Q3 2022 Stereotaxis Inc Earnings Call
[music].
Good morning, Thank you for joining us for stereo taxes third quarter 2022 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.
1995.
Such 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 company's executives may make today. These risks are described in detail in our public filings with the Securities and Exchange Commission, including our late.
It's 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 opened for questions and comments. Following the presentation. As a reminder, today's call is being recorded it is now my pleasure to turn the floor over to your.
Hosted David Mitchell, Chairman and CEO of Stereotactic.
Thank you operator, and good morning, everyone I'm joined today by Jim Perry, Our Chief Financial Officer.
Against the backdrop of a challenging macro environment I'm pleased with the commercial and technological progress we've made since our last call.
From a commercial perspective overall dynamic remains similar to what we've described in the past continued and more consistent order activity.
Real construction delays.
Engagement with customers.
We received two system orders during the third quarter and have had a strong start to the fourth quarter was two <unk> purchase contracts already received reflecting the continued global interest in demand for our robotic technology.
Third quarter orders included Genesis system in the United States and the Niobe system in China.
The recent signed purchase orders are for replacement Jonathan.
In Europe and the U S.
Over the course of this year, we have seen more consistent and more consistency and reliability and the pace of orders, which I believe demonstrates greater maturity in our capital sales pipeline and processes.
We've now seen several quarters in a row with multiple system orders and have a healthy pipeline of greenfield and replacement cycle prospects across each of our three focused geographies.
Our recent improvements in our commercial leadership in capital sales infrastructure are expected to further improve our execution and growth.
This order activity is encouraging it has expanded our capital backlog to over $13 million for over $16 million. If you include the two signed purchase contracts.
Worth of robotic systems that have been ordered but not yet recognized as revenue ending shipment and installation.
Hospital construction timeline has continued to be slow with hospital customers consistently struggling to meet their own internal expectations.
This is outside of our control and impacts revenue recognition orders in our backlog are essentially guaranteed with significant nonrefundable down payments providing confidence in the realization.
On the commercial front, we will continue to focus on what we can control Gen.
Generating growth in orders and ensuring that existing robotic practices have successful experiences with our technology.
That fundamental progress will ultimately carried through and positively presents itself and the optics of our financial statements.
Last month I had the opportunity to join many of the most prominent users of our technology at the society for cardiac robotic navigation annual conference in Budapest.
Conference was well attended with over 100 participants.
Several presentations highlighted our clinical value across a broad range of arrhythmias, including more recent data showing superior safety and efficacy for pediatric patients.
Other presentations demonstrated our ability to be used alongside a spectrum of mapping and imaging technologies.
Okay. So our innovation pipeline and detailed how robotics can enable ablation procedures to be performed through the arm access rather than the growth.
Qualitatively it was a very positive meeting.
There is an increasingly positive vibe on the trajectory of robotics in the field and we are fortunate to benefit from a strong vocal community of physicians that are passionate to advanced robotics.
Following the CRM conference I had the opportunity to visit the National Institute of Cardiology in Warsaw to celebrate the recent launch of Genesis in Poland.
Physicians at the Institute are among the newest additions to this community a vocal advocate.
It was encouraging to hear how pleased they have been with the clinical and commercial value of establishing a robotic electrophysiology program.
Driven by visit I had the opportunity to watch them successfully treat a young woman with complex congenital heart disease, which reinforced the positive impact our robotic technology has on patients that otherwise would have no good alternative treatment options.
Shifting now to the progress made on our strategic innovation plan.
As a reminder.
Taxes innovation strategy includes multiple key efforts that individually serve at substantial growth drivers and collectively serve as a foundational product ecosystem for our mission to transform endovascular surgery with robotics.
There is truly a broad range of progress here happening in parallel and things are generally advancing in line with our previously shared timelines are.
I will share some additional details and color specifically on the magic catheter to mobile robot our collaboration with micro CT and recent testing of our guide wires and guide catheters with several neurosurgeons.
