Stereotaxis Inc (STXS) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Stereotaxis Q1 2012 results conference call. During today's presentation, all parties will be in listen-only mode. Later we will conduct a question and answer session. (Operator Instructions). The conference is being recorded today, Tuesday, May 8, 2012. I would now like toturn the conference over to Greg Gin of EVC Group.

Thank you Operator, and good morning. Thank you for joining us for the Stereotaxis conference call and webcast review for the financial results for the first quarter, which ended March 31, 2012.

Before we get started, we would like to remind that you during the course of this conference call the Company may make projections and other forward-looking statements regarding future events or the future financial performance of the Company including 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 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 the form 10-K for the fiscal year ended December 31, 2011, and the quarterly filings for 2011. 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 do 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 our control. In addition, these orders and commitments may be revised, modified, or canceled, either by their expressed terms as a result of negotiations, or by project changes or delays.

With that I would like to turn the call over to Mike Kaminski, President and Chief Executive Officer of Stereotaxis.

Thank you, Greg. Good morning everyone, and thank you for joining to us review our first quarter 2012 performance. With me today is our Chief Financial Officer, Sam Duggan. Followed our prepared remarks we will open up the call for your questions.

As we outlined in our last call, our first priority in 2012 was to improve the balance sheet, in order to keep our strategic plan moving forward. On Monday, we announced that we entered into a definitive agreement to raise an additional $18.5 millionthrough two financing transactions. Consisting of $8.5 million subordinated debt, and a $10 million common stock pipe transaction. Upon closing of these transactions we also expect to extend our credit agreement with Silicon Valley Bank through March 2013. Sam will review the terms in more details in his remarks.

In an effort to maximize this capital raise we are implementing a cost reduction plan focused on growing top line and position us to achieve breakeven as quickly as possible. The plan will further reduce operating expenses not directly impacting top line growth by 15% to 20% by the fourth quarter of this year. With the lower operating spend and continued revenue growth through the new Epoch platform, we believe we can accelerate EBITDA breakeven. I will discuss some specifics of the plan following a review of the first quarter results.

In the first quarter the Epoch solution continue to build momentum. We installed 19 upgrades in addition to the six installed in Q4. At this pace, we expect to achieve a milestone of 40 upgraded sites during the first half of 2012. Two Niobe ES systems contributed to revenue during the quarter, and although there were no new Niobe ES orders in the quarter, we do expect to secure orders as the year unfolds and reference sites strengthen. We have seen a marked increase in sales activities due to the overwhelmingly positive response to the products' clinical and operational value, we remain confident in our ability to recognize at least ten new Niobe ES systems to revenue in 2012.

The Vdrive product continues to generate positive momentum in Europe, expanding our footprint and providing a clear differentiator in the robotics market. The Vdrive system provides the physician the ability to control all catheters used in complexity EP procedures, and the flexibility to change the pivot point of our magnetic catheter thus improving navigation to specific sites. To date 80% of the upgraded Epoch sites in Europe have purchased the Vdrive, and are utilizing it in approximately 50% of all AF procedures. Sales of the Vdrive system should significantly increase once the Vloop is improved in the US. We are still on track to commercially release Vdrive in the US later this year.

Our Odyssey business contributed $2 million to revenue in the first quarter, and generated $2.1 million in new orders. Approximately 30% of the orders were through our Biosense distribution agreement. We will continue to this relationship to expand the Odyssey footprint in the interventional market. We are also presenting three significant enhancements to the Odyssey platform at the Heart Rhythm Society later this week. These upgrades are designed to improve the user interface and strengthen the remote communication of HIPAA compliant information to physicians in remote sites.

Led by a strong market reaction to the Epoch solution along with higher mix of service and disposables, revenue in the first quarter was up 20% from prior year. It is evident that the Niobe ES system is having a significant impact on our robotics footprint. More than 1,250 cases have been completed on the new platform. In the 25 upgraded sites overall EP volume grew 33% over prior year quarter, compared to the Company growth rate of 16%. This includes the multiple days that each lab was down to upgrade the system. AF procedures in Epoch labs increased 48% versus 28% Company-wide, excluding sites that were at procedure capacity prior to upgrading, EP and AF volume grew 51% and 60% year over year respectively.

