Q1 2020 Earnings Call

Good afternoon, and welcome to the trends in tax that's quite a tiny tiny business update conference call. As a reminder, today's call is being webcast slide and recorded.

After the speaker presentation, there will be a question and answer session. Please be advised that today's conference maybe recorded.

I'd now like to introduce your host Mr. Mark Klausner Wesley. Please go ahead Sir.

Thanks, operator, good morning, everyone and thank you for joining us on today's call.

On the call with me today, or Anthony Fernando President and Chief Executive Officer, and Brett Farabaugh interim Chief Financial Officer.

Before we begin I would like to caution listeners that certain information discussed by management. During this conference call, including any guidance provided are forward looking statements covered under the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Actual results could differ materially from those stated or implied by our forward looking statements due to risks and uncertainties associated with the company's business, including any impact from the cobot 19 pandemic.

The company undertakes no obligation to update the information provided on this call.

For a discussion of risks and uncertainties associated with Transenterix business I encourage you to review the company's filings with the Securities and Exchange Commission, including the form 10-K filed on March 16, 2020, and other filings we make with the FCC.

During this call. We will also present certain non-GAAP financial information related to adjusted net loss and adjusted earnings per share.

Management believes that non-GAAP financial measures taken in conjunction with U.S. GAAP financial measures provide useful information for both management and investors by excluding certain non cash and other expenses that are not indicative of the company's core operating results.

Management uses non-GAAP measures to compare our performance relative to forecast and strategic plans to benchmark our performance externally against competitors and for certain compensation decisions.

Reconciliations from U.S. GAAP to non-GAAP results are presented in the tables accompanying our earnings release, which can be found in the Investor Relations section of our web site.

It is now my pleasure to turn the call over to Transenterix, President and Chief Executive Officer, Anthony Fernando.

Thanks Mark.

And thank you all for joining us today.

On todays call I will provide an update on the impact of course 19.

It's fun to dependent me followed by an update on our capital adequacy. Redfield, then provide an update on a fully caught up a fall.

After which I will provide an update on recent trends seem to be stuff and the progress made to what Twentytwenty strategic initiative.

Lastly, I will be taking your question.

I would like to begin by providing an update on Colby 19th impact on our business.

First and foremost focused on the health and safety of all our employees and their families.

Very early on we instituted work from home policies for applicable employees.

The variety of teams credit across the but we have a robust remote working infrastructure in place and we believe we have adopted vote. Although we like many others had been dealing with delays and inefficiencies caused by remote cooking.

The Horst frequent all that stuff town hall was to get feedback from the field and provide real time update.

But those employees couldn't see that defense. So we have continued to operate safely doing so under the guidance up the W.H. all the C.D.C. as well that respective applicable federal state and local directive.

North Carolina, the whole Mfive global had caught the beginning to east Colgate related so-so distancing restriction.

At this progress is we're looking forward to getting a employees safely back in the office.

Shifting to a high level update on the impact we have seen no no business.

Given that we have significantly talya and operations, we had early experience with Cobiz 90, including the potential scope and scale of the impact you might have on a basis.

The three areas I would like to provide an update on a surgeon training manufacturing and research and development.

Surgeon training is a critical component in allowing us to add incremental new system installations, as well as add incremental surgeons at existing sites.

With the early close a a phone Milan, Italy training facility.

Along with travel restrictions in Europe.

And the subsequent shutdown of our training facility in the United States.

Ability to trained surgeons has been limited.

That's a very solid pipeline accounts have deferred signing agreements or accepting the delivery of senhance systems until hospitals have more visibility on Colby 19 impact.

And there is some send off elective surgery as well as Sen has training being available for that surgeons.

Why did these accounts currently remain in the pipeline the speed at which they can progress towards the system installation has been delayed.

The second area. We have you have seen an impact is you know manufacturing operation.

Our systems on manufactured at a contract manufacturing facility in Milan, and SMB sort of core we'd 90 be experienced a disruption in inventory build during the first quarter.

Despite an eight week sat down and government regulated social distancing requirements. We believe that we will not experienced any supply constraints in twentytwenty.

Led screen printing 19 be fast track the build up of systems inventory to support Twentytwenty plan for the expansion.

Of the active installed base globally as a result, we believe we have sufficient senhance inventory ready for immediate near term delivery and we do not foresee any inventory shortages.

Lastly, R&D timelines have shifted SMB sort of core we'd 90.

Due to the reallocation of regulatory agency resources during the pandemic to focus on high priority Corby specific issues the timing of approval decision from regulators have generally been delayed.

