Stereotaxis, Inc.
Q3 2015 Earnings Call Transcript

Published: 3 Nov 2015

[Operator:]

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

[Jim Byers:]

Thank you, operator and good afternoon everyone. Thank you for joining us this afternoon for the Stereotaxis conference call and webcast to review financial results for its 2015 third quarter ended on September 30, 2015. Before we get started, we'd like to remind you that during the course of this conference call, the Company may 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 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 now like to turn the call over to Bill Mills, Chairman and CEO of Stereotaxis.

[Bill Mills:]

Thanks, Jim and welcome everyone to our third 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. We are encouraged by our progress during the quarter driving revenue growth through Niobe ES system sales, as well as focusing on clinical penetration in our newest major market, Japan. We also continue to build momentum toward our top strategic priorities of advancing our position in the worldwide VT markets and introducing further product enhancements that optimize therapy delivery and improve patients lives. For the fourth consecutive quarter, we converted revenue on two Niobe ES system sales including our third shipment to Japan and our first to the Canadian Province of Quebec. We had six system sales year-to-date compared to one at the same point last year. We also experienced another strong quarter of recurring revenue led primarily by a high volume and service contract renewals. As a result, our total revenue for Q3 increased 5% year-over-year and total revenue for the first nine months was up 13% over last year. Through improved revenues and disciplined expense management, we also continue to reduce operating loss, which decreased 23% in the third quarter and 29% for the first nine months compared to the prior year. Our strategic marketing efforts in Japan are fueling an already high level of enthusiasm for our technologies among prestigious medical facilities and high profile physicians. As I noted, during the third quarter, we completed our third commercial Niobe order and shipment to Japan for a prominent private cardiovascular specialty hospital in Western Japan. As one of the top performing cardiovascular centers in Japan, this hospital exceeds 2,000 cases each year in its cath lab and is a prominent player in ongoing clinical research. In addition, it is recognized as being a prolific training center for Japanese clinical societies such as the Japan Heart Rhythm Society. Our first system installation in Japan at Takatsuki Hospital last quarter is helping to drive clinical adoption growth for our Asia Pacific market, which saw a 34% sequential increase in procedures during the third quarter. We look forward to convening our top systems users from that region, as well as potential customers at the Asia Pacific Heart Rhythm Society scientific sessions later this month. During the four-day event in Melbourne, Australia, we will host a group of Japanese physicians for case observations of the Niobe ES system at Westmead Hospital in Sydney and bring together our most experienced physicians in the region to discuss best practices and potential joint research opportunities. Since its release at the end of 2011, the Niobe ES system has been the focal point of arrhythmia treatment at leading medical institutions around the world. Recently, we installed our third Niobe ES system in the prestigious Sutter Health network in California. The new Niobe lab is part of a completely renovated Sutter Medical Center in Sacramento, and a high profile feature of the hospital’s heart and vascular institute. During the lab’s second procedure, one of the physicians experienced fundamental benefit of the Niobe ES system, when he was able to locate and ablate a relatively inaccessible ventricular arrhythmia. He commented that the Niobe had given him further reach and better stability than any pull wire catheter he had been using previously and it had eliminated the need for additional therapy. The ultimate measure of our clinical success is in long-term efficacy and improved cure rates for debilitating arrhythmias. A study recently released by Erasmus Medical Center in The Netherlands corroborates our ability to produce better long-term outcomes in ventricular tachycardia ablation, a complex procedure made more difficult by the unique characteristics of ventricular tissue and anatomy. The seven-year study, which involved a total of 239 patients evaluated the Niobe system’s performance in VT ablation, compared to contact force sensing catheters, considered by most to be state-of-the-art