Q2 2022 Asensus Surgical Inc Earnings Call

Thank you for standing by this is the conference operator, welcome to the a sense of surgical second quarter, 2022 business and financial update conference call.

As a reminder, all participants are in listen only mode and the conference is being recorded.

After the presentation, there will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal, an operator by pressing star zero.

I would now like to turn the conference over to Mark Klossner Westlake Partners. Please go ahead.

Good afternoon, everyone and thank you for joining us pretty essential surgical second quarter, 2022 business and financial update conference call.

On the call with me today are Anthony Fernando President and Chief Executive Officer, and Chemise Rand per tab, 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 companys business, including any impact from the COVID-19 pandemic and other geopolitical factors beyond our control.

The company undertakes no obligation to update the information provided on this call for a discussion of risks and uncertainties associated with the census, surgical business I encourage you to review the company's filings with the Securities and Exchange Commission, including the 2021 Form 10-K filed in February 2022, and the form 10.

Q expected to be filed later today and any other filings we make with the SEC.

During this call. We will also present certain non-GAAP financial information related to adjusted net loss attributable to common stockholders and the adjusted net loss per common share attributable to common stockholders management believes that these non-GAAP financial measures taken in conjunction with U S GAAP financial.

<unk> provide useful information for both management and investors by excluding certain noncash 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.

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 website.

It is now my pleasure to turn the call over to our census, Surgical's, President and Chief Executive Officer, Anthony Fernando.

Thanks, Bob and thank you all for joining us today.

Today's call I will provide an overview of our recent accomplishments and then asks me is to review our financial performance after which I will discuss our performance during the second quarter.

Our priorities for the rest of 2022 before turning to Q&A.

Before turning the call over to me, so I would like to provide an overview of our recent performance.

Similar to many companies with surgical procedure businesses.

We experienced a number of macro headwinds during the quarter.

We have continued to see procedure volumes will be negatively impacted by hospital staffing shortages and in place and the questions.

Despite those headwinds we delivered a strong 34% year over year increase in San has case volumes.

Largely a result of significant growth in our European sites.

This performance continues to validate the utility of <unk> among surgeons across the variety of geographies.

Surgical specialties and continue to feed the augmented intelligence development engine, which will help deliver the intelligent capabilities of performance guidance.

We also experienced disruptions to our commercial efforts as hospitals talking capital purchasing trends.

Chantelle Linzess and the ongoing conflict in eastern Europe impacted our ability to place new systems during the quarter.

Even with this we have installed one system year to date and continue to be encouraged by the development of our pipeline with two additional system orders on the books that we expect to be installed within the next few months.

During the second quarter, we attended the society of robotic surgery Conference right.

Great.

End of June <unk>, we had several presentations on the clinical performance of <unk> and <unk>.

Top performers guided surgery.

Additionally, Dr. Amit Trivedi Dutch.

Surgery, <unk> Paas CAC Valley Medical Center that had breakfast symposium.

Which he described his successful experience.

Yes, you performing sleeve gastrectomy.

Overall experience with.

With performance guided surgery in bariatrics as he has performed over 300 cases using the same system.

In July we attended the 30th International Congress of European Association for Endoscopic surgery or E S in Krakow, Poland VP.

Hotly debated in meet the expert sessions throughout the event in which our team said clinical insights and demonstrated the feature of the <unk> system.

These are both great opportunities to show the impressive capabilities that's enhanced system.

And yes, you have to offer.

As it is only one of two approved multiport systems in the U S. The same system offers a truly unique capabilities such as haptic feedback three millimeter instruments, <unk> and <unk> the industry's only digital augmented intelligence platform available for use.

With that I will turn the call over to <unk> for a financial update.

Thanks, Anthony turning to the quarter for the three months ended June 30th 2022 copy reported revenue of $1 million compared to revenue of one.

One $1 million in the three months ended June 32021.

Revenue in the second quarter of 2022 included <unk> $3 million and lease revenue.

