Stereotaxis, Inc.
Q4 2014 Earnings Call Transcript

Published: 26 Feb 2015

[Operator:]

Good day and welcome to the Stereotaxis’ Fourth Quarter and Full Year 2014 Financial Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Jim Byers at 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 fourth quarter and full year ended on December 31, 2014. Before we get started, we would 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 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. Now with that said, I’d like to turn the call over to Bill Mills, Chairman and CEO of Stereotaxis.

[William Mills:]

Thank you, Jim. Good day and thank you for joining us for a review of our fourth quarter and full year 2014 performance. With me today on the call is Marty Stammer, our CFO. Following our prepared remarks, we will open up the call to your questions. The fourth quarter marked a historic milestone for Stereotaxis, our first operating profit. Our ongoing efforts to achieve efficiencies in every area of the business as well is dry clinical adoption of our platform through targeted marketing efforts and technology enhancements have significantly improved our bottom-line performance. In 2014, we delivered record results including the highest annual recurring revenue in our history and our lowest annual operating and net losses since our IPO in 2004. Despite the challenges to top line growth we faced during the earlier part of this year, we’ve demonstrated that we can achieve profitability and believe we’re in a stronger position to experience future growth and improvements in long-term shareholder value. Recurring revenue made a pivotal contribution to the top line in 2014, increasing 7% year over year to $27.2 million and representing 78% of full year total revenue. This increase was attributable to strong disposable and service revenues throughout the year. We also stabilized procedure volume, generating growth in the fourth quarter of 9% year over year and 12% on a sequential basis through nine new installations and several restarts, better coverage of targeted accounts and data driven improvements to physician training. By using data on the many tens of thousands of procedures performed with our magnetic navigation platform, we now have established standards of best practice which we will employ with both new and existing users. This is a significant step forward in formalizing practice methodologies that have yielded optimal results and in improving the learning curve to system proficiency. In addition, we continue to launch technology enhancements aimed at improving procedure efficiency and outcomes, including an updated user interface featuring Ablation History and an expanded Vdrive platform in the US. In early January, we were pleased to announce that more than 75,000 procedures have been performed with our remote magnetic navigation system, reaffirming our leadership position in robotic solutions for the electrophysiology market. As a result of our strong recurring revenue, we achieved quarterly gross margins ranging between 74% and 81% of revenue during the year, with a gross margin of 77% for the full year, up from 71% in 2013. While software system revenue impeded top line growth during the first three quarters of 2014, we saw a market improvement in capital sales in the fourth quarter, which increased 16% from the prior year quarter and 45% sequentially. We also generated $2.9 million in new capital orders, a 93% sequential improvement from the $1.5 million in the third quarter. Our sales organizations continue to present the expanding clinical evidence around the benefits of a fully-remote computer-assisted procedure environment to a global audience. Last month, we reported on the findings of a recent study conducted at Princess Grace Hospital in Monaco. These represent some of the most compelling findings to date on long-term outcomes attainable using our Niobe magnetic navigation system in the treatment of atrial fibrillation. The superior clinical safety, efficacy and efficiency of our technology over manual modalities have been well substantiated across the spectrum of complex ablation cases. Proven success in clinical excellence can drive increased patient demand as was demonstrated at University Hospital in Saint-Étienne, France which recently became our first customer to open a second Niobe lab to accommodate their continually expanding clinical EP practice. Since implementing their first system in 2009, the hospital has become a national center of excellence, consistently ranked in the top five institutions for interventional cardiology as well as a European center of reference for the treatment of complex arrhythmias. Last year, they performed 100% of their AF procedures with Stereotaxis technology. Saint-Étienne exemplifies a provider that has become fully committed to Stereotaxis technology after experiencing the distinct advantages of the Niobe system over manual approaches to arrhythmia ablation. Our commercial results are centered on communicating the successes to prospects through case studies and observations, pure dialog and expanded presence at global events. In our newest global market, Japan, we made substantial inroads during the year. In collaboration with our distribution partners, we engaged Japanese EP physicians one-on-one and on a national stage securing our first system order in the third quarter from a leading hospital in Osaka and our second system order in the fourth quarter. Additionally, we established a business office in central Tokyo, under the leadership of a highly qualified Japan Business Director and in December received regulatory approval of our Odyssey information management portfolio of products. We’re excited by the size and significance of the Japan EP market and look forward to building on the positive momentum we are experiencing. We also anticipate increased contribution to revenue from the Vdrive system now that Vdrive disposables are cleared in the US. As you’ll recall, our V-Sono ICE catheter manipulator received FDA clearance in 2013, followed by our V-Loop variable loop catheter manipulator in the third quarter of 2014 and the V-CAS catheter advancement system near the end of 2014. Each of these components used in conjunction with the Niobe system brings a unique function and benefit to the ablation therapy process. The V-CAS system enables remote control of the fixed curve transseptal sheath which is deployed in the majority of procedures to stabilize and support the ablation catheter. Worldwide, 29 sites have implemented some combination of the Vdrive platform to date. As we develop new markets for our technologies, we remain committed to evolving and expanding our legacy markets. For example, we worked in 2014 to build new distributor relationships, exploring regional opportunities and revitalize once thriving accounts in our EMEA market. In Germany, we had several restarts that are performing well and our new site in Novosibirsk, Russia has exceeded all expectations, surpassing procedure volume that we typically see over the course of the year in less than six months. To lead our strategic objectives in EMEA going forward, we are pleased to have appointed in January a Vice President of Sales for this important territory. Our new European sales leader brings to Stereotaxis broad industry experience in Europe and Canada and a 20-year career driving business results and creating effective team environments. He is a strong addition to our senior leadership team. With that, I would like to turn the call over to Marty to provide details of our fourth quarter and full-year financial results.