As announced last quarter, the magic ablation catheter CE Mark submission was made in July under the new more stringent LDR regulations.
Last month, the EU notified body performed its completeness check of the submission the.
The completeness check concluded successfully and subsequent to that they began their technical review of all the data.
MTR has created a significant backlog of work with the EU notified body. So it remains difficult to estimate how rapidly they will perform their technical review.
We're overall pleased with the thoroughness and engagement they provided during the completeness check.
In the U S. Our IDE submission remains dependent on successfully completing a few preclinical survival studies.
Establishing an official institutional animal care and use program that is a GOP level quality was a major undertaking and necessary milestone to start those studies I.
I am pleased that the Iqos Committee, formerly launched our program recently, enabling us to start preclinical studies shortly.
We continue to see U S. FDA approval of the magic catheter approximately two years after steamer is a reasonable timeline.
The excitement with physicians at the CRM Conference view, the magic catheter reinforces our own excitement for clinical commercial and strategic benefits Magic will provide.
Development of the next generation mobile robot is advanced well with the hardware electronics and software aspects of the system coming together nicely.
Apply chain challenges, which had previously held up progress team behind us and should no longer pose a risk to our timeline. We continue to envision an initial launch of the system next summer.
The transition of our technology from a construction project scope <unk> deployable technology is transformational for our opportunity and for the accessibility of robotics in the field.
Our collaboration with Michael Port in China has seen progress on the Genesis regulatory submission not being integration catheter development and commercial preparation all happening in tandem during.
Third quarter Genesis was installed at Mic port showroom in Shanghai, and all required local regulatory testing was completed successfully.
We expect the Genesis regulatory submission to China, and China's NPA before the end of this year.
Mapping integration with Michael Kors Columbus mapping system has also been largely completed.
Development of a micro port ablation catheter has advanced well as has progress in filing for the magic capital in China, which is expected to take place soon after the magics receipt of CE Mark.
All of this sets us up nicely for having a complete up to date and integrated product ecosystem ready for commercialization in China by the latter part of next year.
In preparation for this launch Micropore has already started to invest in preparatory commercial activities.
We recently hired six individuals as part of the dedicated robotic capital sales team.
That team will work alongside the over 100 members of the core electrophysiology clinical sales team to drive adoption of robotics in Chinese ETP markets.
Mike reports EP Division is poised to play a very significant role in the Chinese ETP market, having just completed its own IPO on the Shanghai stock exchange, raising $170 million and now valued at over $1 5 billion U S dollars.
We are pleased to be partnered with them and believe their strength and strategic alignment around robotics shines a light on the commercial opportunity ahead of us as the product ecosystem becomes available.
Last one on the innovation side I wanted to provide a little color on our efforts to expand the benefits of robotic magnetic navigation beyond electrophysiology into multiple new clinical indications.
Foremost on our mind pun intended is neuro intervention.
As previously shared we have been working to develop the software user interface and intervention tools that could be valuable for neurosurgeons performing complex endovascular therapy for stroke.
Three weeks ago, we hosted three neurosurgeons from three prestigious hospitals in the United States to evaluate our devices and neurovascular Phantoms.
They tested our magnetic guide catheters to overcome proximal challenges and gaining in establishing access to the brain and then our magnetic guide wires to navigate smaller torturous vessels deeper in the brain to deliver coils and reach clock.
Tried the same activity with standard manual devices used in daily practice for many years, let me share a few quotes they made while using our technology.
I've done thousands of similar procedures and what we were just able to do with your robot is unbelievable.
This provided an unprecedented ability to rapidly reach areas that are otherwise impossible to get to.
This would have real value right now in my daily practice.
In some of these procedures I have been forced to spend an hour exchanging handfuls of devices to finally reach the target and with its catheter it was effortless.
The nickel and financial benefit is huge and clubs.