Zero point $3 million in instruments and accessories.

Is there a point $4 million in services.

For the three months ended June 32022, total operating expenses were $18 $2 million as compared to $14 $8 million in the three months ended June 32021.

For the three months ended June 32022, net loss attributable to common stockholders was $19 $6 million or <unk> per share.

The net loss attributable to common stockholders of $13 2 million or six cents per share in the three months ended June 30th 2021.

For the three months ended June 30 of 2022.

Adjusted net loss attributable to common stockholders was $17 3 million or seven cents per share as compared to an adjusted net loss of $12 7 million or five cents per share in the three months ended June 32021.

Adjusted net loss as GAAP net loss adjusted for the following items.

Amortization of intangible assets.

Change in fair value of contingent consideration.

And equipment impairment.

Gain on extinguishment of debt.

The change in fair value of warrant liabilities, all of which are noncash charges.

Adjusted net loss attributable to common stockholders is a non-GAAP financial measures. The reconciliation from GAAP to non-GAAP measures can be found in our earnings release.

Turning to the balance sheet. The company had cash cash equivalents short term and long term investments excluding restricted cash of approximately $103 8 million and working capital of $98 $9 million as of June 32022.

I would now like to turn the call back over to Anthony.

Thanks Denise.

I would like to provide an update on recent performance as well as the progress we have made on the key focus areas for 2022.

As a reminder, those.

First the continued market development of the San has system and second the ongoing development of our product portfolio and continuing the technological advance but offset.

Starting with market development. This year, we continue to expect to have two to three published papers over the course of the rest of the year.

This peer reviewed studies are lighter providing real world data on how the <unk> platform. The ICU and all of the features of Sin has can benefit surgeons and patients across a wide variety of surgical specialties.

In the second quarter, we had six new publications.

Bringing the total for the year to date.

One key publication based on the literature review, specifically focused on robotic applications for pediatric surgery, which play a sentence in high regard, particularly with three millimeter instruments.

This review identified 36 different publications that so.

Robotically assisted surgery as a viable alternative for pediatric procedures.

These reviewed papers assessed the variety of criteria to determine the success of Robotically assisted pediatric urology.

And general surgical procedures, including operating time success rate complications length of stay cost and learning curve.

This paper provides insights on the advantages of the sand has system with smaller pediatric patients as the three millimeter fully reusable instruments tend to be more precise.

We are very pleased with the results of this paper.

This is valuable data that can support the importance of receiving USB actually cleared.

Other key studies include one which noted the short learning curve and low cost per procedure using sandhurst for radical prostatectomy procedures in Taiwan, and the second regarding colorectal procedures in Japan.

As we continue developing our list of clinical publications.

We have also continued to leverage our growing real world clinical data through our clinical registry.

Our trust registry, the industry's largest robotic assisted laparoscopic registry continues to grow in size and scale.

We remain focused on leveraging the data accumulated to facilitate studies and publications, which highlight the real world benefits offset.

As we have mentioned in the past one of our focuses is providing surgeons the opportunity to participate in training sessions at one of our six centers located in Europe , the United States and Japan.

We continue to work to drive increased volumes of surgeons through these centers on a regular basis.

We have implemented.

Variety of tools to create a holistic training environment focused on getting surgeons up to speed and performing center is perceived as quickly.

These tools include census, surgical learning Academy, which is our distance learning portal that provides surgeons with the access to abundant interactive educational resources throughout the San has learning pathway such as extensive interactive online.

<unk> training modules that build foundational knowledge of the St has system in preparation for hands on training.

<unk> mapping guides that accelerate learning through knowledge sharing by sand has clinical experts.

Quick reference guide to increase operating room efficiency.

And our surgical video archive of sand has procedures for continuing education.

Other tools that we're leveraging.

<unk> surgical simulator, which is designed to enhance the skill level with the St has interface.

Emulated environment.

