Stereotaxis Inc (STXS) 2014 Q2 法說會逐字稿

Good day, everyone, and welcome to the Stereotaxis second-quarter 2014 financial results conference call. Today's conference is being recorded.

I would now like to turn the call over to Jim Byers, MKR Group. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining us this afternoon for Stereotaxis's conference call and webcast to review financial results for its 2014 second quarter ended on June 30, 2014.

Before we get started, we would like to remind you that during the course of this conference call the Company might make projections or other forward-looking statements regarding future events for the future financial performance of the Company. These include, without limitation, the statements regarding future operating results, growth opportunities, and other statements that reflect Stereotaxis's 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, 2013, 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 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.

Thank you, Jim. Good afternoon, everyone, and thank you for joining us for a review of our second-quarter and first-half of 2014 performance. With me on the call today is Marty Stammer, our CFO. Following our prepared remarks, we will open up the call to your questions.

In the first half of 2014, we fulfilled several key operating objectives toward advancing our clinical platform and achieving targeted commercial results. Notably, we entered into an agreement with two leading medical device distributors in Japan to market, sell, and distribute our Niobe ES magnetic navigation platform. We advanced two more Vdrive-compatible disposables further along in the regulatory approval process in the US, and we premiered recent product advancements alongside new clinical evidence around our product efficiencies at preeminent global electrophysiology events.

For a second consecutive quarter we achieved robust recurring revenues through recommitment of long-term service contracts and enhanced management of utilization. In the first and second quarters recurring revenue was $7 million and $6.9 million respectively, an 11% improvement from the first half of 2013.

Through continued fiscal stewardship, we also reduced operating expenses for the first six months by 8% and improved operating loss by 16% compared with the same period a year ago. To an extent offsetting these successes, we faced challenges in the capital sales that impacted top-line growth. System revenue for the first six months of the year declined 55% from the same period in 2013.

With our successful efforts to significantly improve our financial positions as we moved into this year, we are focused on delivering commercial results and continue to believe in the strengths of our clinically-validated platform, ongoing innovations, and new market opportunities to help drive system and procedure growth well above those levels experienced in recent quarters.

Just this past week we were pleased to hire a business director to manage our priorities in Japan who will begin September 1. Providing a direct presence for us in Japan, this individual will serve as liaison with our local resources, including our distributors.

Since announcement of our distribution agreement with Hokushin Medical and Medix Japan in late February, they have completed extensive training and have been engaging in intensifying dialogue with EP positions in Japan. By all indications the mainstream Japan EP community is eager for information on our Niobe ES technology.

This is set against a backdrop of a rapidly growing senior population and a corresponding rise in the EP ablations. By 2018 industry analysts expect the country to be performing over 75,000 EP procedures a year, nearly 40% of current US activity.

As we increase the visibility of our Niobe ES platform in Japan, we see further evidence of the Japanese physicians' intrinsic desire to improve the care and clinical outcomes of their patients through new technologies. Our Niobe ES remote navigation system is the only comprehensive robotic EP solution available in Japan, offering positions greater speed, precision, and reach, along with significantly less radiation exposure compared with traditional manual ablation methods.

In July we had the opportunity to present the salient benefits of the Niobe ES system to our largest Japanese audience to date at the annual meeting of the Japanese Heart Rhythm Society in Tokyo. More than 120 potential customers participated in our peer-to-peer panel discussion on robotic catheter mapping and ablations, and we had productive one-on-one interaction with at least 50 physicians who visited our booth or attended private meetings.

Parallel to these commercialization efforts, Hokushin Medical and Medix Japan have been meeting with select renowned Japanese medical centers on possible research collaboration in order to establish baseline clinical data specifically for the Japan patient population. They are also preparing the necessary filings for regulatory approval of our Vdrive and Odyssey platforms in Japan.

Turning to the US, we are making considerable progress in bringing our full suite of Vdrive products to market. After completing the multi-center clinical trial earlier this year, in March we submitted our 510(k) application to the FDA for the Vdrive with V-Loop -- variable loop -- catheter manipulator.

