Q1 2021 Stereotaxis Inc Earnings Call
Good morning, Thank you for joining us for the Stereotaxis first quarter 2021 earnings conference call.
Certain statements during the conference call and question and answer period to follow may relate to future events expectations and as such constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Statements involve known and unknown risks uncertainties and other factors, which may cause the actual results performance or achievements of the company in the future to be materially different from the statements that the companys executives may make today.
These risks are described in detail in our public filing with the Securities and Exchange Commission, including our latest periodic report on form 10-K, or 10-Q, we assume no duty to update these statements.
At this time, all participants have been placed on a listen only mode.
The floor will be open for questions and comments following the presentation.
As a reminder, today's conference is being recorded.
It is now my pleasure to turn the floor over to your host David official chairman and CEO of stereo taxes.
Thank you operator, and good morning, everyone I'm joined today by <unk>, our Chief Financial Officer.
Our last call two months ago was an annual earnings call and I used the occasion to provide a broader overview of our technology clinical value vision and strategy. We will keep this quarterly call more brief.
The highlight of the first quarter is stereo taxes return to robust double digit revenue growth with 50% year over year growth compared to the first quarter of last year.
Long discussed renewed adoption of robotic systems as the first significant wave of revenue growth in our strategic innovation plan. We are pleased to reap the initial fruits of that strategy.
During the first quarter, we shipped a genesis in model S system to a hospital, establishing a new robotic electrophysiology program in Europe as well as the niobe system to a hospital or establishing a new robotic electrophysiology program in China in <unk>.
Both of these cases partial revenue recognition was triggered upon shipment of systems and the revenue reported reflects a portion of the overall contract value from those two deals.
We expect to install both systems late in the second quarter and to begin procedures in summer.
On our last call we reported on three additional system orders that had been received two greenfield systems in the U S and a replacement cycle system in Europe. These.
These remain on track for installation during the third quarter.
As mentioned on the last call we will announce the names of these hospitals as they are ready to highlight the clinical and technological leadership in their communities.
In the two months since our last call. We were pleased to receive an additional order for our Genesis robot and the model S imaging system from an existing customer in the Midwest.
Our customers part of a large hospital network and the terms on the order make it likely that an incremental Genesis system will be ordered from the network prior to year end.
We continue to see significant interest in genesis across geographies and at both potential new and existing hospital customers.
The timing of any individual order remains difficult to predict but we are pleased with the quality of discussions and remain confident in our robust pace of orders in the coming quarters.
Despite a still challenging macro environment, our confidence in the Genesis opportunity is predicated upon three main factors.
First physicians continue to have great experiences with the Genesis system.
Both banner University in Helsinki University remained highly active with over 250 robotic procedures performed on Genesis to date.
<unk> have started visiting both sites virtually or in person during our recent in person visit a physician summed up the typical feedback nicely. The combination of Genesis My lesson Odyssey is very impressive this visit very much exceeded my expectations.
Second from the bottom up we continue to engage with customers in a robust fashion and build our commercial capabilities.
In the past two months, we hosted over 38 physicians and administrators on 23 separate tell everybody test drives of Genesis, 30% of these visits were first discussions with greenfield opportunities.
Third we can sense, a gradual signs in stereo taxes reputation and visibility in the industry.
While this is a perception and therefore less tangible or visibility across conferences last month is a case of point.
Just during the month of April two separate live robotic procedures were broadcast from regional EP conferences physicians presented our technology at three separate international conferences, and I had the opportunity to provide the keynote talk at an international conference on robotic surgery and.
At era, the European Heart Rhythm Association, our symposium was chaired enthusiastically by professor Karl Thanks, Karl Heinz Cook, a pioneer of cardiac ablation therapy and the previous president of era.
We were also pleased to learn that the society for cardiac robotic navigation was invited to host a session at the heart Rhythm Society Annual conference in July titled Robotics, and automation in catheter ablation. This is the first time <unk> has been formally included in the HRS program.
While focused on successfully executing this first wave of growth we continue to aggressively advance the second and third waves of our strategic innovation plan.
Dario, Texas advanced Robotically navigated magnetic ablation catheter continues to progress on methodically through the manufacturing and testing processes needed for submissions for European approval in the U S. IDE study.
The pandemic restrictions in Europe caused some manufacturing delays at our partner of Sitka, but our current schedule puts us on track for CE Mark submission in Europe. This September the U S. IDE application should take place shortly thereafter.
We continue to work on energetically on the third wave of innovation that will accelerate our adoption in electrophysiology and expand on robotic technology into new adjacent markets. We believe we will be in a position to discuss these in more detail towards the end of this year.
