Stereotaxis Inc (STXS) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Stereotaxis first-quarter 2014 financial results conference call. (Operator Instructions) I would now like to turn the conference over to our host, Mr. Jim Byers with 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 to review financial results for its 2014 first quarter ended on March 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 belief. 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, 2013, the Quarterly Form 10-Q filing 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 that are 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 the Company's control.

In addition, these orders and commitments 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.

Thanks, Jim. Good afternoon, everyone, and greetings from San Francisco where we are excited to be participating in this week's Heart Rhythm Society scientific session. This is our 11th appearance at what is without question the largest assembly of cardiac arrhythmia researchers and specialists in the world, and we are pleased to have impressive new product enhancements and clinical data this year.

Joined me on the call today from St. Louis is our CFO, Marty Stammer. Following our review of Stereotaxis' first-quarter 2014 performance, we will take your questions.

During the first quarter, we completed several significant steps toward realizing our strategic vision for our robotic platform in Japan and Vdrive system in the US while further strengthening our financial position. We achieved recurring revenue of $7 million, our highest reported total since our market launch of the Epic platform at the beginning of 2012. This increase primarily reflects our concentrated effort to better understand and address clinical adoption issues and needs in targeted sites which has resulted in two consecutive quarters of procedure growth. And while year-over-year total revenue remained unchanged, we made considerable strides in expanding our capital pipeline.

After extensive training and discussions with our new Japan distribution partners, we are even more confident in their skill and motivations to deliver our leading edge innovations to key hospitals and physicians in Japan. Hokushin Medical and Medix Japan are well respected by leading health institutions in the country and have deep expertise in promoting the products that support the interventional cardiology and electrophysiology fields.

Together, we will host a group of Japanese ET physicians attending HRS this week at our Niobe labs in two US university hospitals where they will have the opportunity to observe live demonstrations of the technology by experienced users. Additionally, during a breakfast symposium at HRS on Thursday they, along with dozens of other expected attendees, will hear from international experts in cardiac ablation about how the Stereotaxis platform, utilized now in approximately 70,000 procedures, has impacted both their patient outcomes and the bottom line.

As we focus on building interest in the Niobe system among our sales targets in Japan, we are also working to maximize appropriate reimbursement for physicians performing Niobe procedures. In April the Japanese government established a reimbursement of JPN50,000, or about $500, per Niobe procedure under the technical fee for C2 medical devices in addition to separately approved reimbursement for Niobe compatible magnetic catheters and standard physician fee coverage.

Reimbursement coverage for C2 medical devices is reviewed on a biannual basis in Japan. With the co-leadership of our distribution partners, both very adept at navigating the country's complex reimbursement system, we have developed an action plan to support more comprehensive reimbursement. Since no predicate device -- or no predicate treatment exists in Japan, a key part of our strategy involves gathering data from prospective clinical experience in select prestigious Japanese medical centers.

We will also be working to bring our remaining product lines to the Japan market as quickly as possible, including the Vdrive robotic arm and its compatible disposables which we believe will be eligible for favorable consideration. Each of these will first require US approval.

We also made substantial progress during the quarter to bring the benefits of our Vdrive technology to the US. With the addition of three new installs during the quarter, we now have nine customer sites performing procedures with the Vdrive with V-Sono ICE Catheter Manipulator. Since receiving FDA approval last July, V-Sono has played a key role in more than 100 ablation cases, enabling more efficient optimized use of the ICE catheter during Niobe procedures.

At quarter end we submitted a 510-K(k) premarket notification to the FDA for our V-Loop Variable Loop Manipulator following the completion of the clinical trial earlier this year. In the meantime, the first V-Loop cases were performed in Canada by Toronto's Sunnybrook Health Sciences Center, which is also the first facility to install the Vdrive Duo system in North America.

The Duo system includes a second robotic arm offering remote control and manipulation of two compatible devices at the same time. Canadian hospitals now have the opportunity to utilize the full suite of Vdrive products with government approval of the V-Sono Disposable this past week. We look forward to our first occasion to highlight the Vdrive product line for an HRS audience this week.

Doctor Eugene Crystal, Director of Arrhythmia Services at Sunnybrook, will be one of the featured presenters speaking to his team's experience with our robotic navigation platform.

Our efforts to expand Vdrive's global presence are also making a greater impact on the topline with Vdrive contributing 30% of system revenue in the first quarter. While first-quarter revenue was unchanged year-over-year and system revenue declined about 40% from the 2013 first quarter we improved the current revenue by nearly 14% and substantially strengthened our capital pipeline.

