Stereotaxis, Inc.
Q3 2016 Earnings Call Transcript

Published: 7 Nov 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the Stereotaxis Third Quarter 2016 Financial Results Conference Call. Please note, today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Jim Byers from 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 third quarter ended on September 30, 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 the future financial performance of the company. These include, without limitation statements regarding future operating results, growth opportunities and other statements that reflects 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. And in addition, these orders and commitments maybe revised, modified or canceled either by their expressed terms as a result of negotiations or by project changes or delays. And now, with that said, I would now like to turn the call over to Bill Mills, Chairman and CEO of Stereotaxis.

[Bill Mills:]

Thank you, Jim. Good afternoon, everyone, and thank you for joining us today for a review of third quarter 2016 results. With me is our CFO, Marty Stammer. Following our prepared remarks, we will open up the call to questions. During the quarter, we were pleased to announce several positive strategic updates. These included a private placement with a select group of investors for a total gross proceeds of $24 million, which has significantly strengthened our balance sheet. Through the equity investment, we eliminated our $18.5 million debt facility with Healthcare Royalty Partners for a discounted final payment of $13 million, successfully retiring all of our outstanding debt for the first time in 15 years and culminating a three-year process of deleveraging the company. In addition, these transactions have significantly increased our financial flexibility and security, providing greater resources to execute our current and future growth initiatives. Our strategic goals remain centered on putting our transformational technologies into the hands of more physicians around the world to bring the substantial benefits of robotics to the full spectrum of cardiac ablation procedures. This includes further leveraging our clinically-proven excellence and success in ventricular tachycardia ablation to establish market leadership in this segment and move closer to becoming the standard-of-care for this complex procedure. Through their significant equity investment in Stereotaxis, our investors have demonstrated their support of these strategic initiatives and their confidence and the benefits of our existing products, our capacity to innovate and the future of our technologies. As part of this strategic updates, we welcomed three new members to our Board of Directors who bring extensive medical device experience and established expertise in converting clinically meaningful innovations into commercial successes. As we have announced, Joe Kiani, Dr. Arun Menawat and David Fischel have joined our Board and we are excited to work closely with each of them as we move forward. Joe is the founder and CEO of Masimo, a global leader in non-invasive patient monitoring technologies, which is growing into a company with nearly $700 million in annual sales and over $100 million in annual net income. Arun is the CEO of Profound Medical, which is focused on commercializing a technology that provides real-time MRI-guided ablation treatment for prostate cancer. Prior to this, he was responsible for transforming Novadaq from a small private pre-commercial company into a leader in intraoperative imaging. David is the primary portfolio manager for medical device investments at DAFNA Capital Management, an SEC registered investment advisor, with significant expertise and experience in the life sciences and a long and successful track record in this space. These new Board members bring new perspectives and a proven ability to build strong businesses. Now let's turn to our progress during the quarter. Our system revenue improved 109% sequentially to $1.9 million in the third quarter. We also shipped our fifth Niobe ES system to our newest market, Japan, where we now have two active sites conducting ablation procedures using the Niobe System and three systems awaiting installation at premier hospitals. The Asia-Pacific market continues to increase its contribution to our top line growth, accounting for more than 10% of total procedures in Q3. In the first nine months of the year, procedure volume in this region grew by 57% over the same period last year. We also saw a significant and sustained growth in VT ablation procedures in Q3, which increased 25% year-over-year. This was the fifth consecutive quarter in which we increased VT procedures by double-digit percentages year-over-year. The solid growth, coupled with smaller declines in atrial fibrillation and other EP procedures, lead to a 3% increase in our total procedures for the quarter, our largest quarter of overall procedure growth in nearly two years. As we have reiterated time and again, there is simply no comparison to the safety, simplicity and lesion success rates that can be delivered by our remote magnetic navigation platform in the VT setting. The literature is rich with data verifying the clinical benefits of our Niobe System over traditional therapies for these challenging and complex cases. We continue to illuminate the increasing clinical evidence for VT while building on and promoting the unique capabilities of our platform to deliver high levels of automation and predictability of the procedure environment in the AF market. As VT procedures become a larger proportion of our overall procedure volumes, and given our expectation for long-term significant growth in VT, we expect an acceleration of total procedure growth in the future. Last month, the role and advantages of our systems in the treatment of VT, AF and other arrhythmias were highlighted at the inaugural meeting of the Society for Cardiac Robotic Navigation, or SCRM, in Amsterdam, which was attended by over 70 clinicians. Formed in 2015, the SCRM aims to establish a platform for users of robotic technologies and cardiology to share best practices, clinical evidence and information on the latest advances, while building a network of experts focused on driving the adoption of robotics in interventional medicine. Members have published numerous papers comparing remote magnetic navigation to manual ablation in a wide range of EP procedures. They have experienced first-hand the power of robotic technologies to produce high levels of efficiency and efficacy in ablation therapy and have recognized the under-representation of these technologies in daily clinical practice. We are excited to see how the SCRM will impact awareness and acceptance of remote automated solutions as the standard-of-care in cardiac ablation and beyond. I will now turn the call over to Marty to provide details on the third quarter financial results.