[Martin Stammer:]

Thanks, Bill, and good afternoon everyone. Revenue in the fourth quarter was $9.8 million, up 8% from $9.1 million in the year ago quarter and 10% sequentially. System revenue of $3.2 million was an increase of 16% year over year and 45% on a sequential basis. In the fourth quarter, we recognized revenue of $2.2 million on two Niobe ES systems, $100,000 on one Vdrive system and $900,000 in Odyssey solution sales. During the quarter, we generated new capital orders of $2.9 million, including two Niobe ES systems, three Odyssey system orders and one Vdrive order. At quarter end, our active backlog was $5.7 million. Recurring revenue in the quarter was $6.6, up from $6.3 million in the 2013 fourth quarter. Procedures improved 9% from the same quarter last year and 12% sequentially. For the full year 2014, revenue was $35 million compared to $38 million in the 2013 full year. System revenue was $7.8 million on three Niobe ES systems, six Vdrive system sales and $2.8 million in Odyssey solution sales in 2014, which compares to $12.7 million on nine Niobe system sales and upgrades, five Vdrive systems, and $3.7 million on Odyssey solution sales in 2013. New capital orders for the full year 2014 totaled $6.3 million, compared to $12.1 million in 2013. Recurring revenue was $27.2 million for the full year 2014, our highest annual recurring revenue in company history compared to $25.3 million for 2013. Utilization was unchanged for the full year, but increased by 6% when comparing the second halves of 2014 and 2013. Gross margin in the fourth quarter 2014 was $7.5 million, or 76.6% of revenue, up from $6.2 million, or 68.7% in the year ago fourth quarter. For the full year, gross margin was $26.8 million, or 77% of revenue, versus $27 million, or 71% of revenue in 2013. Operating expenses in the fourth quarter were $7.2 million, a 17% improvement compared to $8.7 million in the year ago period. In 2014, we managed our lowest annual operating expenses since our IPO. Total operating expenses for the year were $32.2 million, a 10% reduction from 2013. Operating income, our first ever, was $314,000 in the fourth quarter. This compares to an operating loss of $2.4 million in the fourth quarter of 2013. For the full year 2014, we reported our lowest operating loss as a public company, $5.4 million, representing a 39% improvement from the prior year. Interest expense was relatively consistent year over year in the fourth quarter at approximately $800,000. Interest expense in the full year 2014 declined to $3.3 million from $12.6 million in 2013, which primarily related to a one-time, non-cash expense as a result of the extinguishment of our convertible debentures. Net income for the fourth quarter of 2014 was $900,000, or $0.04 per share, compared to a net loss of $4 million, or $0.23 per share, reported for the fourth quarter of 2013. The weighted average diluted shares outstanding for the fourth quarters of 2014 and 2013 totaled 20.6 million and 17.2 million, respectively. Excluding mark-to-market warrant revaluation, our net loss would have been $500,000 or $0.03 per share in the fourth quarter of 2014 and $3.3 million or $0.19 per share in the 2013 fourth quarter. For the full year 2014, our net loss was $5.2 million, or $0.26 per share, which included $3.5 million in income for mark-to-market warrant revaluation. This compares to a net loss of $68.8 million in 2013, which included $53.9 million in one-time charges related to transactions with convertible note holders and other equity investors. When excluding these adjustments, the net loss would have been $8.7 million, or $0.44 per share in 2014 and $14.9 million, or $1.29 per share in 2013. In the fourth quarter, cash burn was $1.4 million, unchanged from the prior year quarter. For the full year 2014, cash burn was $9.2 million compared to $6.3 million in 2013. At year end, we had cash and cash equivalents of $7.3 million, compared to $8.7 million on September 30. Our total debt was $18.4 million, all related to HealthCare Royalty Partners long-term debt. We had no borrowings on our credit line with Silicon Valley Bank during the year. Over the last several years, our teams have worked extensively to identify department level savings and efficiencies across the organization. I commend each of our employees for helping to create a culture that is mindful of our financial responsibilities, while focused on delivering the highest quality service, support, and innovations for our customers. We will continue to control costs at every level of the company and carefully evaluate every economic decision. I will now hand the call back to Bill.

