Stereotaxis, Inc.
Q1 2016 Earnings Call Transcript

Published: 9 May 2016

[Operator:]

Good day and welcome to the Stereotaxis First Quarter 2016 Financial Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jim Byers of MKR Group. Please go ahead, sir.

[Jim Byers:]

Thank you, operator and good afternoon everyone. Thank you for joining us today for the Stereotaxis conference call and webcast to review financial results for its 2016 first quarter ended March 31, 2016. Before we get started, we'd like to remind you that during the course of this conference call, the Company might make projections or other forward-looking statements regarding future events or future financial performance of the Company. These include without limitation, statements regarding the future operating results, growth opportunities and other statements that reflect Stereotaxis' plans, prospects, expectations, strategies, intentions and beliefs. These statements are subject to many risks and uncertainties that could cause actual results to differ materially from expectations. For a detailed discussion of the risks and uncertainties that affect the Company's business and that qualify the forward-looking statements made on this call, we refer you to the Company's periodic and other public filings filed with the SEC, including its most recent Forms 10-Q and 10-K and the Form 8-K filed today. The Company's projections and forward-looking statements are based on factors that are subject to change and therefore these statements speak only as of the date they are given. The Company assumes no obligation to update any projections or forward-looking statements. In addition, regarding orders and backlog, there can be no assurance that the Company will recognize revenue related to its purchase orders and other commitments in any particular period or at all, because some of these purchase orders and other commitments are subject to contingencies that are outside of the Company's control. In addition, these orders and commitments may be revised, modified or cancelled, either by their express terms as a result of negotiations or by project changes or delays. With that said, I would like to turn the call over to Bill Mills, Chairman and CEO of Stereotaxis.

[Bill Mills:]