manual catheters, as well as other manual catheters. On several clinical endpoints including acute success, major complications and recurrence rate and examined using an intention to treat analysis, the Niobe system provided significantly better results than both contact force enabled and traditional manual approaches. These findings further strengthened an increasing body of clinical evidence, supporting our success with VT, still a relatively untapped market for us. Dr. David Burkhardt from the Texas Cardiac Arrhythmia Institute, widely acknowledged as the thought leader and expert in the inflation of VT and other complex arrhythmias has adopted the Niobe System as a standard of care for his VT cases. Recently surpassing 1,000 procedures using the platform, the first in the U.S. to achieve this milestone. Dr. Burkhardt has essentially summed up the benefits of the Niobe System in stating that it has allowed him to reach areas of the heart that would otherwise not have been possible, and to perform very complicated procedures safely, efficiently and with high quality results. He and his team have conducted numerous studies on the effectiveness of magnetic navigation compared to other approaches and at next week’s American Heart Association Scientific Sessions in Orlando, will publish their latest results on long-term outcomes of Stereotaxis technology with VT. Given that simplifying complex procedures is inherent advantage of our platform, our improved clinical results compared to manual techniques in VT are not surprising based on the challenging location and anatomy involved with VT procedures. With future innovations, we believe that we can replicate the same level of distinction in the setting of simpler procedures. We continue to introduce product advancements that evolve our navigation platform and achieve higher levels of automation for greater physician efficiencies and optimal patient outcomes. In September, the first procedures were performed in the U.S. with our Vmotion suite of automation features. These features provide automatic orientation of an ICE catheter to track a localized ablation catheter in conjunction with our V-Sono ICE catheter manipulator. The combination of these tools is designed to enhance the physician’s ability to visualize in real time, the tip to tissue contact of the ablation catheter throughout a Niobe procedure and to reduce reliance on fluoroscopy. Dr. Michael Porter of Exempla Saint Joseph in Denver commented that the unique automation features of our navigation systems allow physicians to focus on patients rather than on the complex mechanics of the ablation procedure, and that our technologies are a significant advancement in improving the effectiveness of therapy delivery. In October, we launched respiratory compensation, a new software feature of Niobe that further supports physicians and their creation of successful linear illusions, which is a key factor in producing favorable ablation outcomes. Respiratory motion of the heart during ablation procedures can affect the quality and accuracy of catheter localization within mapping technologies, as well as the automation capabilities of Niobe. Respiratory compensation corrects this distortion by automatically monitoring the movements of reference catheter over the respiratory cycle and applying an algorithm to filter our respiratory motion. By providing a more precise representation of where legion sets are actually being created, physicians have greater opportunity to complete contiguous legion. This also improves the quality of the data being captured for our future developments around automation features. While this most recent software advancement enhances the integrity of visual data during respiratory motion, a recent study by Westmead Hospital supports the efficacy of the Niobe System with legion creation in the presence of cardiac wall motion. During an extensive phantom study comparing the Niobe System with a manually controlled irrigated catheter, a total of 60 ablations were performed with and without simulated heart wall motion. Catheter position was confirmed by real time visualization. While the researches absorbed lateral sliding in the manual catheter group, the Niobe group maintained stable focal contact with no lateral movement. As a result, legion dimensions using the Niobe System for larger, deeper and formed sooner. For practitioners this translates into the potential for more precise, effective oblations in unstable regions of the heart, which could lead to improved patient outcomes and shorter procedure times. Now I would like to turn the call over to Marty to provide details of our third quarter and nine month financial results.