I'll be optimistic that Weve achieved approvals. We are currently pursuing we do anticipate an approximate one caught a delay in the timing of those approvals, which I will discuss in more detail shortly.

One area that you have stepped up efforts during cold, we'd 19 has been virtual training.

Teams have been actively engaged in the creation and dissemination of virtual training and clinical content. We have hosted a number of internal and external webinars on senhance best practices with surgeons and administrators at multiple pipeline accounts.

Both in the U.S. and Europe in attendance.

Shifting to commentary on a capital adequacy and liquidity.

At the beginning of Twentytwenty and during the fourth quarter 2019 prior to seeing the impact of Corbett 19, we instituted a corporate restructuring in conjunction with our strategy shift.

As part of that we reduced our headcount by approximately 40% compared to our peak in 2019.

This restructuring reduced our anticipated cash burn during the year by approximately 35%.

In addition to beef cost saving steps, we have put incremental expense reductions in place in response to the impact of Corbett 19, including the Pasha furlough of a field based commercial clinical and service organization.

The reduction of salary for senior members of the management team as well as the elimination of cash compensation for our board of directors, beginning July 1st and a reduction in T. a knee spending throughout the organization.

Beyond these expense reduction initiatives over the course of Twentytwenty, we have taken steps to bolster our balance sheet.

As previously announced in March we close then underwritten equity financing transaction.

Providing us with gross proceeds of $15 million.

In April we received approximately $2.8 million in the form of alone under the Patric protection program within the Caf Act.

We have pub sent off the guidance in the marketplace.

Around loan eligibility and we remain mindful of the evolving regulatory landscape.

With the various cost reduction initiatives, our recently completed financing and the additional capital received from the PPP loan. We continue to expect to have sufficient cash to support operations into the fourth quarter of Twentytwenty.

I will now turn the call over to Brett to provide a first quarter financial review.

Thanks Anthony.

Three months ended March 31, 2020, the company reported revenue of zero point $6 million as compared to revenue of $2.2 million into three months ended March 31 2019.

Revenue in the first quarter 2020 included no system sales.

Zero point $2 million instruments, and accessories and system leasing.

In zero point $4 million in services.

For the three months ended March 31, 2020 tuner total operating expenses were $16.0 million as compared to $21.6 million in a three months ended March 31 2019.

For the three months ended March 31 2020.

Net loss attributable to common stockholders was $17 million as compared to a net loss of $22.5 billion. The three months ended March 31 2019.

For the three months ended March 31, 2020, the adjusted net loss attributable to common stockholders was $12 million, that's compared to an adjusted net loss of $18.7 million. The three months ended March 31 2019.

After adjusting for the following charges.

Change in fair value of weren't liabilities.

Amortization of intangible assets.

Change in fair value of contingent consideration.

Restructuring and other charges.

Acquisition related costs.

Central conversion charge and loss from the sale of surgery bought assets.

Adjusted net loss attributable to common stock orders as a non-GAAP financial measure.

See the reconciliation from GAAP to non-GAAP measures included in our press release.

The company had cash cash equivalents restricted cash of approximately $22.7 million as of March 31 2020.

I will now turn the call back down.

Thanks, Brett I would now like to provide an update on recent performance as well as the progress we have made on the full key areas that we are focused on in 2020 market development clinical validation portfolio expansion and capital funding.

Beginning with new system installations.

As we have previously announced in January and February three hospitals initiated Senhance digital laparoscopy programs.

One in the U.S. lending in Europe, and wanting issue.

We're very happy with the speed at which Veeva able to get these sites up and running on average it was 15 days between signing an agreement to completing the first case.

In addition, we have two other signed agreements with hospitals since Marianna University School of Medicine, Tokyo Hospital, the hospital in the greater Tokyo Metropolitan area area.

Okay. Its fed it creates a manager university teaching and monetize specialty hospital in Austria.

While these two accounts are committed to installing the sand has system the timing of when that will occur it's not certain given the truckload restrict sense and limited access to surgeon training in the current environment.

Shifting to our pipeline.

We continue to have a strong global pipeline of potential hospital customers. Despite the current Colby 19 environment. We are currently in late stage discussions with multiple hospitals in the U.S. Europe and Asia that could result in placements in the relative near term.

One hospital restrict since our loosen elective surgeries recommend and surgeon training can receive.

We continue to expect that we will meet our goal of 12 system placements in Twentytwenty.

Along these lines as part of our strategic shifting led 2019, we opted to focus on installing systems that hospitals with high laparoscopic volumes around the globe.

Modestly through leasing as opposed to capital city.