The net result of the quarter was strong top line growth and significantly lower operating expenses which improves year-over-year operating loss by 52%. Operating spend was down 21% from prior year quarter. As we continue to build on the excellent commercial performance and promise of the Epoch solution, we are committed to focusing capital funds on fee revenue drivers with the goal of achieving EBITDA breakeven within the next four quarters. In that spirit we have reevaluated our business model, and we believe we can bring further efficiencies to several areas, let me provide an overview.

We expect recurring revenue to grow at or above historic rates thereby covering a growing portion of our operating expenses. At the same time, we believe capital revenue will rebound in 2012 with a minimum of 10 new Niobe ES systems added to revenue this year. As we examine our sales pipeline, we have found many prospects are being heavily and positively influenced by the Epoch site in their local market. This is a result of a new Niobe user profile, a single physician operating in a not-for-profit hospital, who is driven by efficiency and outcomes. We believe our clinical adoption staff will positively influence [capital] interest, and we can leverage their presence to bring further efficiencies to our capital sales resources.

Additionally as I mentioned, our Odyssey strategy is centered on leveraging excitement of the technology in our robotics suite, to expand it into other care areas within that institution. Outside of our robotics installed base, we can rely on Biosense and other relationships, that have a much broader commercial footprint to increase the sales in independent labs.

In the area of R&D we are committed to continuing to innovate and strengthen the value of our product offering. With the heavy investments of bringing the Epoch solution to market behind us, we are moving to a focused less costly incremental improvements, that ensure market adoption and long term product success. So in summary, our operating reduction plan includes leveraging the clinical sales force to help drive capital sales, focused spending on R&D projects and exploring Odyssey innovation partners, and aggressively reducing general expenses including G&A, support function, and discretionary spending, that do not impact top line growth.

We have carefully evaluated each of these areas and believe this plan will accelerate operating breakeven without comprising our revenue growth strategy. With these reductions and improved capital, we are positioned to achieve EBITDA breakeven on a quarterly revenue basis of approximately $15 million. With the majority of the top line driven by recurring revenue.

I will now turn the call over to Sam to provide further details on our quarterly results and recent financing. Sam?

Thanks Mike, and good morning everyone. In the first quarter 2012 revenue was $12.3 million compared to $10.2 million in the 2011 first quarter. And $11.6 million in the fourth quarter. We posted revenue of $2.8 million on two Niobe ES systems, including $1.4 million of Niobe ES upgrades, and Odyssey revenue was $2 million. System revenue grew to $5.2 million in Q1compared to $4.3 million the prior year quarter. And recurring revenue increased to $7.1 million, a 20% improvement year-over-year. At quarter end we valued our active backlog at $16.9 million, which included 8 Niobe system orders, compared to $19.9 million in the beginning of the quarter. During the quarter we added $3.3 million in new orders and converted $5.2 million in system revenue, the remainder of the difference was primarily due to changes in deferred revenue.

Gross margin was $8.5 million, or 69.4% in Q1, compared to a margin of 70.6% in the year ago quarter. Operating expenses inthe first quarter were $12.7 million, down $3.3 million from the year ago quarter. The increase was principally related to reduced head count and discretionary spending in 2011.

The net loss for the first quarter was $5.8 million, or $0.11 per share, compared to a net loss of $9.5 million, or $0.17 per share reported for the first quarter 2011. In the first quarter cash burn was $4.3 million, compared to $11 million in the prior year quarter, and $14.8 million in the 2011 fourth quarter. The fourth quarter was impacted by the payoff of $3.1 million of remaining debt to Biosense Webster, and increased working capital due to higher than normal shipments near the end of the quarter that drove Accounts Receivable.

At March 31, 2012 we had cash and cash equivalents of $10.5 million, compared to $14 million at December 31. Outstanding debt was $39.5 million versus $33.5 million a year ago, and included $14.8 million from the Cowen transaction completed in the 2011 fourth quarter.

We believe our lower cost structure will improve further with the new cost cutting strategy and the rebound system revenue will reduce cash burn in 2012. However to provide immediate capitalization we have entered into definitive agreements to raise approximately $18.5 million in additional capital. The financing which we outlined in our press release yesterday consists of the following. We expect to raise $10 million through the private offering of approximately 21.7 million shares of common stock, and six-year warrants to purchase another approximately 21.7 million shares at an exercise price of $0.3361 a share.

We have placed approximately 8.5 million into unsecured subordinated convertible promissory debentures. These will be convertible to shares of common stock at the same price of $0.3361 per share following shareholder approval of the transactions. In addition, we are issuing six-year warrants to purchase common stock equal to 100% of the shares underlying the debentures, or approximately 25.2 million shares. The debentures will incur interest at 8% per year, and mature on May 7, 2014.

