Stereotaxis, Inc.
Q2 2015 Earnings Call Transcript

Published: 4 Aug 2015

[Operator:]

Good day and welcome to the Stereotaxis Second Quarter 2015 Financial Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the call over to Jim Byers at MKR Group. Please go ahead, sir.

[Jim Byers:]

Thank you, operator and good morning everyone. Thank you for joining us this morning for the Stereotaxis conference call and webcast to review financial results for its 2015 second quarter ended on June 30, 2015. Before we start, we'd like to remind you that during the course of this conference call the company might make projections and 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 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 expressed terms as a result of negotiations or by project changes or delays. And now with that said, I would like to turn the call over to Bill Mills, Chairman and CEO of Stereotaxis.

[Bill Mills:]

Thanks, Jim and welcome everyone to our second quarter 2015 earnings call. With me today is our CFO, Marty Stammer. Following our prepared remarks, we'll open up the call to questions and answers. Starting with our financial results for the quarter, we are pleased to report significant progress on several fronts. Total revenue for the second quarter was up 20% year-over-year, and system revenue increased 168% over the prior year on sales of two Niobe ES systems, two Vdrive systems and a $1 million in Odyssey Solution products sales during the quarter. This also was the third quarter consecutive quarter in which we recognized revenue on two Niobe ES system sales. At the same time, we decreased operating loss in the second quarter by 25% compared to last year. In fact, this is the third straight quarter in which we achieved a year-over-year reduction in operating loss. For the first half of 2015 operating loss decreased by 31% from the same period a year ago. At the half way point of the year, our Niobe system sales have already surpassed all of last year's. While the sales cycle for Niobe is, by nature, relatively long, we have substantially shortened the clinical learning curve for new operators through our training programs which incorporate best practices, developed in partnership with our existing user base. This approach was applied to the start-up of the new Niobe lab at Floreasca Hospital in Bucharest, Romania, which held its nationally televised grand opening ceremony in May. After the first week of use, the physicians were scheduling their most difficult cases. We continue to make steady progress in Japan, and we're excited to announce during the quarter the first procedures performed there with our Niobe ES system. After installation of the Niobe Lab at Takatsuki Hospital in June, which was part of the complete hospital renovation, Dr. Kohe Yamashiro conducted a magnetically navigated ventricular tachycardia or VT ablation in early July. Coinciding with the first procedure, the hospital held a grand opening lecture on July 3rd that was attended by 300 guests and included presentations by Dr. Yamashiro and Dr. Hiroshi Nakagawa, an electro physiologist and globally recognized expert on the Stereotaxis system. Since then, the hospital's EP team has completed more than 15 ablation procedures with the Niobe system, citing its ease of use, precise control, and significantly increased safety in generating effective lesions. In addition, Takatsuki Hospital has demonstrated Niobe procedures to visiting physicians and executives from multiple Japan hospitals, interested in magnetic navigation, As we begin to build a body of clinical evidence from a Japanese patient population, we continue to expand discussions with the Japan EP community. This past week, we engaged more than 80 participants at our featured symposium during the scientific sessions of Japan HRS, which this year was consolidated with the Japanese Society of Electro-cardiology Annual Meeting. The many preeminent industry events taking place during the last three months provided large scale opportunities to present to a global audience, our innovative technology and the increasing clinical evidence on the benefits of a fully remote computer-assisted procedure environment. In Milan, we made our fifth appearance at the European Heart Rhythm Association, Europace Congress, a biennial event that attracts approximately 5,000 EP professionals. During the live case transmission from Humanitas Research Hospital in Italy, Dr. Maurizio Gasparini, addressed the audience noting that he exclusively uses the Niobe system for performing ablations because he finds it has significant advantages over manual techniques. At HRS in Boston, the audience was impressed by the recent clinical data that underscores the Niobe systems exceptionally strong performance in the treatment of BT, a serious arrhythmia which can lead to sudden cardiac death. Led by Dr. Loka Reddy, the Kansas University Medical Centre EP team conducted a retrospective meta-analysis which revealed positive results in all clinical endpoints for VT ablation using the Niobe system, including acute success, procedure time, fluoroscopy time, long term outcomes and complication rates. During our rhythm theatre program, Dr. David Burkhardt from the Texas Cardiac Arrhythmia Institute discussed his thoughts on magnetic navigation as the standard of care for VT ablation. Through multiple studies Dr. Burkhardt and his colleagues, who maintain a rigorous definition of success, have concluded that safer, higher quality ablations can be achieved the Niobe system compared to other approaches. Our clinical strength in VT is becoming increasingly well established and provides significant opportunity for Stereotaxis to leave the VT market. Finally, at both HRS and Europace, we were pleased to showcase and discuss the development of the new, the motion feature of our Vdrive system which provides automatic orientation of an eyes catheter to track a localized ablation catheter. Additionally, we highlighted the latest enhancements to ablation history which are designed to compensate for movement of the heart during the respiratory cycle. Physicians at one of our highest volume sites in North America, Robert Wood Johnson Hospital, have said that ablation history has elevated their clinical practice to the next level by providing a context in which wattage and contact duration of the catheter in the visualized and thus displayed greater evidence ablation gaps. These lesion gaps are one of the common failure points reported by physicians in achieving favorable AF outcomes. Our global sales and marketing teams are very focused on follow-up of the many quality leads generated by recent industry events, as well as building increased visibility and appreciation for the accumulating data supporting the clinical benefits and efficiencies of our technology. Now, I would like to turn the call over to Marty to provide details of our second quarter and six month financial results.