Thanks, Jim. Good afternoon everyone and thank you for joining us today to review our first quarter 2016 results. With me today is our CFO, Marty Stammer. Following our prepared remarks, we'll open up the call to questions. After exiting 2015 with positive momentum, we continued progress in the first quarter with two of our critical strategic initiatives; increased clinical adoption in our install base driven by our third consecutive quarter of greater than 20% year-over-year growth in ventricular tachycardia or VT procedures and expansion in our newest major market, Japan. Supported by a substantial and growing body of positive clinical evidence, our global clinical teams are making good strides in leveraging the unique capabilities of our platform with VT ablation and closing the gaps in clinical adoption for atrial fibrillation or AF procedures. These initiatives help stabilize our total procedure count for the first quarter compared to the year ago quarter and led to our highest quarterly volume since Q4 of 2014. VT continues to lead our volume growth and increased 27% in Q1 from the year ago quarter. As I noted earlier this is our third consecutive quarter of 20% plus growth year-over-year in VT and demonstrates the positive results of our ongoing efforts to build greater awareness worldwide of the outstanding clinical efficacy, efficiency and safety of our technologies. We believe we’re well positioned to become a significant franchise to build a significant franchise in this relatively untapped market for us and to become the standard of care in VT therapy. Turning to our progress in Japan. We are seeing continued positive momentum and are pleased with the expertise of our local distributors and business director in navigating a complex sales process and reimbursement environment. Hospitals and physicians have responded enthusiastically to the Niobe system’s reputation for safer, simpler and more effective procedures and its potential to elevate their status in the EP market. During the first quarter we shipped our fourth system to Japan and expect our second system install to be completed in the current second quarter. During the first quarter we also achieved the required enrollment of 120 patients for the Niobe system’s post market surveillance in Japan. Dr. Kohei Yamashiro who leads the Niobe lab at Takatsuki General Hospital said the Niobe system has enabled his team to work seamlessly outside the radiation field and to achieve more accurate lesions in complex heart chamber anatomy. The first 120 patients treated at Takatsuki have realized outstanding acute success without any major complications, says Dr. Yamashiro who has presented his clinical evidence with the Niobe system at several scientific conferences as well as our first user summit for the Asia Pacific market in January. The Asia Pacific market is emerging as a meaningful contributor to revenue growth. In the first quarter our Asia Pacific accounts led by China, Japan, Singapore and Australia collectively increased procedures approximately 100% on a year-over-year basis and now comprise nearly 10% of our worldwide procedures. Based on these results we are very optimistic about the opportunities in the region and the level of enthusiasm among physicians regarding magnetic navigation that we were seeing there. Clinical enthusiasm continues to be reinforced by clinical proof. In March we were pleased to announce the publication of a special supplement by the Journal of Cardiovascular Electrophysiology which is dedicated exclusively to different applications of Stereotaxis technology and includes seven peer reviewed articles by more than 50 authors. The supplement features the first multi-center prospective study evaluating mapping and ablation of postinfarction VT with the Niobe system, which demonstrated excellent acute and long-term success in a cohort of 53 patients. Rigshospitalet also known as the National Hospital of Denmark reported on its study of the largest cohortive patients undergoing AF ablation to-date which involved assessing outcomes of catheter ablation guided by the Niobe system in more than 1,000 ablation procedures. The result was less than 1% complication rate with solid long-term outcomes and notably short total procedure times and fluoroscopy times. It also included the first randomized control trial of the Vdrive robotic navigation system compared to manual circular mapping catheter manipulation, which affirm the safety and efficacy of our V-Loop system in enabling single operator procedures. Of particular significance, Intermountain Healthcare in Salt Lake City reported a head to head comparison on long-term outcomes between remote magnetic navigation and manual ablation in complex procedures. And the results indicate that remote magnetic navigation achieves long-term outcomes that are statistically equivalent but trending visibly better against manual ablation with or without the newer contact force catheters. These studies are part of the growing body of more than 260 peer reviewed articles already in the literature on the outstanding benefits of the Niobe system for advanced navigation and mapping in complex ablation cases. Our advantages with VT are undisputed as is our safety profile and acute success in AF procedures. With AF our aim now is to impress upon the market the clinical efficiencies and long-term outcomes that can be achieved through our integrated suite of automations. Last month we announced the results of a long-term follow up study on the Niobe ES system in the treatment of AF compared to manual navigation. This study provided the first published long-term clinical outcomes achieved with our latest generation magnetic platform in this subset of patients. In the study conducted at Lund University Hospital in Sweden significantly more Niobe patients than manually ablated patients, 81% compared to 67% were free of arrhythmia or markedly improved after 33 and 42 months to follow up respectively. I cannot overstate the fundamental importance of such high quality literature in substantiating our value proposition to drive greater clinical adoption within our installed base and interest by new customers. Equally significant are the milestones reached by Stereotaxis users and the best practices we have gleamed from user experiences and outcomes. St. Francis Hospital and Medical Center in Connecticut which helped pioneer the practice of remote magnetic navigation for EP ablation in New England recently joined 25 other hospitals around the world that have surpassed 1,000 procedures with the Niobe system. Dr. Andrea Natale, Executive Medical Director at Texas Cardiac Arrhythmia Institute at St. David's Medical Center which reached 1,000 cumulative Niobe procedures in 2015, recently spoke to EP Lab Digest about the value and potential of remote magnetic navigation in EP. Dr. Natale believes and has observed that physicians who invest the time to become proficient with the Niobe system and address the differences between magnetic and manual navigation love the technology and find it difficult when magnetic navigation is not available to be used in the procedure. He added that because the magnetic procedure removes the variable of a user's manual skill side similar results can be achieved by a less practiced operator as by an experienced one, across a variety of arrhythmias. As we noted on our last call, Dr. Natale is serving as the Global Principle Investigator for our first prospective multicenter randomized clinical study of VT which he says can position the Niobe system as the gold standard for this group of patients. Before I offer some concluding remarks. I’ll turn the call over to Marty to provide details on our first quarter financial results.