Kim will now provide some commentary on our financial results and then I'll make a few financial comments as well before opening the call to Q&A.
Thank you David and good morning, everyone.
Revenue for the first quarter of 2021 totaled $8 6 million, a 50% increase from the prior year first quarter.
System revenue of $2 6 million reflects initial revenue recognition on the delivery on the Genesis system to Europe and day Niobe system to China.
Recurring revenue for the quarter was $5 8 million compared to $5 5 million in the prior year first quarter.
Procedure volumes were up slightly compared to the fourth quarter and up approximately 5% from the first quarter of 2020, but were still down approximately 15% from the first quarter of 2019.
Procedures improved each month during the current quarter with procedures in March of this year down only 3% from March of 2019.
Gross margin for the first quarter at 2021 with 70% of revenue with system gross margin of 45% and recurring revenue gross margin of 84% on.
Operating expenses in the quarter at $7 5 million included $1 4 million and noncash stock compensation expense increased.
Increased noncash stock compensation reflects our higher stock price and the previously announced CEO performance stock plan.
Excluding stock compensation expense adjusted operating expenses were $6 2 million consistent with the prior year first quarter.
Operating loss and net loss in the first quarter were one 5 million compared to $2 1 million and $2 million in the previous year.
Adjusted operating loss and net loss for the first quarter, excluding noncash stock compensation expense.
$2 million.
Negative free cash flow for the first quarter was <unk> 3 million compared to $2 2 million in the prior year first quarter.
At March 31, 2021, we had cash and cash equivalents at $44 1 million.
I will now hand, the call back to David.
Thank you Kim.
We are pleased by our performance in the quarter highlighted by a 50% increase in topline revenue. We continued to expect 2021 to be the start of a multiyear period of growth and we reiterate our guidance of robust double digit revenue growth in 2021 with robotic system revenue of between $10 million to $20 million.
We continue to invest in the team infrastructure and projects that are critical for both near and long term success and are proud that we were able to do so while maintaining financial discipline, our robust balance sheet allows us to reach profitability without the need for additional financing.
Look forward to now taking your questions. Operator can you. Please open the lines for Q&A.
Of course.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad if.
If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question we will pause for just a moment to allow everyone the opportunity to signal.
Our first question comes from Frank Packaging with Lake Street Capital markets. Please go ahead.
Hey, Thanks for taking my questions and congrats on the quarter.
Hi, Frank Good morning, Thank you.
Absolutely. So first I wanted to start with recognition of installs given you recognize the revenue this quarter Theyre installing next quarter could you speak to the three systems you anticipate installing in the third quarter on whether or not those will be recognized.
On a quarter or third quarter, and then I know this has been brought up before on previous calls, but could you just refresh our thinking on the timing between order recognition revenue recognition and then install.
Sure, Let's say, we'll try to do it and the difficulty is that there is no one rule and so depending on every individual contract with the hospital and every situation and revenue recognition is somewhat driven differently and so for the example, lets say on both the European and the Chinese system that were that were sold.
And those were shipped to distributors and based on the contract with the distributors and we were able to recognize and.
Kind of a good portion of a portion of the revenue and kind of upon shipment.
We probably I believe we'll have at least one additional of the installations that will take place in the summer. We will have one of those that likely revenue recognition will take place in the second quarter.
Otherwise I think that kind of some of the remainder.
Revenue recognition on multiple of these systems that were shipped and and on and on.
On the two remaining that will be shipped in the summer and installed in the summer will take place in the third quarter.
Perfect and then if I could just ask a bigger picture question on the return to the system sales. What do you believe is kind of standing between you right now to being at a consistent 10 plus system sales cycle.
Every year.
So I think we're kind of trying to do many things from the bottom up to to get to that type of <unk>.
Situation and we obviously have the replacement cycle, which we've still not really benefited from I think that day is gradually going to become.
It kind of a much more meaningful of reality on and those 10 systems.
That kind of your you are calling for it to some extent can be driven just by the replacement cycle and.
Obviously kind of we're also focusing like I've mentioned before on a building up our commercial capabilities and whether it's in the more traditional ways like adding to the sales team or in some of the more kind of unique ways like our tell everybody test drives and a waste to directly reach out and engage with their with potential customers.
And then I think kind of the combination of that gives us confidence that that that type of gold is not.
It's not a difficult goal to reach and then again I think there are ways, where as we think about and as we think about how we how we build our products, how we're able to reach our customers the challenges of adoption and there's ways to go obviously far beyond that type of number.
Got it and then just last one for me on the catheter with the submission coming up in.