Experiences like this gives us confidence that we are on the right path and that the work we're doing will play an important role in the improvement of medicine.
We are still working to establish consistent scalable manufacturing of the Guidewire and guide catheters as that has accomplished and we make regulatory submissions and approach commercial launch we will arrange an innovation day, where those physicians and other neurosurgeons like them can share their experience with our technology and how they see it improving clinical outcomes expanding access.
First patients and reducing procedure time and cost.
Tim 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 third quarter at 2022 totaled $7 7 million.
<unk> revenue for the quarter was $5 3 million consistent with the $5 3 million reported in the prior year third quarter.
System revenue for the quarter was $2 4 million down from $3 5 million in the prior year third quarter due to hospital construction delays that continued to slow the conversion of our system backlog into revenue.
Gross margin for the third quarter was 60% of revenue with system gross margin at 16% and recurring revenue gross margin of 80%.
Gross margin remains impacted by lower production volume and the allocation of significant fixed overhead expense.
Recurring gross margins were slightly impacted by a onetime write off and the strengthening dollar.
Operating expenses in the quarter of $9 6 million included $2 7 million and noncash stock compensation expense.
Excluding stock compensation expense adjusted operating expenses were $6 9 million, which is consistent with the $6 8 million in the prior year third quarter and $7 2 million in the second quarter of this year.
Operating loss and net loss for the third quarter at 2022 were $5 1 million and $4 9 million compared to $4 6 million for bulk in the previous year adjust.
Adjusted operating loss and adjusted net loss, excluding noncash stock compensation expense for $2 4 million and $2 $2 million in the current year quarter compared to $2 million per Boe in the prior year quarter.
Negative free cash flow for the third quarter with $2 7 million compared to $1 5 million in the prior year third quarter negative cash flow. This year has been significantly impacted by over $2 million on one time expenses for our new headquarters manufacturing facility as well as in over $3 million investment in inventory.
At September 30, we had cash and cash equivalents at $32 4 million and no debt I will now hand, the call back to David.
Thank you Kim.
We recognize that system revenue in any given quarter has been difficult to predict and that we have not done a good job in guiding the financial community over the last several quarters given that experience. We've determined that it's more prudent to avoid providing specific revenue guidance until we have better faith in our forecasting ability fund.
Sunday mentally we're pleased with the order activity, we've seen and the opportunities to grow that activity growing forward we.
I believe that our existing system backlog of over $13 million.
Along with our capital pipeline support to year over year revenue growth over the coming quarters.
New technology launches and an enhanced commercial organization will support more substantial revenue growth over the coming years.
As Kim mentioned, our cash use this year has been significantly impacted by our investment in our new facility and robot inventory.
Those are both conscious and we believe prudent investments the former to support many years of growth in the latter given the challenging supply chain environment.
Our core operating burn rate, excluding those items and smooth for quarterly variability remains approximately $1 million a quarter.
We are cognizant of the macro environment and the importance of being financially prudent and disciplined we remain confident in the ability to advance our strategy to drive organic growth and reach profitability with our current financial resources.
We look forward to now taking your questions. Operator can you. Please open the lines for Q&A.
At this time, if you'd like to ask a question simply press Star then the number one on your telephone keypad to withdraw your question Press Star One again, our first question will come from the line of Adam Maeder with Piper Sandler. Please go ahead.
Hi, good morning, and thank you for taking the questions congrats on the progress.
Maybe to stay on good David.
Hey, good morning.
I wanted to start on just the backlog, which is starting to build here.
Just trying to think about our models.
How to kind of ascribed revenue so any color around drawdown of the backlog revenue recognition over the next couple of quarters.
How do you think about kind of visibility there and then had a follow up or two.
Sure. So so as described in the call we have backlog that even as of the end of the quarter was over $13 million. If you include the two recent purchase contracts that were signed that's over $16 million.
We have obviously.
Done a poor job in guiding you in that.