[Marty Stammer:]

Thanks, Bill and good morning everyone. Revenue in the second quarter was $9.7 million, up 20% from $8 million in the year ago quarter and up 1% on a sequential basis. System revenue of $3.1 million was an increase of 168% year-over-year and a 9% increase on a sequential basis. In the second quarter, we recognized revenue of $1.9 million on two Niobe systems, $1 million in Odyssey solution products, and $200,000 on two Vdrive systems. During the quarter, we generated new capital orders of $1.6 million. At quarter end, our backlog was $3.1 million. Recurring revenue in the quarter was $6.6 million compared to $6.9 million in the prior year quarter, and $6.6 million in the first quarter. The decrease in recurring revenue compared to the prior year quarter was primarily driven by the stronger U.S. dollar in 2015. Procedures declined 3% year-over-year and 5% sequentially. Gross margin in the second quarter 2015 was $6.7 million or 70% of revenue on a higher mix of system revenue compared to $6.1 million or 75% of revenue in the year ago second quarter and $6.9 million or 72% of revenue in the first quarter. Operating expenses remained unchanged year-over-year at $8.4 million, and compared to $8.3 million in the first quarter. Operating loss was $1.7 million in the 2015 second quarter compared to a loss of $2.3 million in the 2014 second quarter, a 25% reduction, and a loss of $1.4 million in the first quarter. Interest expense was $800,000 in all three quarters related to the Healthcare Royalty Partners debt. Net loss for the second quarter of 2015 was $1.5 million or $0.07 per share, compared to a net loss of $1.9 million, or $0.10 per share, reported for the second quarter of 2014. The weighted average diluted shares outstanding for the second quarters of 2015 and 2014 totaled $21 million and $19.6 million respectively. Excluding mark-to-market warrant revaluation, our net loss would have been $2.5 million or $0.12 per share in the second quarter of 2015 and $3.1 million or $0.16 per share in the 2014 second quarter. Cash burn from operations was $900,000 compared to $3.1 million in the year ago quarter, and $3.3 million in the first quarter. For the first six months of 2015, total revenue was $19.2 million, up 17% compared to $16.4 million in the first six months of 2014. System revenue improved a 138% to $5.9 million from $2.5 million in the first half of last year. Recurring revenue was $13.3 million compared to $13.9 million in the prior year period, with the decrease primarily attributable to the stronger U.S. dollar in 2015. Procedures were down 1% compared to the first six months of 2014. Gross margin for the first half of 2015 was $13.6 million or 71% of revenue, compared to $12.8 million or 78% of revenue in the first half of 2014. Operating expenses improved 3% year-over-year, totaling $16.8 million for the first six months of 2015, compared to $17.3 million for the same period in 2014. Operating loss was $3.1 million versus $4.5 million in the first half of 2014, a 31% improvement. Net loss improved 23% to $4.7 million or $0.22 per share in the first six months of 2015 from $6.1 million or $0.31 per share in the first six months of 2014. Excluding mark-to-market warrant revaluation, the first half of 2015 net loss would have been $4.8 million or $0.23 per share, and the first half 2014 net loss would have been $6.2 million or $0.32 per share. Cash burn was $4.3 million compared to $5.5 million in the first six months of 2014. At June 30th, we had cash and cash equivalents of $3.6 million compared to $4.4 million on March 31st with no borrowings against our SVB revolver at either date. During the quarter we raised $100,000 through our controlled equity offering. Total debt was $18.3 million all related to Healthcare Royalty Partner long term debt. I'll now hand the call back to Bill.