<unk> has connect a multi site digital video collaboration solution that enables us virtually real time best practice sharing among <unk> users from the operating room and global trading centers located in the U S Europe and Japan.

We believe these stores in aggregate will allow us to continue to facilitate the adoption of <unk> by surgeons across the globe and provide clinical intelligence through our performance guided surgery framework to assist surgeons in.

Performing consistently superior surgery.

The next segment of our market development effort is the expansion of our global footprint, including the growth of our installed base the acceleration of procedure volumes and the increase in the number of foundational sites.

Beginning with new programming negotiations.

Second quarter once again challenging as we continue to experience headwinds as a result of the conflict in eastern Europe , as well as ongoing supply chain issues.

The result of the conflict in Ukraine and surrounding areas. We made the decision to refocus our commercial efforts on other regions in particular, western Europe and have seen positive traction since making that shift.

We installed one system during the quarter.

At University hospital to begin in Germany.

In addition to that installation.

We also have signed agreements with two hospitals, both of which we expect to be installed in the coming months.

This includes one system that was purchased by our distribution partner in the month of August .

And the system set to be installed in the CIS region in the near term.

We are seeing positive momentum.

In the build out of our pipeline in particular in Europe , and Japan and continue to work to generate demand for the platform globally.

Given the macro headwinds at play and the impact they had on our first half performance.

We have revisited our expectations for new system initiations globally, and now expect eight to 10 for the year.

Despite this near term volatility caused by a confluence of factors.

We remain confident in our ability to drive the adoption of centers on a global scale over the long term.

Now turning to procedure volumes.

We have continued to see very strong procedure volume trends up 34% over the second quarter of 2021 and 3% sequentially.

With over 670 procedures performed in the quarter. The total for the first half of the year is over 1300 procedures.

Volume trends were strongest in Europe , and overall general surgery had the most procedures throughout all geographies.

Despite macro headwinds in the U S. We were pleased to see sequential growth with impressive utilization trends.

We have also seen some of our systems reached significant milestones this quarter.

At <unk> House in Germany.

Dr Beebe and America and after all of Hudson, It's significant strong procedure volume milestones completing over 500 general and colorectal cases.

We also saw a number of surgeons and hospitals HIPAA.

The 100 procedures, including Dr. Steven <unk> at advent health in Winter Park in Florida and site on My University Medical Center reached a 100 colorectal case.

Turning to the expansion of our product portfolio.

We're excited to build upon the accomplishments and reach additional regulatory milestones that will further develop the <unk> system and broaden its applicability.

We continue to expect the commercial launch of five millimeter articulating instruments in the second half of this year, which is currently.

<unk> launched in the U S and Europe .

Leading instruments offer better access to difficult to reach all around the corner areas of Seattle.

SME by providing two additional degrees of freedom.

By allowing surgeons to manipulate the tip of the instrument.

Like manner.

They are often more easily able to perform certain tasks.

While at the same time, reducing the pressure placed on the port where the instrument is inserted into the surgical field.

By offering articulated instruments, the applicability of sand heads is expanded to those surgeons, who view articulating instruments as critical.

In the second half of 2022, we also expect to submit a five 10-K application for pediatric clearance in the U S. Following strong early clinical utilization in Europe , and increasing demand from U S surgeons.

It broadens the applicability of this enhanced systems to unique combination of three millimeter instruments with.

With five millimeter cameras Corp, combined with haptic feedback to benefit more patients.

We continue to expand the utilization and applicability of the intelligent surgical unit or ASU globally, and expect to receive CE Mark approval for expanded machine vision capabilities in Europe in late 2022.

The initial features of the ASU enable machine vision driven control of the camera for a surgeon by responding to commands and recognizing certain objects and locations in the surgical field and allow a surgeon could change the ritualized field of view using them.

Bulk of the instruments.

The newest Isco features expanded upon these capabilities and introduced more advanced features including real time, <unk> measurement digitally tagging image enhancement and enhanced camera control based on real time data from anatomical structures, while performing surgery.