The V-Loop system is designed to remotely control the advancement, retraction, rotation, tip deflection, and loop size of a compatible catheter. LASSO catheters are used in approximately 60,000 complex EP procedures every year. And already employed in conjunction with the Niobe system in Europe and in Canada, V-Loop's most notable attribute, evidenced by existing users, is its ability to access challenging areas of the heart, potentially resulting in greater accuracy during ablation and a reduced risk of patient complications.

In June we submitted our 510(k) premarket notification for the V-CAS catheter advancement system. And in addition to advancing and retracting a magnetic catheter, V-CAS enables remote advancement, retraction, and rotation of a fixed-curve transseptal sheath which can provide greater stability and support to the ablation catheter during therapy delivery.

In the second half of the year we expect to complete our regulatory strategy for the V-CAS Deflect disposable. An advanced version of V-CAS, Deflect incorporates a proprietary deflectable sheath capable of 270-degree deflection at the distal end. Used in well over 1,100 procedures in Europe, physicians have reported increased maneuverability and efficient use of devices during Niobe procedures with the V-CAS and V-CAS Deflect systems.

Each of these Vdrive components delivers its own unique benefits and support to the single operator in the Niobe lab. Collectively they have the potential to significantly impact the outcome and efficiency of Niobe procedures.

Another platform enhancement which we discussed on our last call is the ablation history feature of our NAVIGANT software. As a reminder, ablation history is a cardiac mapping function that displays a history of the ablation catheter's power output and ablation time at locations accessed during a Niobe procedure. A few months into our commercial release, we have upgraded 25 sites and performed more than 250 procedures with the intraoperative mapping capabilities of ablation history.

While still early in our experience, we are encouraged by anecdotal data supporting the positive impact of ablation history in conjunction with the Niobe ES system. We expected ablation history to strengthen our efficiency story, and at a handful of sites we have seen procedure times decrease by an average of approximately 18 minutes. Another site has reduced the number of times the physician enters the procedure room to reposition the LASSO catheter from five to two.

Several physicians have stated that they believe their first-pass isolation rates are significantly improved using ablation history. First-pass isolation can serve as a strong indicator of clinical success.

In addition, we have seen that ablation history can result in further reduction of Niobe procedure fluoroscopy times, which already lead the industry. Three of our early sites have shown a 20% reduction in the amount of fluoroscopy used during complex left atrial procedures.

We were excited to demonstrate this latest enhancement of our Niobe ES system user interface with participants of the US HRS scientific session in May and the European Cardiostim Congress in June. These events represent the largest gathering of EP professionals worldwide and an opportunity for us to share the newest chapters of our innovation story through multiple meaningful touchpoints with physicians.

In addition to hearing from experienced proponents of our robotic platform during several side meetings and symposia, attendees were able to review substantial clinical evidence around Niobe procedures, with Stereotaxis leading the robotic EP space represented at HRS with the most scientific abstracts and posters presented.

We also presented new internal data validating the improved efficiency of our Niobe system compared to alternative EP treatments. Our experience at HRS and Cardiostim reaffirmed our leadership in producing positive results through robotic technologies, further increased our visibility with targeted audience, and garnered dozens of quality unique sales leads.

Our sales organizations are focused on following up with each of these new prospects while working to advance several existing capital opportunities with executive-level meetings and unique case observations. Universally our sales teams agree that the most powerful motivation for a physician to move from interested to inspired is clinical case observation and one-on-one engagement with a proficient user of the Niobe ES system. They also acknowledge that no other influencer carries more weight with the economic decision-makers than a physician eager to incorporate new technologies into his clinical routine.

On the clinical adoption side we are preparing for a very active period of new installations, with five customer accounts scheduled to launch in the third quarter. Our efforts to better manage customer expectations in proficiency with the Niobe ES platform have taught us the importance of early acceptance and competency, and we have made significant improvements to our training and launch procedures.