We also improved utilization for a second consecutive quarter, increasing procedure volume by [3%] on a sequential basis, with Niobe ES comprising more than 90% of current usage. This, along with more normalized inventories of disposables at customer sites, contributed to our significant recurring revenue results. We have confidence in our strategic sales plans and resources to drive system growth and continued clinical adoption momentum for the balance of the year.

Expanding product adoption requires ongoing integration, particularly in the setting of advanced technology. For Stereotaxis, this includes enhancements that continually elevate user experience and capabilities, leading to improved patient outcomes.

One such enhancement we are proud to showcase at HRS is the latest user interface for the Niobe lab, NAVIGANT 4.5, which includes a very important new feature -- ablation history. As the name indicates, this cardiac mapping displays a history derived from the catheter's power output and ablation time at locations accessed during the Niobe procedure.

With this feature, physicians can retrace their ablation-related activity and potentially identify gaps in lesion lines on a real-time basis. We believe this additional capability will assist physicians in visualizing the applied treatment, reducing the need for touchup at the end of the procedure and minimizing unnecessary tissue injury, which should lead to improved procedure efficiency and outcomes.

Critical to making thoughtful product improvements is understanding the challenges faced by customers. Through our new remote system support, or RSS program, which we have rolled out at more than 50 sites to date we are not only able to remotely monitor system performance but also access and mine procedure data.

Among our earliest findings through internal study has been evidence of often faster procedure times for proficient users of the Niobe ES versus manual techniques, as well as an accelerated learning curve to reach proficiency in complex AF cases.

The safety of the Stereotaxis technology has been well established as the gold standard in cardiac ablations and in ventricular tachycardia Cardia congenital diseases and a redo AF, its efficacy is second to none. Until now, however, claims of superior procedure efficiency have been largely anecdotal.

We look forward to sharing our system data with HRS participants and to further exploring RSS capabilities in tracking and trending technology performance as we continue to evolve our platform.

Now I'd like to turn the call over to Marty to provide more specifics on our first-quarter financial results. Marty?

Thanks, Bill, and good afternoon, everyone. Revenue in the first quarter was $8.4 million, unchanged from the year ago first quarter. System revenue of $1.3 million compares to $2.2 million in the first quarter of 2013.

During the first quarter we recognized Niobe revenue of $700,000, comprised of system installation revenue, one Niobe ES upgrade and a customer deposit for a previously canceled Niobe ES order. We also realized revenue of $400,000 on four Vdrive shipments and $200,000 in Odyssey sales.

New capital orders totaled $1.3 million and included one Niobe ES upgrade of a Niobe One system, two Vdrive orders and three Odyssey system orders. At quarter end our active background was $7.3 million.

Recurring revenue was $7 million in the quarter, a 13.6% increase from $6.2 million in the 2013 first quarter. As Bill mentioned these results reflect a normalizing of customer inventory levels of disposables during the quarter, as well as continued progress with our targeted clinical adoption strategy. Utilization declined 5% from the year-ago quarter but improved 3% sequentially, a second quarter of sequential volume growth.

In the first quarter of 2014, gross margin was $6.7 million per 81% of revenue, compared to 74% of revenue in the year-ago quarter. Higher gross margin in the current quarter was a result of a higher mix of recurring revenue.

Operating expenses in the first quarter were $9 million compared to $9.8 million in the year-ago period, an 8.6% decline. Operating loss in the first quarter was $2.2 million, a 38% improvement compared to $3.6 million in the first quarter of 2013. Interest expense declined $800,000 in 2014 first quarter from $1.9 million in the 2013 first quarter. Net loss for the first quarter of 2014 was $4.1 million, or $0.21 per share, compared to a net loss of $4.9 million, or $0.61 per share, reported for the first quarter of 2013.

The weighted average diluted shares outstanding for the first quarters of 2014 and 2013 totaled $19.4 million and $8 million, respectively. Excluding mark-to-market warrant revaluation, the first quarter of 2014 net loss would have been $3.1 million, or $0.16 per share. Excluding mark-to-market warrant revaluation and amortization of convertible debt discount, the first-quarter 2013 net loss would have been $5 million, or $0.63 per share.

On March 31, 2014, we had cash and cash equivalents of $11.3 million compared to $13.8 million on December 31st, 2013. In the first quarter cash burn was $2.4 million compared to $1.1 million in the prior year quarter.

