability to create an exciting launch for the robot. We plan to now submit the robot for 510(k) clearance and CE Mark at year-end at a similar time to when we expect to submit for the robotic Magnetic Guidewire. That should allow for approval and launch of our new robot with a Guidewire for vascular indications in 2024, availability of the new robot paired with MAGiC will occur as soon as MAGiC gains its first regulatory approval, which we believe should be possible in mid-2024.

In China, MicroPort is making significant progress in bringing together our joint product ecosystems and preparing for commercial launch. MicroPort continues to expect Genesis NMPA approval in early 2024. Mapping integration with our Columbus mapping system is complete and waiting for availability of a Magnetic ablation catheter, which will be submitted for regulatory approval before year-end. MicroPort expects availability of this comprehensive product ecosystem in mid-2024 and starting to build awareness and excitement for what we will be launching together. The Asia Pacific Heart Rhythm Society Conference is taking place this year in early September in Hong Kong. Stereotaxis technology will be prominently showcased at the conference. The Society for Cardiac Robotic Navigation received an extensive session at the conference during which our robotic technology will be showcased in three live-streamed cases, including long distance telerobotic procedures performed from the podium to hospitals hundreds and thousands of miles away.

During the conference, MicroPort will also showcase for the first time its new Magnetic ablation catheter being navigated by Genesis, integrated with its mapping system. This activity and the growing excitement we see in the market, bodes well for a strong launch next year. I recognize our past hasn’t been easy and that progress on our strategic innovation efforts has been slower than originally anticipated. There have been various external factors serving as headwinds including changing regulatory goal posts, supply chain difficulties and personnel challenges across the industry that impact contract manufacturing partners. Internally, we have also been doing things that are new to us as an organization, such as focusing on disposable interventional devices.

We are advancing multiple very significant and innovative projects with lean teams. I take responsibility for providing optimistic expectations. That said, my excitement for what we are building has not waned. I see ourselves as being on the cusp of the strategic transformation as we advance a new foundational product ecosystem that makes robotics broadly accessible and impactful across endovascular surgery. We have clear line of sight to a near-term future with strategic independence, an attractive revenue model, broad robot accessibility and multi-indication opportunity. Kim will now provide commentary on our financial results, and then I’ll make a few financial comments as well before opening the call to Q&A. Kim?

Kimberly Peery: Thank you, David, and good morning, everyone. Revenue for the second quarter of 2023 totaled $7.9 million, growth of 28% from $6.2 million in the prior year second quarter. This growth was primarily due to higher revenue recognition on Genesis robotic system sales, partially offset by discontinued royalties from Johnson & Johnson. System revenue of $3.3 million reflects revenue recognition on the delivery of two Genesis Systems. Recurring revenue for the quarter of $4.6 million was predominantly impacted by both the absence of the J&J royalty and J&J catheter production shortages which pressured procedure volume. The J&J catheter shortage has been largely resolved, and we expect procedures to rebound to normal levels in the third quarter.

Gross margin for the second quarter of 2023 was 53% of revenue with recurring revenue gross margin of 39% and system gross margin of 18%. Recurring revenue gross margin remains consistent with recent quarters and system gross margin continues to reflect significant allocation of overhead expenses over low manufacturing volume. Operating expenses in the quarter of $9.5 million includes $2.6 million in non-cash stock compensation expense. Excluding noncash stock compensation expense, adjusted operating expenses were $6.9 million compared to the prior year’s adjusted operating expenses of $7.2 million. We continue to spend significant amounts on our research and development efforts and are working in a focused fashion to reduce operating expenses, where doing so won’t compete our progress.

Operating loss and net loss in the second quarter were $5.3 million and $5 million compared to approximately $5.2 million for both in the previous year. Adjusted operating loss and net loss for the second quarter, excluding non-cash stock compensation expense, were $2.7 million and $2.4 million. Negative free cash flow for the second quarter was $2.9 million. At the end of the second quarter, we had cash and cash equivalents of $23.9 million and no debt. We expect a significant reduction in cash use in the second half of this year, particularly as we slow investment in inventory. We expect to end the year with between $22 million and $24 million in cash with no debt. I will now hand the call back to David.