This is the first time any of these features have been made available in soft tissue abdominal surgery and can ultimately allows surgeons to perform better more predictable surgery, regardless of their skill level our experience.

In order to harness the power of data, we are continuing to invest in the development of our cloud and data management capabilities.

We are currently partnering with hospitals and other institutions to work towards the compilation of a critical mass of surgical data aided by the rollout of the ISC across our installed base, which will provide a tremendous amount of surgical insight.

The build out of this data set has been somewhat slow.

A lot of supply chain delays, which have delayed the expanded use of the ICU.

The build out of this capability remains a top priority and we are continuing to push to rollout the ICU as quickly as possible.

We remain incredibly excited about the future of our centers and the opportunity that exist for sand heads to revolutionize how soft tissue abdominal surgery is performed.

Despite the challenging macro environment, we continue to make good progress towards the development of performance guided surgery and advanced intelligence capabilities, while at the same time accelerating the utilization of certain hence on a daily basis across the globe.

I want to thank our employees, whose dedication and ingenuity have allowed us to drive meaningful innovation and ultimately deliver better outcomes for surgeons hospitals and patients.

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

We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.

Here at Cowen acknowledging your request.

Youre using a speakerphone please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.

We will pause for a moment asks callers join the queue.

Okay.

My first question is from RK ROM Atkins from H C. Wainwright. Please go ahead.

Thank you this is RK from H C Wainwright.

Good afternoon, Matt dimension.

It looks like some pretty decent quarter.

Considering everything I just said.

Okay.

So.

Just wanted to I.

I understand a little bit more about your current plans.

Our ability to install it.

<unk> devices for the year.

If you can remind us how many has been installed.

Dan.

<unk>.

And in.

What regions do you think.

No.

Okay.

Future installations.

Which regions are you kind of concentrating on working on for the next set of installations.

For the year.

Yeah.

Okay.

So let me try to answer that so.

Currently we have one.

We installed one new system in Germany, and like we said we have.

Two on the books.

That will get installed in.

In the coming months and once they get installed we will obviously.

This is the.

The sites and all the details associated with each of those.

And for the rest of the I think the pipeline remains pretty good.

As you guys have seen repeatedly.

Had very good traction in Europe , So I would think that Europe's going to lead the charge in terms of installs for the rest of the and there's a pretty healthy pipeline.

And also Japan and the U S.

Both have.

Pretty good pipelines.

And we expect to see new installations in all three regions, but would primarily be led by.

Western Europe .

Okay, perfect and then on the procedures.

And as you said.

Greater than.

1300 procedures in the first half of year.

So.

Certainly that is tracking well.

And.

Based on what Youre seeing on the procedures.

Yeah.

I'm just trying to understand.

How to.

Character talks between the procedures.

Revenue.

Hum.

And for them for the rest of the year.

Okay.

Yes, so I think the connectivity.

Really it depends on the type of <unk>.

Arrangement that we have.

Because if it's somewhat of.

A leasing arrangement and then a certain volume of procedures.

Part of the Bill.

Leasing arrangement.

Anything additional would generate additional revenue.

Then there are so many systems that were purchased.

Prior to all the leasing arrangement. So those obviously have a very nice.

That revenue stream coming from consumables and also the service.

Agreement. So it is going to be a mix between.

The consumables service.

Revenue and then the leasing.

Venues from current systems, and then also the <unk>.

New systems that we that we place.

As part of the rest of it.

<unk> months of the year.

Thanks for that Anthony and last question from me on the articulating instruments.

Obviously, that's a feature.

Rich.

I believe surgeons Savannah in my life.

Sure.

So.

You know when you make sense.

That's back commence on your message on your.

This enhanced system.

Is there is that a very how how you how you monitor.

You know not only the UK, obviously, the utility but also how it.

Attacks.

New clients or new.

Okay.

And needs for additional and so.

So I'm just.

China and all of them.