Net proceeds of these financings will be used to do repay $7 million of our revolving credit facility guaranteed by Alafi Capital and Sanderling Venture Partners for working capital and for general corporate purposes. At completion of these transactions we expect to extend our credit facility with Silicon Valley Bank through March 31, 2013. The line of credit will decrease from $20 million to $13 million after paydown of the guarantee portion, but otherwise it is similar terms as the previous agreements with Silicon Valley Bank. Alafi and Sanderling have agreed to guarantee $3 million of the credit facility in exchange for warrants of purchase up to 2.3 million shares of common stock. These transactions are subject to standard closing conditions, but we anticipate completion by Thursday, May 10.

With that I will turn the callback to Mike.

Thanks, Sam. First quarter results reflect the excitement that we are seeing with the Epoch launch. We look forward to sharing the clinical successes and the latest innovations for our Epoch platform at the upcoming HRS Conference this week. In addition to the broad number of new products we are introducing, we are equally excited about the scientific presence we will have at the show. 11 invited podium presentations, and 13 submitted abstracts, featuring our products will be included in this year's program.

The event gives us tremendous opportunity to drive the capital market awareness and interest in the safety and efficacy of our robotic technology. We are committed to providing innovative solutions for the EP market and to ensuring the long term success of our business model. Thank you for joining us on the call today, and for your continued support.

With that, operator, we would like to open it up to any questions.

Thank you, sir. (Operator Instructions). First question is from the line of Steven Lichtman with Oppenheimer. Please go ahead.

Thank you. Can you hear me okay?

Yes.

Good morning. Excuse me. Just on the ten revenue placements you expect for Niobe this year, just to be clear, have you guys gotten any orders on that yet, and what gives you the confidence that you are going to hit that ten by the end of this year in terms of placements?

Yes. So Steve, as we came into the year I think on the last call we talked about we had a backlog of ten systems, and we anticipated eight of the ten would go to revenue this year from backlog. Two of those went to revenue in Q1. We did not secure any new orders, nor did we really anticipate that unfolding this early in the year, but we have a lot of interest that is building, and we will see those orders start accumulating as the year unfolds. So we fully anticipate that we will fill the other two with new orders, and that we will be in a good position to secure all ten, and build backlog for 2012 as we emerge out of this year, or 2013 as we emerge out of this year.

Okay. Great and I know last year did you a lot of cleaning up in terms of the backlog, and try to really nail down what you felt was true backlog. I mean was there any movement in terms of removal of anything in the backlog over the past three months or no?

No. The only net change was those that went to revenue versus those that were new and booked, no cancellations.

There was nothing removed from backlog.

Okay. Great. And then I may have missed it, but in terms of some of the cost savings programs, I thought on of the things I think you mentioned was securing additional partners from Odyssey, from a distribution perspective. What type of partners are you looking for, and how is that going to be different than what you have with a strong supporter in Biosense?

Yes. We think there is such a broad opportunity for Odyssey in the interventional market that there is partnering opportunities for both outside of EP, as well as just innovative partners, and we are exploring all of those options right now, recognizing that some of the heavy lifting from R&D could come from somebody else, some other partners that are looking to get into that innovative line.

Okay. Great. And lastly, relative to the regulatory pathway in the US for Vdrive, you are still --

Steve? Operator?

Mr. Lichtman, please go ahead. There seems to be a technical issue if you could please press star one again.

It sounds like Steve might have gotten cut off. Can we go to the next question, operator.

Please go ahead, Steven?

Can you hear me again?

Yes.

Alright. So the last question was just on the Vdrive timeline, are you guys still on track in the US on Vdrive?

Yes. So we anticipate beginning an IDE trial, which will be a very quick, very simple trial on the Vloop, and then we still are forecasting that we will have it released in the US this year.

Okay. Great. Thanks, guys.

Thanks Steve.

(Operator Instructions). Showing no additional questions, please continue.

Alright. Operator, with no additional questions, of course if anybody is Boston at the HRS Congress, please stop by the booth we would love to show you the latest innovations. And look forward to speaking with you in August. Thank you very much for participating. Thank you operator.

Ladies and gentlemen, that does concludes our conference for today. If you would like to listen to the replay of today's conference, dial 303-590-3030 or 1-800-406-7325, followed by the access code of 4536824 and the pound sign. Thank you for your participation. You may now disconnect.