David Fischel: Thank you, Kim. We are aware of the importance of maintaining financial strength and ensuring our existing balance sheet is capable of advancing our innovations to market and funding their commercialization. We’ve invested significantly over the last several quarters in our new headquarters and on inventory for both Genesis and the next-generation robot. Those investments are largely behind us. We’re balancing an overall posture of financial discipline with continued investment in the key drivers of technological progress and revenue growth. Our backlog and continued capital sales activity give us confidence in sustained momentum and in ending the year with double-digit annual revenue growth and a strong cash position. As our innovation pipeline comes to market, we expect that growth to accelerate from those launches. We look forward to now taking your questions. Operator, can you please open the line to Q&A?

Q – Frank Takkinen: Great. Thanks for taking the questions. I wanted to start with one on second half placement expectations. I think, David, you mentioned you expect a similar level of system revenues for Q2 and Q3 going forward. I was hoping you could speak a little bit more around that? What kind of visibility do you have into that? Is this planned? Is there any construction that could hold it up? I’m just trying to understand where we should be setting the models for system revenues in the second half?

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Q&A Session

David Fischel: Hey, Frank, good morning. So we’ve kind of gone into a pace where I think we feel very comfortable with two systems and being recorded as revenue, as a type of lower bound of what we would expect in any given quarter. And it is very hard still to estimate in any quarter exactly how many will go through it’s — there is a lot outside of our control on that. And obviously the volatility between two or three or four makes a big difference in the numbers, even though it’s kind of individual units that are kind of driving all of that. And so we think that kind of modeling to as a lower bound is the same thing. And we will have quarters where we’re obviously above that, but that’s kind of how we’re looking at things right now.

Frank Takkinen: Okay. That’s helpful. And then, for my follow-up, I was just hoping to get a little more color on the Abbott partnership. Any immediate impact you’re seeing in the field? And if there’s anything you can help with quantification on how impactful this could be, maybe how much share Abbott has in the market? How frequently Abbott integration was brought up throughout the adoption process for new users? And any other color you could provide to really exemplify, the Abbott partnership?

David Fischel: Sure. So the Abbott partnership is — was a highly strategic one for us. And we’re delighted that we were able to announce it. It has been many years in the making. Generally, if you look at the Electrophysiology field, from a Mapping System perspective, it is a duopoly between Johnson & Johnson and Abbott. There are other Mapping Systems, obviously out there. We obviously have the integration and collaboration with EnSite and Boston Scientific as a Mapping System, Medtronic is working on a Mapping System. There are other companies internationally like MicroPort has Mapping Systems. But in the US and Europe, still Johnson & Johnson and Abbott have more or less a duopoly on the majority of the market share. And historically, Stereotaxis has only been integrated with Johnson & Johnson’s Mapping System and the lack of integration with Abbott was viewed as limiting for many of the physicians who would have preferred to use Abbott’s Mapping System.

And this has obviously clinical implications, because when you provide more choice to physicians, you allow them to use the robot with less of less of a kind of a choice where they have to give up other things that they’ve been looking for. We are also integrated with the latest version of Abbott Software. So that allows, obviously, the latest versions of mapping functionality with the Robotic System, which is a positive. From a strategic perspective, this will be highly beneficial for the launch of the MAGiC catheter because it does allow the natural catheter to enter the market tied with the latest making innovation and so that will kind of support MAGiC’s adoption in a significant fashion. And from a purely quantitative financial perspective right now, I’d say that it will — there is a psychological benefit to the announcement that we had, that I think supports hospitals that are thinking about adopting robotics.

And there are also some physicians that as Integration Art, is available, we’ll prefer to shift into that mapping environment, and we’ll start to do more procedures in that environment. I would not think that there is a dramatic shift where that changes adoption dramatically in a way that you see it in the numbers. Overall, in the short-term, I think that you’ll see most of the impact there in the adoption of the MAGiC catheter, which will be accelerated significantly by this integration.

Frank Takkinen: Perfect. That’s good color. I’ll stop there. Thanks for taking the questions.

David Fischel: Thanks a lot, Frank.

Operator: Our next question comes from Adam Maeder from Piper Sandler. Please go ahead. Your line is open.