We continue to refine our clinical adoption strategies to increase physician independence, procedural efficiency, and positive long-term outcomes. Furthermore, we remain committed to building a vast body of supporting evidence on the operational and clinical value of our technologies and are currently exploring expanded options for clinical research.

Now I would like to turn the call over to Marty to provide details of our second-quarter and first-half 2014 financial results.

Thanks, Bill, and good afternoon, everyone. Revenue in the second quarter was $8 million, down 17% from $9.7 million in the year-ago second quarter. System revenue of $1.2 million compares to $3.3 million in the second quarter of 2013.

During the second quarter we recognized revenue of $500,000 on one Niobe ES upgrade of a Niobe I system and $700,000 in Odyssey sales. New capital orders totaled $600,000 and included four Odyssey system orders. At quarter-end our active backlog was $6.5 million.

Recurring revenue was $6.9 million in the quarter, and 8% increase from $6.4 million in the 2013 second quarter. These results reflect strong service revenue as well as continued progress with stabilizing utilization trends. Utilization declined 5% from the year-ago quarter and 1% sequentially.

In the second quarter of 2014 gross margin was $6.1 million or 75.3% of revenue compared to 74.6% in the year-ago quarter. Gross margins increased due to a shift in mix from system revenue to recurring revenue, partially offset by low margins on Odyssey systems sold through the BWI distribution agreement and the Niobe I upgrade to the Niobe ES.

Operating expenses in the second quarter were $8.4 million compared to $9 million in the year-ago period, a 7% improvement. Operating loss in the second quarter was $2.3 million compared to $1.8 million in the second quarter of 2013.

Interest expense declined $800,000 in the 2014 second quarter from $2.1 million in the 2013 second quarter. Net loss for the second quarter of 2014 was $1.9 million or $0.10 per share, a 35% improvement compared to a net loss of $3 million or $0.37 per share reported for the second quarter of 2013.

The weighted average diluted shares outstanding for the second quarters of 2014 and 2013 totaled $19.6 million and $8.2 million, respectively. Excluding mark-to-market warrant revaluation, the second-quarter 2014 net loss would have been $3.1 million or $0.16 per share. Excluding mark-to-market want revaluation and amortization of convertible debt discount, the second quarter 2013 net loss would have been $3.2 million or $0.39 per share.

On June 30 we had cash and cash equivalents of $10.6 million compared to $11.3 million on March 31, 2014. In the second quarter cash burn was $3.1 million compared to $2.2 million in the prior-year quarter.

During the quarter we raised $2.6 million through our previously announced at-the-market facility. At quarter-end total debt was $18.5 million related to HealthCare Royalty Partners long-term debt, which matures in December of 2018. This compares to total debt of $29.9 million at the end of the second quarter of 2013.

For the first six months of 2014 total revenue was $16.4 million, down 10% compared to $18.1 million in the first six months of 2013. System revenue declined 55% to $2.5 million from $5.5 million in the first half of last year.

Recurring revenue was $13.9 million, an 11% increase from $12.6 million in the prior-year period. Utilization declined 5% year over year.

Gross margin for the first half of 2014 was $12.8 million or 78% of revenue compared to $13.5 million or 74.3% of revenue in the first half of 2013. Operating expenses improved 8% year over year, totaling $17.3 million for the first six months of 2014 compared to $18.8 million for the same period in 2013.

Operating loss was $4.5 million versus $5.3 million in 2013, a 16% improvement. Net loss improved 23% to $6.1 million or $0.31 per share in the first six months of 2014 from $7.9 million or $0.98 per share in the first six months of 2013.

Excluding mark-to-market warrant revaluation, the first half of 2014 that loss would have been $6.2 million or $0.32 per share. Excluding mark-to-market warrant revaluation and amortization of convertible debt discount, the first-half 2013 net loss would have been $8.3 million or $1.02 per share.