The rest of the financial community in really knowing how would those orders that were received end up turning into revenue.
There is nothing that has changed.
In that kind of that but I think after a few quarters of us not being able to guide successfully.
Kind of at some point and we realized that we need to improve our forecasting ability on these installers in shipments and overall I think that while we have case examples where orders are received and shipped very quickly and we recognize revenue very quickly and we have some that have taken over a year.
Before a hospital is ready I think that the general thought that.
Backlog should turn into revenue within a year time makes sense in the vast vast majority of cases, and so I would generally think that the backlog that we show should convert to revenue over the next year there might be a few examples where that doesn't take place and it takes a little bit over.
For a year, but there will also definitely be examples where things are received and convert much more quickly even within the same quarter and so I think that's kind of our that's a general statement on how to think about order backlog and it converts to revenue obviously in any given quarter.
A shipment of one system or installation of one system.
Being in that quarter or not can make the difference between almost $2 million and so theres a lot of volatility there, but thats I think a general as a general statement that will hold true.
Okay. That's perfect really really helpful color. Thank you for that and then for.
The next question.
I wanted to ask about the magic RF catheter.
And just level of visibility into CE Mark approval.
We recognize the MBR process has been challenging for you.
All med tech participants, but it seems like things are going well for you guys.
Just wanted to see if theres any additional color you can share at this time in terms of.
Those discussions or timelines.
Yes, so obviously.
When you when you put in a regulatory submission a lot of it is outside of your control you are kind of you're in the dark until you get asked question and then so you really don't get great color into how things are going what was nice was that last month when they did their completeness check it was a very thorough completeness check so based on <unk>.
Some of the smaller observations they made and some of the questions. They asked it was clear that they did a detailed very detailed review and and overall, we were able to answer all the questions in two.
To make certain small adjustments to the submission based on there and based on their observations very rapidly and we were able to kind of to that debt.
Have a finalized completeness check and they moved onto the technical review. So overall, we were pleased with that engagement. Both in terms of the clear clearly the effort that they made and and the ability for our application to live up to kind of at the rigorous standards. So we are back in the in the midst of that.
Technical review.
I generally feel good with what we submitted and with the quality of the submission in width.
We see the quality of the device.
I think that.
<unk> had some experience with MTR submissions.
Just prior to the magic submission so we benefited from that.
Experienced so overall I feel good with things, but obviously if it's in the hands of the notified body and we are we are primed to respond if we get any questions and otherwise we are crossing our fingers for an approval.
As soon as possible.
Okay perfect. Thank you for that color and I'm going to sneak in one more if that's okay. Just a quick just a quick clarification question.
The mobile robotic system.
It sounds like things are tracking more or less to kind of the summer timeframe.
For approval and launch hopefully I heard that correctly.
Have you made those submissions to FDA or the European notified body.
Just wanted to clarify that thanks, again and congrats on the progress.
Thanks, Adam.
So yes that is tracking well, we still feel confident in.
In an initial launch next summer.
We have not made any submissions to date, we don't expect to make any submission spread leased another few months, but we have fairly good clarity given our engagement with both.
Both the regulatory bodies in Europe , and the U S. We have a fairly clear view of what our regulatory strategy would be and feel very confident that given also our recent experience with genesis. So.
So we're we're good where we stand we feel very good about that.
Great. Thank you.
Thank you.
Next question will come from the line of Neil Chatterji with B Riley. Please go ahead.
Yes, thanks for taking the questions.
Yes.
Maybe characterize what the.
Sales funnel is shaping up I think you've talked about kind of having a couple of dozen.
In the past just kind of curious if theres any update on that.
Yes, so we.
That's kind of been sure Neil let me try to kind of give a little bit of color. There. So and we described I think it was then.
Probably in the spring time that we were starting to work on a more.
More organized and disciplined way to track the sales funnel and to add in.