[Marty Stammer:]

Thanks Bill and good afternoon everyone. Revenue in the first quarter was $8.6 million, a decrease of 9% from $9.5 million in the year ago quarter, and down 6% sequentially from $9.2 million in the fourth quarter. System revenue was $2.1 million down 27% from $2.8 million in the first quarter of 2015 and down 14% sequentially from $2.4 million in the fourth quarter. In the first quarter, we recognized revenue of $1.2 million on a one new Niobe ES system and one Niobe ES upgrade, as well as $900,000 in Odyssey solution sales. During the quarter we did not generate new capital orders following new capital orders of $5.1 million in the fourth quarter. Quarter end our backlog was $3.9 million. Recurring revenue in the quarter was $6.6 million compared to $6.7 million in the prior year quarter and $6.8 million in the fourth quarter. Total procedures were unchanged from the prior year quarter and as Bill noted we had our highest quarterly volume in Q1 since the fourth quarter of 2014. In addition, VT procedures increased 27% year-over-year. Gross margin in the first quarter 2016 was $6.5 million or 74.8% of revenue, compared to $6.9 million or 72.4% of revenue in the year ago first quarter and $6.8 million or 73.7% of revenue in the fourth quarter. Operating expenses were $8 million, a 4% improvement from $8.3 million in the year ago quarter and down sequentially from $8.2 million in the fourth quarter. Operating loss was $1.5 million in the 2016 first quarter compared to an operating loss of $1.4 million in both the prior year first quarter and fourth quarter. Interest expense was $800,000 in all three quarters related to HealthCare Royalty Partners debt. Net loss for the first quarter of 2016 was $2.3 million or $0.11 per share compared to a net loss of $3.1 million or $0.15 per share reported for the first quarter of 2015. Excluding mark-to-market warrant revaluation we would have reported a net loss of $2.3 million or $0.11 per share for the 2016 first quarter compared to a net loss of $2.2 million or $0.11 per share for the 2015 first quarter. The weighted average diluted shares outstanding for the first quarters of 2016 and 2015 totalled $21.6 million and $20.7 million respectively. At March 31st, we had cash-and-cash equivalents of $1.6 million and unused borrowing capacity of $4.9 million on our SVB revolver, resulting in total liquidity of $6.5 million. Cash burn totalled $3.2 million for the trailing 12 months, including cash burn of $3.9 million during the 2016 first quarter and free cash flow of $1.6 million during the fourth quarter. The first quarter 2016 cash burn was negatively impacted by approximately $2 million of working capital adjustments and was greater than the year ago cash burn of $3.3 million. Total debt on March 31st was $18.1 million all related to HealthCare Royalty Partners long-term debt. I will now hand the call back to Bill.

[Bill Mills:]

Thanks Marty. Last week we attended the Heart Rhythm Society’s scientific sessions in San Francisco, our largest pipeline building event of the year where several physicians shared their outstanding clinical results achieved through the automated optimized lesion delivery capabilities of our magnetic navigation platform. In our exhibit space, we unveiled our newly developed software based simulation platform for physician training alongside a modelled beating heart phantom to illustrate the stable focal contact of an ablation catheter guided by the Niobe system and how it translates into effective lesion creation in structurally complex regions of the heart. We also previewed our latest innovations in contact confirmation lesion assessment and prediction technologies, which are designed to further raise physician confidence in lesion creation. Potential customers from Asia Pacific also observed multiple Niobe cases in two nearby hospitals as part of their product evaluation process. This past January marked 15 years since computer controlled magnets were first used to steer a catheter inside a beating heart. We believe that the time that the ultimate clinical utility of the state of the art design was in its potential to one day address the navigational challenges of treating complex arrhythmias; more than 88,000 procedures later that vision has been realized and continues to evolve for the advancement of cardiac rhythm management in patients worldwide. With that, we’ll open up the call to your questions.

[Operator:]

Thank you [Operator Instructions]. And we’ll take a question from Jeff Cohen with Ladenburg Thalmann.