Weighted average diluted shares outstanding for the first six months of 2014 and 2013 were $19.5 million and $8.1 million, respectively. Cash burn was $5.5 million compared to $3.3 million in the first six months of 2013.

I will now hand the call back to Bill.

Thanks, Marty. Our priorities for the balance of the year continue to be executing on our new market strategies while increasing clinical validation and advancement of our industry-leading technology in order to drive commercial results. We have seen significant interest in the Niobe ES platform through our commercial efforts to date in Japan, which we believe could result in initial sales this year with meaningful revenue recognition in 2015 and beyond. After successfully transforming our balance sheet in 2013, we are intent on disciplined cash management and ensuring the financial flexibility necessary to leverage the growth opportunities ahead.

With that, we will open the call to your questions. Operator?

(Operator Instructions) Suraj Kalia, Northland Securities.

So, Bill, me being new on this call, forgive me if these metrics are not relayed in the call usually. Can you give us an idea of how many procedures were done in the quarter with the Niobe?

You are right, Suraj, they are not typically reviewed on this call. Marty can pull up a number for you, I believe, here, but it is not one that we have used as an ongoing metric against which we compare period to period. Let us see if we can pull that up for you.

Fair enough. And Bill, if I heard you correctly, for Japan the Niobe ES -- the number I heard on the call was 75,000 EP ablations. I'm not sure I heard the split between VT and AF ablations. Can you characterize the split between the two in the Japanese opportunity, and where you think the low-hanging fruit will be?

Yes. So the split between AF and VT procedures -- I believe it's fair to say that the split prevails in Japan as it does elsewhere in the world, Suraj. I think of them roughly as a 5 to 1 or 6 to 1 sort of a split. If the pie were entirely AF and VT, it would be roughly 15% VT, say, and the remaining 85% or so would be AF.

VT is clearly a smaller niche -- well, it's a niche in that it is smaller. AF is the dominant indication in the market. There are, I know, in Japan some differences between how the population experiences the sequelae of these conditions. One thing that comes to mind immediately is that I believe in Japan there is a greater risk exposure in the AF condition to stroke that owes its etiology to AF, as an example of a difference between the population experiences in Japan versus elsewhere in the world.

But VT is -- think of it as roughly 15% or so the size of AF. Think of it, also, though, as a condition with even greater medical gravity attached to it.

And, of course, for us it's an indication of significant interest, because I think it's fair for us to claim that we do exceptionally well -- the Niobe is exceptionally well suited to mapping and treating that particular condition, ventricular tachycardia. So it's an area of great interest and focus for us. We believe that we have to leading solution there. But it is a subcategory that is roughly 15% or maybe six or a fifth of the size of the AF indication.

Suraj, to follow up on your first question, that was 2,372 procedures estimated in the second quarter.

Fair enough. And Marty, one last question again. Forgive me if this sounds naive; I'm just trying to get my hands around the various metrics that are released. Can you help us reconcile -- the increase in recurring revenues in the first half of the year was up 11%, but utilization was down 5%. Can you help me reconcile the two?

Yes, absolutely. So there are a couple factors that are driving that. One is: the recurring revenue is partially based on service and is partially based on utilization. We have seen an uptick in our service contracts as well as a few one-off billings for a couple hundred thousand here and there in 2014.

On the utilization side, and I think that's really what you are asking about, we saw that in 2013 hospitals seemed to be eating through quite a bit of their inventory. In other words, we weren't seeing a disposable unit purchased for every procedure that was performed. Now, in 2014, we have seen that ratio go back to a historical normal level, which is closer to one disposable unit for every procedure that's performed, which has increased our disposable revenue year over year.

Fair enough. Gentlemen, congrats on the turnaround story, and I appreciate you guys taking my questions.

(Operator Instructions) We have no further questions.

Thank you, operator. I would like to say thanks to each of you for your continued interest and support. And we look forward to speaking again next quarter, if not before. Good day.

This does conclude today's conference. We do thank you all for joining us.