In the EU in September where does this place you assuming things go to plan from an approval standpoint, and how do you anticipate your commercial investments to trended thereafter, you receiving approval.
So so the European notified body and it can take a couple of months and it can take longer.
We're doing it under the new MTR, which generally has had a longer review timeline, but we run the benefit that it was simple.
Our our manufacturing partner in who is kind of involved with us very involved with us on the regulatory process in Europe.
It has actually been going through its own a new M. D R and re certifications on various of its own ablation catheters and so they we have learned a lot through that process and I think we're going to kind of be very well prepped with a good submission working with exactly the same notified body.
For our own submission later this year and so I would hope that sometime towards the end of this year beginning of next year, we can have such approval in Canada and can commercialize the catheter in Europe.
We're doing a lot of preparatory work in advance of the commercialization not just on the regulatory manufacturing side like I mentioned in day in the prepared remarks, but also on the commercial side and with individualized business plans for every act for a free existing robotic customer, we have in Europe, and and and really kind of making sure.
That we should be in a position to launch well when we start in Europe.
We will probably.
We will kind of.
We will see how we build up the commercial team upon launch, but add but we are cognizant that one of the models that exist in the industry is to have a sales rep.
Almost every hospital and so I think kind of where we see the opportunity to grow robotic procedure volume and meaningfully by shifting to that type of model because thats something that that hospital would very much at benefit from.
That's the type of model that that now is realistic and feasible with.
That within within ablation catheter borrow.
Got it perfect. Thanks, and congrats again on the good quarter.
Thank you.
Next we will go to Josh Jennings with Cowen. Please go ahead.
Yes.
Hi, Thanks, good morning, and congratulations for the nice start to the year.
David I was hoping to just touch on the system revenue kind of strange that sits out there $10 million to $20 million year, clearly on track to to meet that range, but any updated thoughts about the range and on how the sales funnel shape me on how you've given us a bunch on the call, but any incremental color would be appreciated just high level thoughts on the on your.
Confidence in that range today.
Sure Hi, Josh Good morning, and so when we initially presented the guidance I think we were asked and we commented that kind of specificity is difficult and you're an early launch and you see that there is still lumpiness in in when we receive orders in the timely timelines of when those.
Orders convert into revenue and so the range seemed appropriate given up given the bottom up assessment of opportunity set.
And so that range still feels appropriate.
It's and it's hard to know exactly how it will play out ads and net orders that were announced to date to set us up on a nicely to be within the range. As you kind of noted and we have a few more months, probably kind of three more months two three more months in which we can receive orders and those could.
Still translate into 2021 revenue and so we'll have to see kind of how you know.
How that plays out, but I think that guidance range still a 10 to 20 million feels that it feels like a good place to be.
Excellent and then just to follow up on your comments on the Genesis replacement opportunity I was hoping maybe you could share some more Intel on on how you see that evolving where it stands today you just received a replacement order and over the last couple of months in the U S and let me just touch.
Set you could potential replacement.
Opportunity could could be a source of a 10 plus system orders a year eventually.
But was hoping to just get some more details on on how youre seeing that that replacement opportunity evolving and when do you think you can you can hit full stride in that replacement opportunity.
Sure. So on the last call I mentioned that it was an interesting observation how.
While originally I would've thought that replacement cycle, our sales would be the first driver of adoption of Genesis and day, it would be harder for us to get our traction.
Or take more time for us to get our traction in a greenfield site.
Yes, we started off the gate kind of very well on the greenfield side and with our.
On a relatively slow adoption on the replacement cycle, I think driven by the macro environment, where hospitals did not want to spend additional capital on replacing labs, replacing X rays and on.
Unless it was absolutely necessary, while they were more open to spending capital on on strategically building out our new labs, new capabilities for the hospital and we're starting to see more engagement on the replacement cycle side from various hospitals.
That our existing customers and are now kind of looking to replace their labs again after the after the kind of the hull that took place a year ago with COVID-19.
And I sense that most of those discussions are for 2022 budgets. Our 2022 planning. So I don't I think we might receive additional orders this year, but generally I would think that kind of in 2022.
We very much might have that kind of annualized and kind of level of replacement cycle.
Revenue that kind of that you would think based on our installed base.
Great no thanks for sharing that.
And my last question just on the China opportunity you shipped to Niobe system to a new center.
I think it might be helpful. Just to kind of help us get our arms around the China opportunity sorry, a little bit of a broad question, but how do you see that channel evolving.
And any updates maybe you could share or just remind us the installed base today Ken.