[Jeff Cohen:]

Just a couple of quick ones if I may, two and I’ll take off. And if you could talk a little bit about the volume numbers specific to AFib for the quarter? And then secondly if you could go into little more information about backlog, funnel pipeline, et cetera, so far as capital credit goes for 2016. Thanks a lot.

[Bill Mills:]

Jeff I’ll start and then I’ll let Marty chime in with some further detail. But with respect to procedure question that you asked Jeff, importantly, it's significant that we look at our procedures as a composite of principally complex left atrial or AFib related cases as well as separately lower chamber for ventricular tachycardia principally related procedures. As we’ve been saying now for some time, our push to demonstrate that we deserve to be considered the standard of care in VT has resulted in a pretty significant and now sustained I think it's fair to say development of a nice growth patterns in VT and we expect that to continue. We’re certainly resolved to pressing forward to achieve a standard of care status in that regard and we believe that we already have the tools in place to justify that ambition if you will on our part. With respect to AF as we’ve talked at certain times in the past the situation there is substantially more contested competitive and I would have to say that the science is not as well settled yet as it may appear to be on the side of the VT market. We believe that ultimately our value proposition in AF will be fully elaborated as we begin to deploy very advanced automation features that allow us not just to achieve great safety which we are already do, and not just to achieve great outcomes which we already do, but to do that in conjunction with great improvements and efficiency. Right now the biggest inroads in the AF market are being made by devices and technologies which we’re offering up considerable advances in efficiencies. And of course efficiencies get to the economics of the practice and as the consequence are very important component of the value proposition. I certainly wouldn't want to assert that these considerations are more important than safety or outcomes, so I think that would be very hard argument to make. But it's essentially important consideration. So we believe ultimately that our technology has emerged as the technology of choice, perhaps the only viable technology for the foreseeable future to enable considerable automation in these procedure types. And as we begin to connect all of the dots and pull all the technologies that we’ve mentioned variously together in that setting, we think that the efficiency gap will finally be closed and in fact we can move beyond what is currently considered the state of the art, and that’s when the argument becomes very-very powerful for us. But in the meantime we’ve been attempting to stem the erosion in our AF sales as we confront the challenges relating to procedural efficiency and in relying on the growth in VT to offset and hopefully more than offset the softness in CLA procedures in the interim period. I know Marty will have some additional statistics that perhaps he can offer you by way of detail, and if you’d like to follow up, of course we’re always available to do that.

[Marty Stammer:]

Sure, as we had mentioned in our release VT procedures were up 27% year-over-year, AF procedures were actually down 11% but that was a considerable improvement over the last couple of quarters. So, it does feel like that is trending in the right direction.

[Jeff Cohen:]

Okay, super. Can you talk a little bit about capital and trends that you’re seeing as far as equipment goes, and maybe give us a little flavor for backlog, or how far along the funnel is, or how advanced it maybe?

[Bill Mills:]

