Stereotaxis Inc (STXS) 2013 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Stereotaxis fourth-quarter and full-year 2013 financial results conference call. During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions).

This conference is being recorded today, and at this time I'd like to turn the conference over to Jim Byers of MKR Group. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Thank you for joining us this afternoon for the Stereotaxis conference call and webcast for a review of financial results for its 2013 fourth quarter and full year ended on December 31, 2013.

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 the Form 10-K for the fiscal year ended December 31, 2012, the quarterly Form 10-Q filings 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 comments may be revised, modified or canceled either by their express terms as a result of negotiations or by project changes or delays.

Now with that said, I would like to turn the call over to William Mills, Chairman and CEO of Stereotaxis.

Thank you, Jim. Good afternoon, everyone, and thank you for joining us for a review of Stereotaxis' fourth-quarter and full-year 2013 performance. Joining me today is our CFO, Marty Stammer. Following our prepared comments, we will open up the call to your questions.

Before we begin, I would like to take a moment to express how very pleased I am to assumed the reins of Stereotaxis as we enter a new phase of development. 14 years ago I was fascinated by the innovative concepts being generated by the Company, and from my first days on the board, I have been a true believer in the power of our robotic platform to change interventional medicine and positively impact patients' lives. Furthermore, serving as interim CEO for the past 10 months, I have witnessed firsthand the level of perseverance and personal dedication every Stereotaxis employee has to the success of our long-term vision. I am excited to work alongside some of the most talented people in the industry and to capitalize on the significant opportunities ahead.

One of these opportunities is the entry of our Niobe technology in Japan. As you will recall, we received Shonin, or regulatory, approval of our Niobe system in Japan last March and in October received an interim reimbursement rate, which we expect to be finalized as part of the 2014 bi-annual cycle. Today we are pleased to announce that we have completed an agreement with Medix Japan and Hokushin Medical, the final step to begin full commercialization of our magnetic platform in Japan.

Hokushin Medical, one of the largest distributors of EP products in Japan, will market, sell, and distribute our Niobe system to Japanese customers, as well as provide clinical training and support. Medix Japan has been selling medical devices in Japan for nearly 40 years and brings a wealth of experience in complying with regulatory and quality standards for highly regulated medical products. Their parent company, Kamachi Group, is a diversified conglomerate with approximately $100 billion in annual sales, which also owns and operates 17 hospitals. Medix Japan will lead completion of the government's required post-marketing surveillance project and be responsible for securing market authorization of our Vdrive and Odyssey systems in the coming months, ensuring the availability of the full epic platform for the Japanese electrophysiology or EP community.

Both companies bring great passion for Stereotaxis technology and an innovative spirit, in addition to deep understanding of the healthcare industry and key providers in Japan. We are confident that they will serve our interests well in an exciting new market.

This day has been a long time in the making, and we are thrilled to begin providing our one-of-a-kind solutions to a country that is behind only the US in the application of medical devices and expected to experience 10% annual growth in EP procedures through 2018.

Now let's talk about the progress we made in 2013. The most appropriate word I can use to describe our financial position today compared to a year ago is transformed. Over the course of 2013, we secured $21.9 million in new permanent capital through a series of warrant exercises, as well as a successful rights offering. This allowed us to extinguish our subordinated convertible debentures and renegotiate a credit agreement with Silicon Valley Bank, which terminated our guaranteed advances and term loan, effectively eliminating all of our short-term debt obligations. By year end, we had reduced the principle of our total debt by $17.1 million.

Moreover, in November, we filed a universal shelf registration with the SEC, now effective, that allows us to raise an additional $75 million through future offerings of securities.

Each of these efforts was hard-fought, and we are committed to managing our approved working capital in the most intelligent and efficient manner, just as we have been under tighter resource constraints.

In 2013 we continue to manage operating expenses to a prudent level, $35.9 million for the year, and we reported cash burn of $6.3 million for the year, a 48% reduction from the previous year and our lowest annual cash burn since our IPO in 2004.

We also reported our lowest full-year operating loss of $8.8 million.

With a stronger financial footing and proven capital stewardship, we can return our full attention to advancing our clinical platform and achieving targeted commercial results.

During 2013 we were challenged to grow the top line, experiencing a year-over-year revenue decrease of 18% and procedure volume decline of 11%. Specifically, system revenue was $12.7 million on nine Niobe ES systems, down from $19.7 million in 2012, and procedures fell from 10,600 completed in 2012 to 9400 in 2013.