And my understanding of the auto.

Some of this.

Once you continuously.

Due on time.

Yes, so RK.

If I understood. Your question correctly when you when we talk about articulating instruments.

Uh huh.

This has been a request of several surgeons and based on that request.

It's why we.

Develop this instrument.

So we know there is strong pull from the market for this and then we.

We're hoping that we will be able to see an increase in.

The adoption of these instruments and the acceleration of procedure growth.

At the institution so.

We are pretty close to all the sites. So we have a pretty good idea of.

The level of adoption and acceleration of the procedures being used by each of the surgeons and not only the.

Current surgeons, but we also think that once we add articulation.

It'll even increase the level of confidence for additional surgeons as the existing hospitals.

Who might also join to do cases on Santana.

Two pronged approach here one.

Providing tools for the existing surgeon community and then also trying to attract new surgeons at the existing hospitals, and obviously new hospitals as well.

Fantastic. Thank you thanks for taking all my questions.

Thank you RK.

Once again, if you have a question. Please press Star then one.

This concludes today's question and answer session I would like to turn the conference back over to Anthony Fernando for Oh pardon Ethers now another question from Ross Osborn from Cantor Fitzgerald. Please go ahead.

Hi, Congrats on the progress made during the quarter and thanks for taking the question.

So I guess starting out.

With regards to the system placements are the deepest and placement in the quarter and that you announced orders.

Would you provide a little more color on how long that sales process took from initiating those conversations until the orders are placed and then also if possible what attracted the buyers to these enhanced system relative to competitors.

Okay.

So I think it's a varying timeline.

We've had some that are relatively long, especially going through.

Certain tender processes could take.

You know north of 12 months four quarters and there are others that can but within the same quarter. So I think we have the full spectrum.

Half the time it takes to cut.

But something to an order.

And what's the attractive I think there are a few things.

One is the fact that it's a laparoscopic too so the learning curve is relatively.

Small and short.

And it's a very familiar interface for the laparoscopic surgeons.

And also the fact some of the features that we.

We offer in terms of haptic feedback the use of three millimeter instruments Asian.

Those tend to be things that are attractive.

And then also not to mentioned.

Digital features that we offer with the intelligent surgical unit.

So unique.

Proposition for some of the surgeons. They are very keen on these digital features and being able to do more.

And be able to see the potential of what they can do for them. So that's been.

Yet another.

And the third is the economics I think we've we've continued to show the economic value from a per procedure point of view and that remains so we have publications we have data from the.

Some of the institutions that we are able to shabby.

The institution and they talk amongst themselves as well and compare notes on costs. So that's also another attractor.

Those factors put together.

Is what's driving some of these new sites too.

We convinced Thats enhances the right choice for them.

Great understood and then I guess outside of the expanded IH capabilities, what else is the company doing to drive for forward as guided surgery.

Yes, so on the pro forma guidance surgery front, it's HIPAA.

To affect the thing once that technology.

That's continuing to evolve and develop and then at the same time given organizationally.

We are kind of re aligning ourselves, we've just created a new medical affairs function.

Brought in.

Our seasoned general surgeon.

B.

Part of the team as the Vice President of Medical Affairs.

So that we can kind of.

Converge.

<unk> technology and also.

To put things together between the technology clinical data.

In order to optimize.

The procedure specific solutions. So I'd say, it's a technology alone is not enough. So at the same time, we are evolving and adapting the organization to be able to provide value and make it clear to be able to.

Defined solution and also.

Train the surgeons and develop all the different techniques to do.

And I value, so thats kind of what we're doing on to drive performance guided surgery.

On both fronts externally and internally being able to support it.

Okay.

Sounds great. Thanks, again for taking my question and congrats on the progress.

Thank you Ross.

There are no further questions I will now hand, the call back over to Anthony Fernando for any closing remarks.

Thank you again for your interest in Sensus surgical and we look forward to updating you on our progress on the next quarterly call. Thank you.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

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