Ken China be as big of an opportunity is Europe or the U S over time and what's the what's the approval pathway or any timing maybe too early for timing, but for Genesis of China. Thanks for taking all the questions here.
Sure. Thanks, a lot it's actually it's a great question and overall, China still is a small small part of our overall business and we have about five systems there.
You know kind of single digit market share from an installed base perspective, and but what we've seen in China is a lot of.
Engagement with the physicians and customers there.
Both in terms of their procedure volumes theyre highly highly active and I think that's that's.
<unk> also driven by.
By robotics, enabling many more physicians there to do cardiac ablation procedures, where otherwise they didn't have they didn't receive the training or they didn't have the ability to do that.
To do complex cardiac ablation procedures and training programs for electrophysiology there are still laden.
And less less refined and kind of in the U S or Europe, and so and we've seen kind of a V.
Very high utilization of our systems in China, and we've also seen kind of other companies, which are which are kind of interested in working with us in China and so.
We're going to be kind of prudent in anything we do.
We don't kind of eh.
We will kind of advanced things in a prudent fashion, there, but overall kind of a sense that there are actually very good opportunities in China to grow on a robust kind of business and to collaborate with others and.
And I hope, we'll be able to kind of to provide more updates in the coming quarters.
Thank you.
Once again, if you would like to ask a question press star.
One.
We will take our next question from Jason Wittes with Northland. Please go ahead, hi, thanks, taking the question.
First off you mentioned that you had an existing company or a customer had on order for for Genesis system. It sounds like that's not a replacement. That's an addition, do I have that correct and what are they doing with their old niobe system.
So that is a replacement so that his replacement. Okay. So you do have one replacement booked than this years, thus far just to be clear.
And we have.
One one replacement at one of the five orders that we discussed last time was a replacement cycle order in Europe and this is now the second replacement cycle, which is the first one in the U S. Okay. Thanks for clarifying and then related to that you said it sounds like they're also looking to add additional system. It did I hear that correct.
There, there's there's language in the contract which makes it likely that the hospital system will acquire an additional robot this year.
Okay, and then related to this or I think you mentioned it was a 38 38.
38 contacts in 'twenty three visits this quarter.
In terms of breakout in terms of what our new customers, what our existing customers can you give us a sense of what that might look like.
Sure. So yeah. It was 38 individuals on 23 separate tell everybody a test drive visits and at 30% of those visits and so I think it was a seven of them and we're first discussions with greenfield opportunities.
Okay. I think that's similar to what you were seeing last year or is it slightly different.
Yeah. The rate is overall similar youre correct.
And then you mentioned kind of your longer term strategy plan I think the third point.
Reputation build.
In terms of what you think stereo taxes current reputation is amongst users and you know what you were looking to move it to.
So I think kind of on the reputation side I think we've done well in the last few years in rebuilding our reputation among users.
In that kind of a big part of our effort over the last few years was really re engaging with our existing customers with existing robotic placement practices and then.
On making sure they had the support and tools at their disposal to be highly successful and to be able to showcase their success and so I think overall our engagement with existing customers has gotten has gone well you obviously have a y.
And anything you have a wide disparity of a day.
Of opinions out there, but I think we've overall on wild and Reengage with our existing customers. The big challenge for a company like US is that while we're highly differentiated.
In the field, we are we're still less than 1% market share and so the vast majority of.
People, just don't don't know us or.
<unk> might have heard the name stereo taxes, but really don't have any and any good feeling or understanding for what we actually do how our technology works the clinical benefits of it and so I think.
That's where a broader visibility and awareness and generating that visibility in the community is then is a big part of our of our work and and.
<unk>.
And at the.
And so that's kind of really what we've been also working to do and I think kind of things like April which I don't know how it all bunched up there, but you know <unk>.
Multiple live robotic procedures and to have kind of been and multiple talks either by us or by just physicians being invited to speak about their use of our technology and it.
At the society for cardiac robotic navigation was granted assess.
Session at the Heart Rhythm Society annual conference kind of all of those are our our kind of beneficial in in introducing stereo taxes technology to the broader electrophysiology community.
Okay. Thank you that's helpful on very long.
Long term question and then I'm not sure.
Whether it's premature to answer this but when you get the catheter approved would you be in a position are you considering.
Bundling basically instead of capital equipment doing a direct capital equipments L. Lump again sort of minimum orders with catheters into your play does that work on the business model or is that still.
Is it still going to be capital equipment, plus just per procedure volume as a way of looking at it.
So we want to accelerate adoption of robotics and make.
Establishing robotic electrophysiology and more broadly robotic and intervention of labs, much more accessible and affordable with that being said.