And really this is kind of less for reporting out purposes more for making sure that we as a team are advancing the pipeline and are responsive to any potential risks or red flags or opportunities in the pipeline.
As quickly and as good as possible and so that kind of process has been a nice process and that it does create a lot of visibility.
On the pipeline and helps us better understand it now there are certain types of insights on that pipeline that we're really only come over there over the period of time, because what we would what we're trying to do what we would like to do is that now as we are tracking. These these projects in an organized way.
Over over time, you start to be able to do statistical analyses. So I hope that at some point in the future I can give guidance on orders that we expect and that is something that we can feel confident about based off of data at.
Based off of knowing how our pipeline looks at any given point how many.
How many.
Specific customers are there where they are in terms of.
Progress along a range of activities clinical activities administrative activity construction or project related activities. Hopefully also in the future that last part it doesn't have to be as relevant and then and kind of and so as we are as we go over time, we'll be able to do more statistical analysis, and I think be able.
To get greater clarity on how we can ascribe a pipeline at any given time.
Right now what we include in the pipeline there are a range of things from things that are very very early with very little at tangible activity, having being completed to things that are very very late.
It's very green across the board you have a lot of green check marks and then and really kind of we are even sometimes in the in the kind of the transactional phase of negotiating contracts that you're working on that I would say that when you look at kind of the more.
Realistic.
Newer term opportunity or things that we have higher confidence in understanding those projects' understanding the potential of them to move forward I'd say you still remain in kind of about over a dozen at each in the geographies of U S and Europe , and then and then a little bit less than that but that but.
A nice growing amount also in China as China is starting to build its commercial capability and so that's kind of how I describe things right now and again I hope in the future that we'll be able to kind of to provide things like.
A quantitative measurement of whats early versus mid versus late how generally we think about when a late stage things.
Probability and timelines of that converting into orders as well as for mid or early stage project, we're kind of just building, though that that.
It kind of that database now and it will take obviously a few quarters until until you have enough of.
The timeline on that data to make sense of it.
Got it got it thanks for that.
Color there and then maybe just kind of relating to that where you had a nice order for.
The second system in overland.
With HCA and so I was curious to hear any color around your <unk>.
Further progress kind of around that.
Health system or IBM strategy.
Sure so Dr.
Dr. <unk> already has.
<unk> is a prominent position in the field and he has been a great proponent of robotics.
For for many years now.
He was actually the primary author on the publication a few years ago, which demonstrated statistically significant improvements in efficacy safety and efficiency for robotics versus manual catheters in VT and so he has both experienced himself.
Benefits of robotics at Overland Park and prior to that at Kansas.
A university.
And.
And kind of and so it seem kind of venture has obviously been a part of the broader community of users and the publication of data and involvement in our CRM and.
We really benefited at overland park due to the local experience that he had and the local experience that administrators.
Seeing the value of robotics at the hospital and <unk>.
He is the prominent also.
Within that idea and within HCA and we have a few other hospitals that HCA that use our robot some of them very well and so we continue to think that over time. It is.
It would make sense and it is reasonable that there can be a broader IBM type strategy that evolves.
Either with that or with that Theres, a couple of other larger ideas that we have multiple installations with and so we continue to try to advance that we have said oftentimes nice engagement with individuals higher up in the system.
And again I think that as.
As both as theirs.
Increased clinical acceptance and used in the field and as the product ecosystem becomes one in which we can offer an idea.
Range of different ways to adopt our technology both of those helped significantly in and getting to the point, where you have kind of a top down approach from an IBM driving from the top down I think there's already some benefits from the bottom up given the relationships that we've built.
Great. Thanks for that Paul.
Back in the queue.
Okay. Thank you.
Our next question will come from the line of Frank taken with Lake Street Capital markets. Please go ahead.
Great. Thanks for taking my questions, maybe just to start with construction timeline variability can you call out.