We have seen early success this year using this model and expect that hospitals, we continue to utilize operating lease agreement to conserve capital.

We believe the shift has positioned us well to drive increased installations later in the year when hospitals, we opened two elective procedures.

Shifting to procedure volumes.

We saw strong momentum during the first quarter with procedure volumes growing 43% year over year.

As I indicated earlier, we did see a slowdown in procedure volumes as a result of quoted 19 in Macau.

During the first two months off the year total procedure volumes were up 48% well assess the same period in 2019, largely driven by the growth in all regions, if new U.S. surgeons beginning surgery.

Additional European sites coming online and steady growth in multi specialty programs in Asia.

Capacity move into much we started to see the impact of early shutdowns in Europe, which then quickly extend that to a U.S. installed base as a result during much year over year procedure volume growth slowed to 27%.

Right off the recent veeva able to maintain relatively strong growth in Q1, but the recent procedure volume performance within a installed systems in Asia.

Specifically in Japan, and Taiwan, we have seen significant growth in procedure volumes during the first quarter and even into April.

This was partially due to the slow onset of the pandemic in those regions, but had more to do with the rapid acceleration of procedures being done within those hospitals.

The Taiwanese system saw steady volume across urology, gynecology and general surgery.

The Japanese sites saw increased general surgery volumes as a result of the rapid start off a b C. Senhance program at a newly installed hospital in Kentucky issue leveraging the favorable reimbursement that is applicable to senhance in Japan.

One of our goals for the year must to expand the number of foundational sites that are using the same has system at high volumes to 12 sites. During the first three caught us off the year.

While the slowdown in elective procedures has slowed down the expansion of these foundational sites in recent months, we're happy with the progress we have made during the year and expect to continue to add foundation a sites during the balance of the yet.

Turning to clinical validation.

Moving onto clinical evidence in Twentytwenty, we continue to focus on the development of health economic data, primarily around the cost impact of senhance relative to traditional upper us cookie as well as other surgical robotic systems. In addition, we do continue to develop data on the U.S.

Three millimeter instruments and the benefit of smaller incision.

Moving to our portfolio expansion efforts.

In the first quarter, we received FDA clearance for the first machine vision system in robotic surgery with the intelligent surgical unit all I ask you.

This hardware and software system is compatible with existing installed base of sand has system.

And represent a meaningful advance in augment and intelligence in the system with the ability to recognize instruments link camera movement to decide instrument movement and reduce the cognitive tasks required in visualization.

Following up on I FDA approval for the ISU, we continue to pursue incremental I guess you features namely next generation of additional machine vision and augmented intelligence capabilities, which we now plan to submit in Q4 two the FDA.

We're also focused on the expansion of our indications for use with the same has system.

With the initial efforts devoted to a general surgery indication.

We now expect to file with the FDA during the third quarter of Twentytwenty.

As noted earlier these timelines have shifted as a result of the impact of quoted 19 on the regulatory process in the U.S.

Finally on the capital funding side.

As I noted earlier, we have taken a number of steps both before and in response to call. It to ensure that we have the capital we need to continue to meet our twentytwenty goals.

Turning to full year guidance.

Given the uncertainty that exists within the global health care market. We cannot currently predict the peak extent core duration of the impact of the Colby 19 outbreak on our financial and operating results.

As a result, we have it drawing our previously announced full year twentytwenty revenue guidance of $3 million to $3.2 million.

To recap we remain very excited about the opportunity that exists for Senhance and I'm very proud of our team and their response during these uncertain and unprecedented times, we have worked diligently to bolster our balance sheet drive momentum.

In the growth of our installed base increase the utilization of our systems worldwide.

Develop strong clinical data and continue to expand the capabilities of Senhance.

Despite the near term disruptions caused by Corbett 19, we believe we are well positioned to continue to execute on our strategy and drive the long term adoption of Senhance.

With that I would now like to open the line for questions.

Thank you to ask a question you'll need to press star one on your telephone so which are your question comes from key please standby, while we can probably candy roster.

Our first question comes from Jack Callahan with Ladenburg your.

Your line is Hamilton.

Hi, Anthony Brent I review.

During good Jeff good morning.

Morning show.

If you I wanted to run through my first questions could you give some indication from Q1.

And as far as procedure volumes by region, you worse Asia Europe. Please.

Sure. So I think if that's kind of breaking down to three regions.

Jeff I think in.

Europe, we saw about a CV, 65% procedure increase.

Compared to previous year.

24%, 25% in Asia Pacific and about 10% in the U.S., that's kind of the breakup.

Between the three regions for the first quarter.