There is a value to robotic systems and that value has been defined clearly by also other robotics players in the health care field in the surgery field and so you don't want to discount at all of that value, but so if there are ways to to retain that value, while making it easier for hospitals to go through a bunch.
Cycles or to use the finances that they have available from one bucket instead of another bucket I think thats definitely something that should be done and then and while it's difficult to do with our current disposable given the ASP per procedure as you have an ablation catheter you can enable those types of revenue models or adoption kind of venmo.
Models and so that's definitely something that we'll have in mind as a way to accelerate adoption.
Okay, that's helpful and maybe.
Requisite question I think most cut most med tech companies are being asked this this quarter.
In terms of our monthly procedure volumes did you see on improvement as the month progressed or how would you characterize that.
The trend this month in terms of month to month performance.
That's COVID-19 sort of improves.
Yeah. So so kind of Kim did mention it in her prepared remarks day did see an improvement from kind of January to February to March and with March being down.
On a about I think 3% from that from March of 2019, RBC versus 2020, and we expect day variable, we expect high growth or good growth in procedure volumes, but versus 2019 and March of 2021 was down three <unk>.
Sent in and so and I don't know yet if we will get back to growth over preprint emmick levels.
But but we're gradually kind of filling the gap that was caused over the last year got.
Got it thank you very much.
Thank you.
Thank you. Our next question is coming from Steven shall you read with Feltl <unk> Company. Please go ahead.
Okay.
Gentlemen, nice.
Nice quarter, congratulations on the growth.
I would say.
And I just wanted clarification on.
Net.
The revenue side of things.
Switching between the two.
Right.
Sure.
For 2021.
Yes that system revenue for 2021, so that's guidance for system revenue in 2021.
Okay.
Correct.
Yes.
Okay.
Won't help you asked I'll just ask.
Got it.
Regarding this.
<unk> that's been out there.
It's a very generic Stephen I don't know what I can't imagine what there.
Cash.
Cash flow a law.
Do you have any.
Color on that on what they're on one or.
Both performed well on screen.
So do you folks can you comment on what we might be after.
Okay.
Sure I can take the deep kind of stayed it so it is in the public record and.
Okay.
Got it.
We're kind of we're obviously disappointed to see the law suit and.
The lawsuit kind of is around at the stock compensation plan that was placed for me earlier this year by the board and that is up for shareholder vote.
I'm a shareholder meeting in a couple of weeks and.
They feel that there was limited transparency and and I guess kind of in that.
And are calling for additional information and to make sure that that was done in a proper fashion and.
We are in a period, where there is increased focus on corporate governance and executive compensation that reflects and is aligned with performance and I think that focus is great and it makes the market is a much better place and I think that step necessary, Texas Board has in many ways been ahead of its <unk>.
And commendable and be particularly focused on the values of alignment of interest with shareholders and in implementing a stock plan that is fully tied to performance.
And being transparent with shareholders throughout that process, but and but whenever you do something that is not a not a standard thing even if.
In my view on the Board's view it is more aligned with shareholders. It's more tied to performance. It's ultimately better for shareholders than the standard thing I think whenever you do something thats differs from the norm.
It takes sometimes kind of drives that type of that type of behavior, and so again, it's disappointing, but I hope and I hope we can resolve it and we'll obviously make sure that it doesn't distract us from that from a core focus which is advancing the technology.
Enabling physicians to treat patients better and we'll kind of this is a side a side issue.
Okay, that's great and it sounds like you're not concerned about it.
And I would agree that.
Your compensation structure.
One thing sorry net.
Well I'm sorry.
On most pumps.
On standards.
Hang on.
Net.
Our novel.
Thank you for that.
Sure.
It's fun to watch.
One clarification I guess.
Is that accurate.
Yeah.
That's what it seems like.
We're still on the early stages. So we'll have to see how it goes but yes, that's what it seems like but.
Thank you.
Your commentary matched.
Matches, what I've heard from.
From the majority of shareholders on the.
Our plan and and again we.
Kind of in some ways I have this feeling.
Like the phrase that no no. Good deed goes unpunished I think we and the board tried to establish something that was very much shareholder friendly but.
But again.
Sometimes different people have different views.
Yeah.
Okay. Thank you Brian.
Again, great quarter.
On the book.
Yes.
Thanks for taking my call.
Okay. Thank you.
Thank you that concludes today's question and answer session. Mr. Vishal at this time I will turn the conference back to you for any final remarks.
Okay. Thank you very much for your questions and for your contingent continued support and interest in stereotactic, we look forward to working hard on your behalf in the coming months and speaking again next quarter. Thank you.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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