During the quarter we received a $1.1 million deposit for a Niobe system from our Japanese distribution partners. At quarter end, total debt was $18.5 million, all related to Healthcare Royalty Partners debt, which matures on December 2018. In March we entered into an amended credit agreement with Silicon Valley Bank, which replaced our existing $3 million credit facility with a $10 million revolving facility. This extended line of credit, scheduled to mature on March 31, 2015 expands our financial capacity as we execute on our 2014 strategic plans. To date we have not drawn against this borrowing facility.

With that, I will hand the call back over to Bill.

Thanks, Marty. As Marty mentioned, our expanded credit facility with SVB gives an affirmation of the progress that we've made over the past year on many fronts, including strengthening our financial position. While our every intention is to maintain the improved debt position we have worked so hard to achieve a larger facility gives us greater financial flexibility as we continue to focus on growing new markets, exploring technology advancements and capitalizing on our leading position in the robotic EP market.

With that we will open your call up for questions. Operator?

(Operator Instructions)

Jeffrey Cohen, Ladenburg Thalmann.

Just a couple of questions, probably one for each of you. Firstly, if you could talk about the other income expense and what's the composition of the 1.076? Second of all, if you could talk about utilization trends for the quarter.

Sure, Jeff. So, I'll jump in and talk about the other expense of the $1.1 million. We have warrants that are outstanding right now and on a quarter to quarter basis these are mark-to-market so this $1.1 million will vary, as those are mark-to-market on a quarterly basis and either increase or decrease in value. In this specific quarter, they increased in value which drove our liability up and consequently resulted in $1.1 million of non-cash expense on the income statement.

Okay. Thanks. On the utilization?

On utilization, Jeff, I think that the trends that we have been seeing are generally favorable. Those numbers appear in part at least in the recurring revenue numbers that we've cited. One of the interesting windows that we now have and we'll continue to expand upon of looking into utilization in all its various nuances is this RSS capability that I mentioned in my prepared comments.

I think that as we continue to gather the kind of data that are now made available to us in real time and in the comprehensive and reliable way through this type of remote information-gathering we are seeing both improving trends in utilization but also patterns that can help us discern how we can best situate our technology against the needs of our customer base.

So, this is a long-term endeavor as we all know what we're doing here is nothing short of attempting to change the practice of medicine from a regime in which it was conducted manually to one where increasing levels of automation are applied to these procedures. And we think we are centrally situated in that activity when it comes to the [electro] physiology lab.

But we are now at the point where we can gather the kind of data that will be, I think, truly revealing in terms of how we understand and analyze customer activity to help them do what they need to get done better and help us build products and add features that will expedite that process as well. So we're seeing favorable trends -- I don't want to suggest that they are built on any one foundation because, of course, as we have said in past quarters, we've invested considerably in a redeployment of field resources that focus on this area -- and that was then very important -- fundamentally important, I think, to our gains here.

But we also expect that these are trends that will continue to extend outward and where the investment will pay off over time. So we're pleased with what we're seeing but we are only part of the way through this journey of adding automation and all of its continued benefits to the practice here.

Okay. One more, if I may. How many Z drive systems are out in use at this point? Anymore clarity on your 510(k) for approval in the US?

So, I think you are probably talking about the V-Loop approval in the US. So that was submitted. We've been saying -- and I want to be very careful not to be presumptuous or steeped in any way for the FDA or to second-guess their activity. But it would be certainly in keeping with what would be typically expected for us to receive that approval in the second half of this year -- probably in the fourth quarter, which is what we would expect -- but, again, not to presume that we can do the FDA's job better than they can.

But that would be what we would anticipate in that regard. And -- I'm sorry -- the first part of your question again, Jeff, was?

How many V loops are there?

How many Vdrives in the US right now? I think you would say or in North America -- I think we said that we've got nine now up and functioning; is that correct, Marty?

Yes, that's correct. And about twice as many in EMEA.

Okay. About twice as many.

Just under 20 in Europe. And those are the only two areas where the Vdrive is currently approved.

Perfect. That does it for me. Thanks very much.

(Operator Instructions) I'm showing no further questions in the queue. Please continue.

Thank you, operator, and thanks to each of you for your continued support. I want to encourage those of you attending HRS this week to visit our display at Booth 2002. Our program will include live simulations of the ablation history tool, which I think you will enjoy. And several physicians fielding questions about their success with the Stereotaxis platform and technology. I hope to see you here in San Francisco, if you can make it.

Thank you all for your attention. Operator, that's it for us.

Ladies and gentlemen, that does conclude our conference for today. You may now disconnect.