[Marty Stammer:]

Thanks Bill and good afternoon everyone. Revenue in the third quarter was $9.3 million, up 5% from $8.9 million in the year ago quarter and down 4% on a sequential basis. System revenue of $2.3 million was an increase of 5% year-over-year and a decrease of 26% on a sequential basis. In the third quarter, we recognized revenue of $1.7 million on two Niobe Systems and $500,000 in Odyssey solution sales. During the quarter, we generated new capital orders of $3.1 million. At quarter end our backlog was $3.6 million. Recurring revenue in the quarter was $7 million, compared to $6.7 million in the prior year quarter and $6.6 million in the second quarter. Procedures declined 6% year-over-year, partly impacted by the current popularity of cryoablation technology over radio frequency catheter ablation and procedures for [indiscernible]. This decline was partially offset by double-digit year-over-year growth in VT procedures. Gross margin in the third quarter 2015 was $6.8 million, or 73.6% of revenue compared to $6.5 million or 73.6% of revenue in the year ago third quarter and $6.7 million or 69.5% of revenue in the second quarter. Operating expenses remained unchanged year-over-year at $7.7 million, and decreased from $8.4 million in the second quarter. Operating loss was $900,000 in the 2015 third quarter, a 23% reduction from $1.2 million in the 2014 third quarter and a 47% improvement from a loss of $1.7 million in the second quarter. Interest expense was $800,000 in all three quarters, related to HealthCare Royalty Partners. Net loss for the third quarter of 2015 was $1 million or $0.05 per share compared to net income of less than a $100,000 or $0.00 a share reported for the third quarter of 2014. The weighted average diluted shares outstanding for the third quarters of 2015 and 2014 totaled $21.2 million and $20.5 million respectively. Excluding mark-to-market warrant revaluation, our net loss would have been $1.7 million or $0.08 per share in the third quarter of 2015 and $2 million or $0.10 per share in the 2014 third quarter. Cash burn from operations was less than a $100,000, compared to $2.3 million in the year ago quarter and $900,000 in the second quarter. For the first nine months of 2015 total revenue was $28.5 million, up 13%, compared to $25.3 million in the first nine months of 2014. System revenue improved 76% to $8.2 million, from $4.7 million in the prior year period. Recurring revenue was $20.2 million, compared to $20.6 million in the prior year period. Procedures were down 2% from the same period last year. Gross margin for the first nine months of 2015 was $20.4 million or 71.8% of revenue, compared to $19.3 million or 76.5% of revenue in 2014. Operating expenses improved 2% year-over-year, totaling $24.5 million for the first nine months of 2015, compared to $25 million for the same period in 2014. Operating loss was $4 million, versus $5.7 million in the first nine months of 2014, a 29% improvement. Net loss improved 6% to $5.7 million or $0.27 per share in the first nine months of 2015 from $6.1 million or $0.31 per share in the first nine months of 2014. Excluding mark-to-market warrant revaluation, year-to-date 2015 net loss would have been $6.5 million or $0.31 per share and the net loss for the same period in 2014 would have been $8.2 million or $0.41 per share. Cash burn was $4.3 million, compared to $7.8 million in the first nine months of 2014. At September 30th, we had cash and cash equivalents of $3.6 million, unchanged from June 30th with no borrowings against our SCB revolver at either date, an unused borrowing capacity of $5.8 million at September 30th. During the quarter we raised $300,000 through our controlled equity offering, and conducted a registered offering of subscription warrants to holders of our common shares. Approximately 300,000 shares of common stock were sold during the three week offering resulting in gross proceeds of approximately $300,000 which will be realized in the fourth quarter. Our total debt on September was $18.3 million, all related to the HealthCare Royalty Partners’ long-term debt. I will now hand the call back over to Bill.

[Bill Mills:]

Thanks Marty. With established clinical advantages over available therapies for VT, and significant VT market share to gain we are focused on positioning our technologies as best-in-class treatment for this serious debilitating condition. In the coming months we will continue to work with our physician users to further the clinical evidence that supports the Niobe ES as the standard of care for the treatment of VT. Concurrently we continue to advance our vision of a fully remote, computer assisted procedure environment with enhanced automations that add new users in leading EP markets, improve customers experience, produce exceptional clinical results and create lasting value. With that, we will open up the call to your questions. Operator?

[Bill Mills:]

Thank you, operator, and thanks to each of you on the call for your support. We look forward to speaking with you again next quarter, ensuring news of further progress at that time. Have a great afternoon or evening as the case might be.

[Operator:]

And this does conclude your teleconference for today. Thank you for your participation. You may disconnect at any time.