However, looking forward we have notable growth potential with our market entry of the Niobe platform in Japan and the introduction of our Vdrive with V-Sono system in the US.

Additionally, while not immediately reflected, we have made substantial progress in reengaging customers in several key markets, as well as effectively positioning new sites for long-term success through very strategic individualized plans carried out by cross-functional teams.

Peer-to-peer interaction, mentoring, and clinical case observations of Niobe ES continue to be our most effective tools in reigniting inactive sites and inspiring new users. For example, a critical first step in reengaging the German market, once a high production reaching with previous Niobe generations, was connecting the German physicians with experienced Niobe ES users elsewhere through site visits and live case transmissions. A November user meeting in China brought together top Niobe users and prospective customers for an effective discussion on system benefits and best practices. We have seen a 47% growth in procedures in the Asia-Pacific region since 2012.

Finally, at the annual AF symposium in Orlando last month, Stereotaxis hosted a product [theater] for a physician to physician information exchange on our clinical solutions which attracted more than 80 participants and highlighted the improvements in the EP procedure safely, accuracy, and efficiency that physicians have achieved with our magnetic navigation platform. This exchange of methodologies, procedure techniques, and product benefits is especially vital as was seek to build further adoption of our Vdrive system in the US.

In the January issue of EP Lab Digest, Dr. Bill Spear of Advocate Christ Medical Center in Chicago described his Epic system, which now includes the V-Sono ICE catheter manipulator as a quote, gamechanger in the way he now approaches complex ablations.

Throughout 2014, we will be focusing on leveraging the distinctive value of the Vdrive system in the EP lab, to expand Vdrive usage in the US and to ignite new interest in the Epic platform.

We will also be working to secure FDA clearance of the Vdrive with V-Loop circular catheter manipulator, and in January we announced the completion of a 120-patient clinical trial of V-Loop, which will be excluded in a 510(k) we intend to submit an in the first quarter.

The V-Loop circular catheter manipulator, already part of the clinical routine of several European EP labs, is indicated for remotely controlling the advancement, retraction, rotation, tip deflection, and loop size of the compatible LASSO catheter. In conjunction with the Niobe ES, the V-Loop device can be improve efficiency and accuracy of catheter management -- loop catheter management during the EP procedures. In the US, an estimated 60,000 loop catheters are used each year in complex EP procedures.

Now I'd like to turn the call over to Marty to provide more specifics on our quarterly and full-year results.

Thanks, Bill, and good afternoon, everyone.

Revenue in the fourth quarter was $9.1 million, down from $12.2 million in the year ago quarter. System revenue of $2.7 million compares to $5.6 million in the prior year quarter. In the fourth quarter, we recognized revenue of $2.3 million on three Niobe ES systems and one upgrade, $100,000 on one Vdrive system, and $300,000 on Odyssey sales. Note that one of the Niobe ES systems was sold at a lower selling price to replace the hospital's existing Niobe I system.

During the quarter, we generated new capital orders of $3.9 million, including three Niobe ES systems and one upgrade, three Vdrive orders, and three Odyssey system orders. At quarter end, our active backlog was $6.8 million.

Recurring revenue of $6.3 million in the quarter compares to $6.6 million in the 2012 fourth quarter. Utilization declined 11% from the year ago quarter but improved 5% sequentially.

For the full year 2013, revenue was $38 million compared to $46.6 million in the 12 months ended December 31, 2012. System revenue was $12.7 million on nine Niobe ES system sales in 2013, which compares to $19.7 million in 2012.

The decline was primarily a result of performing more ES upgrades during the initial product rollout in 2012, as well as lower Odyssey sales in 2013 compared to 2012.

The current revenue was $25.3 million for the full-year 2013 and $26.9 million for 2012. Utilization companywide fell 11% year over year. In the fourth-quarter 2013, gross margin was $16.2 million or 68.7% of revenue compared to 65% in the year ago quarter. For the full year, gross margin was $27 billion or 71% of revenue versus $31.8 million or 68% of revenue in 2012.

Operating expenses in the fourth quarter were $8.7 million compared to $8.8 million in the year ago period. In 2013 we manage operating expenses to $35.9 million for the full year, a 15% reduction from 2012.