[William Mills:]

Thanks, Marty. 2014 was a year of significant progress for Stereotaxis and we’re focused on continuing this positive momentum in the new year. In 2015, we look forward to building on our accomplishments in Japan and expanding our body of evidence through multiple clinical research projects. In addition, we will introduce significant enhancements to our software that supports the Niobe platform as well as new developments for the Vdrive system. Through these innovations, we will ensure that our technology delivers maximum value in the EP lab, which should in turn continue to further clinical adoption. By focusing on these initiatives, we believe that we can drive increased market penetration and long-term shareholder value through our commitment to improve the lives of patients and physicians. Now, we will open the call up to your questions. Operator?

[Operator:]

[Operator Instructions] And we’ll go first to [Gary Getz] a private investor.

[Unidentified Analyst:]

I wanted to congratulate you on the progress that you’re making both on expense control, improved gross margin and profitability. Looking forward, do you have an idea of when we could begin to see sustained profitability excluding the mark to market of the warrants?

[William Mills:]

First of all, thank you for your comments Gary and for your support. You’re asking a good question and we’re really focusing on the operating income line, which is probably the purest measure of our progress and performance going forward. I think you’re looking at the right benchmark. I think what we’ve established as a result of this quarter is that our business model will permit us to be profitable provided that we have a reasonable or better performance in our capital sales activities during the course of any accounting period. I guess, we are not offering formal guidance with respect to the trajectory of our capital sales, but I would tell you that we feel as though we have – we’re in a position to consolidate some of the gains that we’ve made in that department recently and as you can see, as a result of the attention to cost control and the attention to operating the business as efficiently as we can manage it, we’re now in a position where in a quarter wherein we complete two capital sale transactions for Niobe units, we’ve been able to book a profitable accounting period. So our business model suggests that we are at that inflection point now. We know from many years of experience that when one has major single point of contribution sales to any income statements that the process can appear lumpy when you look at it from an accounting period to accounting period, but I’d like to believe that we’re now on the cusp of being able to revalidate the performance that we’ve just generated as we look forward. So I think you’re looking at the right benchmark and I would encourage you to keep your eye on that as we look forward. But we’re feeling as though we’ve accomplished quite a good deal with respect to putting the appropriate scale of business behind the opportunity that we have here while not compromising the longer term outlook for innovation and our capacity to contribute to better solutions for patients here. So an important question and one that I’d encourage you to continue to keep your eye on quarters going forward.

[Unidentified Analyst:]

Great. That’s very encouraging to hear. And I’m particularly impressed at the way in which you’re reaching out to the medical community, I mean, I’ve worked with the medical community and I know nothing speaks longer term than the success of the procedures.

[William Mills:]

I think you’re right. At the end of the day that really is what matters here and I appreciate your sentiment in that regard as well. I think if we don’t deliver better efficacy with enhanced safety and with efficiencies that are congruent with the expectations of the physicians that treat our patients, the solution will not survive the test of time. We’re convinced and very firmly believe that the fundamental architecture of our approach is an extremely powerful one and an extensible one. What we’ve undertaken to do though is to fundamentally change the way in which electrophysiologists practice their craft. That’s not a short-term process under the most optimistic scenarios; this is a long-term undertaking. It requires almost a generational transformation of the approach to the conduct of these procedures. But we’re resolute in our belief that our architecture will permit not just the accomplishment of those things that we’ve already demonstrated, but has a long way to go in offering improvements in the treatment of arrhythmias. So we’re very excited about the future as well as we are proud about what we’ve accomplished to date. So thank you very much.

[Operator:]

[Operator Instructions] And there are no further questions from the phone lines at this time. I would now like to turn the call back to William Mills for any additional or closing remarks.

[William Mills:]

Thank you, operator. And I want to thank each of you for your continued support. We wish you all the best in the new year and look forward to speaking again soon with news of further progress. Have a good afternoon and we’ll talk to you next quarter.

[Operator:]

And this does conclude today’s conference. We thank you for your participation. You may now disconnect.