Okay got it and can you talk about some of the training that you've been doing.

Uh Huh March April may be give a sense of is the training use for existing accounts new users at existing accounts for accounts.

Slated to come online or accounts, the you're in discussions with.

Sure Jeff.

I think it's somewhat all encompassing.

We have lucky, but luckily were doing it to be leveraged surgeon.

That are utilizing this enhanced system.

No and had them speak about best practices and for them to talk about how they got how and why.

They kind of got started with the sand as program and what they have seen an experienced.

Over the over the past year also.

The Senhance program. So in the all in the folks who joined these webinars.

The other few.

Existing users, who joined and also several I would say majority were.

Okay and so.

Applying accounts, who.

Considering starting a senhance program.

So those kind of that's what I said, it's a mix and we had bought regions.

Yes, and Europe.

Join this cause.

So thats one dimension in the second dimension of us more internal.

Where we did a lot of training internally between Nava.

European team Asia team and the U.S. team in terms so.

Clinical.

Field service et cetera, trying to do some cross training and again best practice sharing.

And also digitizing our content so that weekend.

Deliver it in a digital means in the future.

Okay got it can you give us a sense of on it sounds like you were affected earlier than most completely sure.

More domestic focused you have more focus on Uh huh.

Asia as well as Europe. So what did you see for Q1 did you see an impact cherish. The last few weeks of Q1 or we should have more like half of Q1 beginning in.

February and then also could you give a sense of.

How that may have rebounded or are you seeing in New York bright spots from April I imagined April could have been the trough and for me compared to April.

So Jeff.

So I think a much it's when we started to see the decline.

In procedures.

In February we had extreme very nice growth in just a month February of procedures grew by 115% compared to previous year.

But then in March it came down to 27%.

Compared to previous months in 2019, so market when we saw a decline of is starting to come down.

But in April obviously.

It went negative so April we went down probably by about 80 per cent compared to last year.

So significant decrease in procedure volumes.

Hi, Madeley.

From Europe and U.S.

And we did see a slowdown in Asia as well, but.

I think we saw at a greater decrease in Europe, and U.S. and even in May we are seeing a pretty significant I would say close to the 80% mop decrease compared to previous yeah. Just the last two weeks.

So I think probably I think Q2 is going to take a pretty significant drop in terms of procedure.

But then I think we are seeing some uptick as well.

Second half.

Of me.

Seeing a surge elective procedures and robotic cases, starting in Germany.

Hats off last week cases began that and Netherlands, you're planning to start next week, So I think.

Western Europe should start.

Slowly, but they'll start cases here.

To answer the second half of me and we've also got in some way no positive indication from the U.S.

Hospitals are putting cases scheduling cases for the first half of June.

So we're pretty optimistic about that that's about and like I said Asia has been relatively steady and.

Again in June we are expecting.

Crease compared to what they have been.

Doing in the last few months.

Okay got it can you give us a little more color on you augmented intelligent sounds like you've got a mix module going in in the fourth quarter, that's coming on to MSG and what's your existing on a and there's two years fours or capabilities, a number of employees and in New York effects there.

So I think yeah, we had we been continuing to develop.

Developing next generation of features you know the long be submitted and got approved the first wave of features and the hardware.

So from now on me to be a.

Edison.

Features through software upgrades.

Moving forward so.

All the teams I intact or you have a team in Israel.

R&D Center in Israel, and also all R&D Center in Milan and also in RTP. So all these three sites they look.

Look very closely together in looking on.

The next.

Submission to the FDA or that you're planning later this year with.

A more integrated you know augmented intelligence machine learning kind of.

Applications. So we do have a kind of a pipeline weve not disclosed exactly what those specific features are but we do have a pipeline of features that we intend to bring to market in.

You know by upgrading the software periodically.

Okay got it and one more financing for Brett.

The up actually the 60 million for Q1, how does it feel going forward.

To give us any sense of weren't a Q2 may look like relative to Q1 or what kind of normalized level, you're looking out for a for the year.

Brett do you want to take that question.

Sure when we're obviously focused so overall on reducing or cash burn so.

Kind of looking on an overall basis to try to get that and.

Lower by the year end more no three to 4 million dollar per per month range.

Got it okay perfect.

Thanks for taking the questions.

Thank you.

Next question.

That concludes our question and answer session, but today I will now turn the call back in the stuff and end up the closing remarks.

Thank you all for joining us on today's call. The appreciate your interest in that trial synthetics and look forward to updating you on our progress next quarter. Thank you very much.

Ladies and gentlemen that this concludes today's conference call. Thank you for participation you may now disconnect.

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