Operating loss in the fourth quarter was $2.4 million compared to $900,000 in the fourth quarter of 2012. For the full-year 2013, we reported our lowest operating loss, $8.8 million, since our initial public offering in 2004, which also represents a 16.8% improvement from the prior year.

Interest expense declined to $900,000 in the 2013 fourth quarter from $2 million in the 2012 fourth quarter due to the extinguishment of our convertible debentures. Interest expense in full-year 2013 increased to $12.6 million compared to $6.9 million for the full year 2012, primarily related to a one-time non-cash expense incurred in the third quarter of 2013 as a result of extinguishing our convertible debt.

Net loss for the fourth quarter of 2013 was $4 million or $0.23 per share compared to a net loss of $4.3 million or $0.55 per share reported for the fourth quarter of 2012.

The weighted average diluted shares outstanding for the fourth quarters of 2013 and 2012 totaled $17.2 million and $7.8 million respectively. Excluding mark-to-market warrant evaluation and amortization of convertible debt discount, the fourth-quarter 2013 adjusted net loss would have been $3.3 million or $0.19 per share, and the fourth-quarter 2012 adjusted net loss would have been $2.3 million or $0.29 per share.

For the full-year 2013, our net loss was $68.8 million or $5.95 per share. This includes $54 million of charges reported as other expense and interest expense related to the non-cash mark-to-market adjustment and amortization of convertible debt discount as a result of transactions with convertible note holders and other equity investors. Excluding these charges, the net loss would have been $14.9 million or $1.29 per share. This compares to a 2012 net loss of $16.5 million or $2.38 per share when excluding a mark-to-market reevaluation and amortization of convertible debt discount related to the May of 2012 financing.

In the fourth quarter, cash burn was $1.4 million compared to $100,000 in the prior year quarter. For the full-year 2013, cash burn was $6.3 million, a 48% reduction from 2012 and our lowest annual reported cash burn since we went public.

As Bill discussed, during 2013 we significantly improved our balance sheet. By December 31, 2013, we had cash and cash equivalents of $13.8 million. This compares to $7.8 million at the end of 2012. During the fourth quarter of 2013, we received gross proceeds of approximately $10.2 million from a subscription rights offering we conducted in November. Our capitalization efforts throughout the year allowed us to pay down all short-term debt, reducing the principal on our total debt by $17.1 million. At year end, total debt was $18.5 million related to healthcare royalty partners debt, which matures in December of 2018.

Our 2014 priorities from a financial standpoint are to continue to control costs at every level of the Company in order to best leverage our improved capital position for growth opportunities and product innovations.

Additionally we will be discussing with our commercial banking partner, Silicon Valley Bank, the renewal of our credit facility, which matures on March 31.

With that, I will turn the call back to Bill.

Thanks, Marty. In closing, I would like to speak briefly to our technology. For more than a decade, we have reengineered and refined our Niobe platform into today's most architecturally advanced, versatile, and clinically validated robotic technology for catheter ablation treatment of arrhythmias and coronary disease. In a market trending toward automation, we are well ahead of the curve and the clear leader in offering greater safety, convenience, offering operator efficiencies in the cath lab.

However, along the way, our product innovation became more focused on individual customer preferences and operational workflow than guided by our first priority: to deliver the highest quality patient outcomes possible. With the significant progress we have made in strengthening our financial position, we now have the opportunity to realize the full promise of our technology to improve the cure rates achieved in complex ablations. This is our ultimate goal and our guiding principle as we recommit to innovating for the future of cardiac therapies.

We will now open the call to questions.

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Jeffrey Cohen, Ladenburg Thalmann.

Hi, Bill and Marty. Thanks for taking my questions. So could you talk a little bit about this V-Loop circular catheter manipulator? Is this something that you are manufacturing?

We are manufacturing the device which manipulates the catheter, not the catheter itself. So we take off the shelf catheters, and they are connected with our device, which effectively becomes a mechanical pair of hands, to remotely manipulate that catheter from the control room. So this is an important adjunct in our quest for the perfect workflow in the cath lab, Jeff. It's another reason why an interventionalist can remain in the control room and not have to return to the cath lab to manipulate what I would term a secondary catheter, a catheter used in addition to the primary ablation catheter that the procedure centers around. So this, like the ICE catheter manipulator, is a device intended to automate that auxiliary or secondary catheter movement and placement.