[Bill Mills:]

Thanks, Marty. Before we take questions, I would like to acknowledge the important milestone of our 25th Anniversary in June. From our origins exploring technology that would provide navigation for devices guided directly through human brain tissue, we can see it and in turn develop, a distinct vision of a magnetic navigation system that would revolutionize the treatment of cardiac arrhythmias. Today our platform has been utilized in more than 80,000 EP procedures and established by hundreds of peer reviewed publications as a differentiated cardiac ablation solution which significant clinical benefits. We also maintain a strong IP portfolio with over 100 patents covering our core technology for many years into the future. We are focused every day on improving patient outcomes, building on our leadership position in magnetic navigation, and expanding adoption in leading EP markets. Now, we'll open up the call to your questions.

[Operator:]

Thank you, sir. [Operator Instructions] We do have a question from Chris Nix with UBS.

[Christopher Nix:]

Good morning. I'm very happy to see the technology progressing, I'm a little concerned, more of little concerned that there is no Wall Street coverage of your company any longer? And I'm wondering what's being done to foster a relationship with any kind of analyst coverage?

[Bill Mills:]

Well, it's a good question Chris and I think that certainly the more conduits that we have for information and importantly too, not just for information but for analysis and understanding as to how to best interpret the information in our marketplace which is a complex one. The better off I think will all be and we would very much like to have additional people focused on helping the market understand our story and the opportunity that we represent. As you know, analyst coverage is not something that one can't command, it's not something that one can mandate, it's something that is offered at the choice of the analyst involved. We all know that there is, there has been now for a number of years a mandatory bifurcation between investment banking activity and analyst coverage. Certainly we have investment banking relationships but we do not, as you've pointed out, have active analyst coverage at this point. That's something that we can encourage, it's something that we would like to have, it's something that I think we would all benefit from, but it's not something that we can make happen in the sense that we can command it to come into being, it has to be a choice that's made by those analysts. I think one of the challenges candidly that we face is that without extraordinary banking business being spread around for purposes of transactions that will generate banking fees, it can be challenging to interest analysts that might be associated with those activities to engage. At the same time, our market cap is small enough now that we are not in the managed stream for many of these analyst to engage and I suspect if one were to consult the research group at UBS Company, I'm quite familiar with, I think you'd find that although the story would sound intriguing to them, the market cap would place us outside of their universe of activity. So we share your frustration in that regard, we are working in the ways that that can be worked to improve that situation but unfortunately, it's not something that we can control or command in that sense. So, I appreciate the question Chris.

[Christopher Nix:]

Yes, I'm just - I love the technology and the medical community seems too regarded very highly, but I'm not sure what's going to get the stock up off the mat.

[Bill Mills:]

Well, I think - it's a great question. My sense is that we do require out story to be interpreted for purposes of the broader market understanding and that can be accomplished in a number of ways. Certainly, the most direct way is to have an authority figure who is knowledgeable like an analyst or pine on the promise that they see, if in fact, that's what they see in our franchise and I would be very helpful and more authoritative and well regarded that, that person is of course, the more impactful, that opinion will be. But failing analyst coverage, another proxy for promise I think is any evidence that maybe presented by business development related activities, if we were to engage with another entity in our industry that is widely regarded as a knowledgeable player, current participant were prospective participant in our industry category, and those folks were to engage with us in the some ongoing business activity. I think that type of endorsement that would be implicit in that business arrangement would also perhaps catalyze the kind of thing that you're looking for because there is no question that some sort of a catalyst is required to - I think you said, pick us off of the mat or jumpstart the engagement of the story, because now it's been - I don't think that adequate analytical coverage is being applied to the circumstances. I mean for better or for worse, it's better for us I think because we're excited about what we're doing and it's a fascinating period around which we're working but for better or for worse, it's a complex one and a true understanding and in-depth informed, forward-looking, and strategic understanding is - in our businesses it requires quite an investment in time and energy, and requires a certain level of expertise. And so, we are in a business where ironically an authority figure, an analyst or other would be even more valuable than it might be another industry settings where it's a little easier to get your arms around what is going on. So we share your frustration, in fact, I would hazard a guess that we maybe even more frustrated than you that it's as challenging as it is to get the message out there, but we're working on it.

[Christopher Nix:]

Okay. Thanks for taking my questions.

[Bill Mills:]

You're very welcome. Thank you, Chris.

[Operator:]

[Operator Instructions] We have no additional questions. At this time, I'd like to turn the call back to Jim Byers, at the MKR Group for any additional or closing comments.

[Jim Byers:]

Thank you, operator, and thanks to everyone for your participation on today's call and for your continued interest in Stereotaxis. We look forward to speaking with you again in the next quarter and sharing news of further progress. This concludes today's call. Have a good afternoon. Thank you.

[Operator:]

Thank you, sir. Again, that concludes today's call. Thank you for your participation.