[Marty Stammer:]

Thanks, Bill, and good afternoon, everyone. Revenue in the third quarter was $8.3 million, a decrease of 10% from $9.3 million in the year-ago quarter, and an increase of 6% sequentially from $7.9 million in the second quarter. System revenue was $1.9 million, down 15% from $2.3 million in the third year of 2015, but up 109% sequentially from $900,000 in the second quarter. In the third quarter, we recognized revenue of $1.2 million on one Niobe ES system shipment and $700,000 in Odyssey solution sales. During the quarter, we generated new capital orders of $900,000 compared to $3.1 million in new capital orders in the third quarter of 2015, and $800,000 in new capital orders in the second quarter. At quarter end, our backlog was $2.3 million. Recurring revenue in the quarter was $6.4 million compared to $7 million in the prior-year quarter and $6.9 million in the second quarter. The decrease in recurring revenue from the prior-year was primarily due to one-time service billings in 2015. Total procedures improved 3% with VT procedures increasing 25% year-over-year. Gross margin in the third quarter 2016 was $6.1 million, or 73% of revenue, compared to $6.8 million, or 73.6% of revenue in the year-ago third quarter, and $6.8 million, or 86.1% of revenue, in the second quarter. Second quarter gross margin was a result of a higher mix of recurring revenue as well as strong capital and recurring margins. Operating expenses were $7.3 million compared to $7.7 million in the year-ago quarter and $8.4 million in the second quarter. Operating loss was $1.2 million in the 2016 third quarter, compared to $900,000 in the prior-year third quarter, and $1.6 million in the second quarter. Interest expense was $800,000 in all three quarters. Net loss for the third quarter was significantly impacted by several non-cash items. Net loss was $6.2 million, or $0.56 per share, compared to a net loss of $1 million, or $0.05 per share, reported for the third quarter of 2015. Excluding mark-to-market warrant revaluation, fees associated with warrant issuance, the gain on debt extinguishment and the value of implied conversion features, we would have reported a net loss of $2 million or $0.09 per share for the 2016 third quarter, compared to a net loss of $1.7 million or $0.08 per share for the 2015 third quarter. The weighted average diluted shares outstanding for the third quarters of 2016 and 2015 totaled 21.9 million and 21.1 million, respectively. Cash burn for the third quarter was $1.9 million - $1.8 million, compared to less than $100,000 for the year-ago third quarter, and $700,000 in the preceding second quarter. Cash burn for the third quarter included $700,000 associated with final interest payment on the HRP debt, which we will no longer be paying going forward. At September 30, we had cash and cash equivalents of $9.2 million and unused borrowing capacity of $4 million on our Silicon Valley Bank revolver for total liquidity of $13.2 million. During the quarter, we completed a private placement equity financing with a select group of institutional and other accredited investors, which included both new and existing investors. The private placement consisted of 24,000 shares of convertible preferred stock and warrants to purchase shares of common stock for total gross proceeds of $24 million. As part of the transaction, we used $13 million of the proceeds to satisfy in full all amounts outstanding under our loan agreement with Healthcare Royalty Partners, which had been in effect since 28/11. I'll now hand the call back to Bill.

[Bill Mills:]

Thank you, Marty. As we close out 2016, we are excited to go forward with a significantly strengthened financial position to support our strategic growth initiatives. These strategies are focused on expanding awareness and utilization of our transformational technologies, cultivating value-added industry partnerships and delivering high levels of automation that continue to change the landscape of cardiac ablation. We believe that our successful funding, combined with our strong new balance sheet and the addition of three new Board members, should provide us with the opportunity to achieve our global growth initiatives and put us on a path to sustainable revenue growth and profitability. With that, we'll open up the call to your questions.

[Operator:]

Thank you. [Operator Instructions]. We'll pause for just a moment to allow everyone an opportunity to signal for questions. [Operator Instructions]. And we have no questions in the queue. I'll turn the conference back over to our speakers for any additional or closing remarks.

[Bill Mills:]

Well, thank you, operator. And thanks to each of you on the call for your support. We look forward to speaking with you again in the next quarter. And again have a good evening. Thank you.

[Operator:]

Thank you. And again ladies and gentlemen, that does conclude our conference for today. We thank you for your participation.