Okay. So I guess it begs the question, what are the ASPs on it, and what percent of procedures would you hypothesize are going to be used with it?

With regard to the percent of procedures, I think it's probably a little early for us to speculate what that percentage might be in our environment. It's going to -- I can tell you in advance, though, it's going to vary considerably amongst practitioners. Practitioners -- electrophysiologists will have various preferences for the way they conduct their procedures. Some of them will mean more heavily on certain tools than others will. So I'm quite sure I can say that we will see a full spectrum of variation of utilization between sites and between operators, for that matter, within the sites. But, Marty, did you want to comment on the ASPs?

Sure. We've got a couple of different products with the capital product that will actually hold the V-Loop manipulator. The capital product is going to have an ASP of about $200,000, and then each of the disposable devices that actually clamp on to the LASSO catheter will be, I would say be in the neighborhood of $1000.

Okay. Got it. I was unsure with the Niobe approval and soon to come launch with your partner, does that include also the Vdrive or not?

We hope that it will, Jeff, in the coming months, but it does not yet include the Vdrive componentry. That process now will be I think very substantially aided by our partners there who will be picking up the yoke in the effort to complete those regulatory approvals. But as yet, no, Vdrive is not part of the complex of products that will be available for marketing now.

Okay. And you anticipate that the regulatory process for the Vdrive edition will not be the same timeframe as for the Niobe itself?

No. I would expect a more compact process, but I can't give you specifics at this point.

Okay. And, Marty, any commentary on transfer pricing for sales into Japan?

No. I don't know specific comments there. I would say that we are using distributors in Japan, obviously. So I would take that into consideration when looking at what pricing we would obtain. However, I would contrast that against the economic opportunity and the reimbursement rate that are in each of the individual geographies. So typically we do see considerably lower ASPs in regions where we use distributors, but they usually don't have as advanced medical system as Japan does.

Okay. And just one more, if I may. Marty, you gave a little bit of metrics on the backlog. Could you just walk through again the current backlog -- the total current backlog of the $6.8 million you referenced?

Yes. So in the quarter, we went in with the end of the quarter with about $5.5 million of backlog. We recognized revenue -- system revenue of $2.7 million and added $3.9 million in backlog, which brought us up to $6.8 million for the year-end backlog.

Okay. And the fourth quarter included sales of three Vdrives?

It was three Niobe systems, one of which was at a lower selling price because it went to replace a Niobe I system, three Odyssey systems and one Vdrive.

Okay. Three Niobes, one on the lower ASP, three Odysseys and one Vdrive for the quarter?

That's correct.

Operator: (Operator Instructions). [David Fisher], private investor.

Hi, Bill and Marty. I wanted to ask briefly about the Japanese agreement and your decision to partner with two firms in Japan versus one. How is Hokushin and Medix going to split their work and I guess why the split between regulatory versus selling? And if you could give us some color on what is needed to be training the sales force there, what is needed in order to (inaudible)?

Well, David, it is a good question with respect to why two firms rather than one. What we found here in this -- I guess you would consider it something of a triangular partnership -- is that we have two very competent and motivated firms that have each specific expertise componentry that when taken together form a pretty comprehensive and powerful solution to our distribution challenge in Japan.

So certainly there would have been alternatives for us to embrace a single firm with the entirety of the skill sets and appropriate licenses and the like to be a one-stop shop, if you will, in that regard. But we were compelled by the vision and the collective capabilities of these two firms who know each other obviously and are comfortable in working in partnership with us to complete this process.

So it's not necessarily what one would expect as an arrangement, but one that we are very enthusiastic about. And, as I say, each of them has their specific expertise. I think in our press release you can read how we've reported that these responsibilities will be set out or have been set out between the two parties and what they will each be responsible for. So I would urge you to take a look at that carefully, and if that's not clear, we can talk more about it at some future point.

But I just want to say, we are very enthusiastic about the choice of these partners, and we think they are going to do a good job for us. We've had some time to reflect on the options that we might have -- we might be fortunate enough to have in that marketplace, and this is what we've chosen. We're enthusiastic about our partnership.

Okay. That sounds great. And then as you said, they do have experience working together, and so they will know how to share those responsibilities and interact with each other?