I’ll talk a little bit about the trends and then Marty can again fill in behind this. But I would say that the trends that are notable are the trends that we see in Japan, which as you know and we’ve been saying now for several quarters is our newest market and the last of the major developed markets for us to enter, which situates it very nicely for us to enter a market where our newest devices are being sold into the market for the first time in an environment where robotics as a concept is I think very immediately embraced and where there is a significant and very justified concern for unnecessary exposure to ionizing radiation. So, in Japan we are seeing all the signs of a gathering sense of collective interest and we’re seeing signs that the market is evidencing a growing level of collective comfort and are more than amenable to diffusion of this system into their clinical mainstream. So the trends that we’re seeing there are clearly favorable. I would say that the trends elsewhere in the world are -- it’s hard to call them trends. I think that we often use the term lumpiness to describe the capital sales that we experience and unfortunately as long as the numbers are small per reporting period which they have been and will continue to be at least for some time, the lumpiness in our sales on the capital side does mask any clear trends. I think that what the leading indicators should be -- thought to be here though is procedural value and the utility that users are experiencing when they use this system and as they compare it to the alternative, which is to do these cases manually. And I think that the strongest case that we can make is the success of the customers that have Niobe currently deployed and the word of mouth and all of the other information that flows from those experiences to influence potential new doctors of the system. But I want to reiterate one thing before I turn over to Marty here. The fact that one of the major initiatives which I’ve thought is centrally important to Stereotaxis is to route our claims and our ambition in the science that describes what we are able to bring to this clinical setting. And so you will see and will continue to see a focus on the scientific literature, where high quality investigators do studies that are objective and NOIs, the results that they achieve and publish those papers with a view toward disseminating information of the highest quality. And to advance in the way that science advances, that’s our ambition here because ultimately I believe that the diffusion of this type of technology that the ability to automate procedures in the electrophysiology cath lab, the ability to use automation at this level, the ability to enable algorithms to control those aspects of procedures that are better served by controlling digitally than they are controlling through human touch and analog interventions. I think that the fulfillment of these sorts of dreams are ultimately what is going to advance this field beyond the limits of manual dexterity and the stamina of human interventionist to accomplish these procedures when forced to manipulate devices with their fingertips. So it's a very important question that you raised. Ultimately though the trends in capital will have to be informed by the utility that’s demonstrated case by case and then in turn analyzed and published in ways that make it possible not for our marketing department to persuade investigators that this a tool that they should adopt and should rely on, but for our clinical evidence to persuade them, that that’s the case because that’s ultimately the only way that these innovations find a permanent place in the firmament of the clinical practice. But that’s more of a philosophical statement. But I think an important one and I’ll let Marty add what he wishes to add on the numbers filling in behind that.

[Marty Stammer:]

I really don’t have much additional detail besides that. I mean I think your point is clear that the clinical progress is where we are -- eventually what will translate into progress on the capital pipeline, and that’s something that we’re seeing in VT today with the strong procedure growth translating into pipeline there.

[Bill Mills:]

One of the questions that were asked Jeff sometimes is can success in VT sell new systems? In other words, can proving the value in VT as a procedure type alone regardless of other procedure types be persuasive to a potential new adopter of the system. We believe the answer is yes. It's because VT is a minority of the practice in most settings, you have to make a pretty good argument to do that. But we think we’re in a position to make that argument, and it is a pretty good one. So, one of the things that you’ll be seeing I think increasingly is the success in BT proving persuasive to those that have their fingers around the first of the capital budget in institutions that look at this technology and say we wish to be able to treat all complex arrhythmias. We certainly recognize the gravity and significance of ventricular tachycardia particularly postischemic ventricular tachycardia which has a very unfortunate natural course to it if there was arrhythmias can’t be prevented by way of catheter ablation, but rather can only be managed by defibrillation. There is a very significant medical need out there in a very much non- febrile population of patients. And for those institutions that aspire to regularly treat and confidently treat VT and have the access to the latest tools, we think that that will sell capital into those environments alone. But our ambition certainly is to also bring our automations into the -- I would say more mainstream certainly larger market of complex left atrial disease of atrial fibrillation but that is something that you will hear us talking more and more about as the upcoming quarters unfold. Right now, our principle focus is on VT but stay tuned because that focus will evolve to include a much more significant fraction of the procedures types that are done quite soon.

[Jeff Cohen:]

Okay, got it. Very helpful, thanks for the commentary. Appreciate it.

[Bill Mills:]

You're welcome Jeff. Thanks for the question.

[Operator:]

[Operator Instructions] And at this point, we have no questions over the phone. I’d like to turn the call back to today’s speakers for any additional or closing remarks.

[Bill Mills:]

Well, this is Bill, operator, and I’ll just take this opportunity to thank everyone for their support and remind you that we look forward to speaking with you again next quarter and sharing news, further progress along many other dimensions that we’ve been talking about this afternoon. So thanks again for joining us.

[Operator:]

This concludes today’s call. Thank you for your participation. You may now disconnect.