Yes. And I think that's an important point, David. I don't think that this is the type of arrangement that any of us would have proposed putting into place if it were not the case that those two parties had a certain harmony of relationship that we could rely on and they could rely on to avoid those sorts of issues that could creep into an arrangement where the parties were unknown to each other and thrown into a new arrangement like this. So we are comfortable that that process is going to work smoothly, and we're anxious to begin, as we have said.

As part of the validation of the distributors, have they already or have you already had discussions with several potential hospital customers or key physicians in Japan?

Well, obviously nobody has had any discussions before they were entitled to have any discussions. This arrangement is quite a hot off the press. So this is not a piece of news that we had been inventorying for distribution at this time. We're reporting it now because it was just completed, so the process is now very young, it's days old, and I think it would probably be premature to comment on the customer contact to date. In fact, our Senior Vice President of Marketing is in Japan as we speak, in the early stages of the process of unfurling those activities. So it really is a very, very young relationship, but, again, one that we are enthusiastic about and are enthusiastic to share with you at this point. It's been a long time coming, as I think was said during the call.

Okay. Great. And if there's anyone else on the line, I am happy to jump off and then come back on later. Otherwise, I will keep shooting one more.

Why don't you go ahead and ask away. I don't know whether there is or not, but why don't you keep going.

Could you talk a little bit about the US sales force? I remembered that you had plans to enhance the sales force after some of the cuts that were made about a year ago, and those cuts were largely responsible for the declines in the sales over the prior year. So it would be interesting for me to hear about how you are rebuilding the sales force and how that has been going?

Well, I don't think you should think of rebuilding in this context as rebuilding in the sense of adding additional OpEx and cost commitments in that regard because that's certainly not what we would want people to take away.

What we've been doing is really redeploying and recharging the duties of the folks that we have in the field so that they -- so that the things that they are bringing to our customer accounts are more aligned with the kinds of things that we think are needed to both support those accounts, as well as to energize them and to bring them to a higher level of understanding of the power in our platform and the ways in which they can use it in their procedures.

It is an ongoing effort for us. After we've sold the Niobe system into a site, the ongoing effort to support and encourage and to be there for the utilization as the operators grow in proficiency and develop their own clinical set of experiences, this is a field functional set of skills and requirements that we are still candidly in the process of defining. But we've now been at this for long enough that I think we feel as though the folks that we have that has not changed in number have been assigned more appropriate duties and targeted them in ways that we hope will prove to be a more efficient and more effective system of encouraging the appropriate level of utilization.

When we say encourage utilization, obviously what we mean by that is to have folks be sure that the operators are understanding of the appropriate opportunities for the use of our system, mindful of its capabilities, and use it when it's appropriate. I think no medical device company should and no company broadly should push the use of this products beyond what would be intended or prudent in the individual circumstances. And certainly we are not in the business of doing that. But you have to keep these customers that have a very complex piece of equipment in a world in which they exist, which is otherwise highly complex and dynamic. We have to have a way of keeping an ongoing conversation and level of support with those folks as they are, in fact, positioned to make the best use of the solution that we are offering and, indeed, the solution that we are evolving.

Because I think as we have indicated over the course of this call, we intend to continue to innovate against the solution that we are offering into this marketplace and will not remain static. And that perhaps is our highest priority right now. Having established the foundation that we have, we are excited -- I can tell you I am personally very excited about the opportunities that we see to do even better, and that will require from the sales force an ongoing level of support so that the contemporization and the further evolution of the products are understood and appreciated by the folks in the field.

Great. I look forward to hopefully a very exciting year.

We are looking forward to talking more about it with you. Thank you.

Thank you. Ladies and gentlemen, at this time, that concludes our question-and-answer session. I would now like to turn the conference back to Mr. Mills for any closing remarks.

Well, my closing remarks will be brief and probably what you would expect. I really appreciate your -- Marty and I both appreciate your joining us today for this call. I think we have reported on some developments which will prove to have been important ones for us as we move forward, and we are equally if not more anxious to report to you as the quarters come upon us going forward, additional progress against those priorities that we have begun to articulate for you during the course of the last couple of calls.

So once again, thank you. We appreciate your support and your interest, and we're looking forward to being with you in the next quarter's call. Thank you.

Thank you, sir. Ladies and gentlemen, this concludes the Stereotaxis' fourth-quarter and full-year 2013 financial results conference call. Thank you very much for your participation. You may now disconnect.