What is happening with a little bit greater detail is it more of a staffing issue or is it. The hospital is reluctant to fork over the Capex required for the construction project, just maybe a little bit more clarity into what is occurring with the construction timeline variability.
Hi, Frank Good morning, sure and I think it's really more of the former and sometimes it isn't just staffing and the way that we normally talk about staffing nurse staffing or tech staffing and often times. It's also engagement with external contractors and architects and the reason I don't think it's really the latter is that before.
For they get the internal approval and budget and to pay for the gallon payment on our system and towards the system. They're usually at the same time getting approval for the entire budget also for construction, so usually isn't really a budget approval.
Question anymore.
Gain budget approval they put in an order for our system. They pay the down payment and which is a real cash outlay and you would think that once you make a multi hundred thousand dollar cash outlay that you are motivated to try to now.
Get a realization of that investment by following through and actually having a lab constructed and prepared we have seen.
In the most egregious of cases, we have seen in construction timelines that have taken over a year longer than what they were expecting and we have one order that we did ship and recognize at partial revenue on but that has still not been installed almost two years. After they made the initial order.
And paid the initial down payment and so we have seen depending obviously some hospitals are more organized and some regions seem to have less of a.
Chaotic construction, then environment, but we have seen in <unk>.
Some hospitals very very much struggle in advancing construction project and it seems to be neither turnover of their internal staff and or.
Issues dealing with architects and contractors.
Got it that's helpful. And then maybe on the DSA side, and so that number was down a little bit more than expected quarter over quarter anything specific to call out in that line item.
Sorry can you repeat the question on the TSA side on the.
The disposables services and accessories line.
<unk> so in general I'd say that generally.
Procedures remain in.
Roughly kind of in line.
Dropped after Covid started about two years ago, we've had some volatility there, but generally not significantly and it's more or less the state remains kind of in a stable level. Since then.
And we continue to have on the service side. Some pressure as hospitals are doing replacement project and give us replacement orders than you usually lose your.
Your service revenue.
Kind of because that said waiting until they install of the Genesis system and then they have a one year warranty also and so thats kind of a little bit of pressure on the service side of things and so that would be kind of my general take.
Don't see anything substantial taking place there. There is also a little bit of an impact of FX. We're obviously about.
More than half of our procedure volume, let's say almost half of our business comes from Europe , and Asia and with the strengthening of the U S. Dollar the dollar probably year over year, probably about a 15% or so FX hit to any of that revenue.
Okay. That's helpful. And then maybe one quick last one to follow up on Adam's last question related to the submission of <unk>.
<unk> documentation clearance documentation for the mobile robot I think you said another few months until we submit.
That could occur by year end or is that more likely a Q1 'twenty three event when you submit for mobile clearances.
Okay. So we talked about in the.
Initial launch in the summer of next year based off of our strategy, that's something that would take place in the first half of next year, a submission and that would allow us to have in the third quarter and the initial launch so again, we feel.
We have a lot of clarity both given discussions we have had and given recent experience on what what is needed for a regulatory submission we feel good about that and so I think kind of again I don't want to go into too much color. There are reasons why not to give too much color there.
From from those kind of competitive point of views in just keeping some of our trade secrets to ourselves, but and but we're comfortable in our regulatory path given some of our discussions and that sets us up nicely that even with a submission in the first half of next year. We will have then we will have the ability to do an initial launch in summer.
Okay, great. Thanks for taking my questions and congrats on all the progress.
Thanks Frank.
Your next question will come from the line of Alex Nowak with Craig Hallum. Please go ahead.
Hey, great. Good morning, everyone. I was just hoping to discuss a little bit on the mobile robot system, just how youre preparing the commercial organization to sell that system. Once it's loss I would imagine it's a little bit of a different cell than Genesis and <unk> and then just anything that can be done from whether it be disposable financing agreements for valley.
New lease agreements that will just make that purchase easier for some centers.
Sure. Thanks for the question Alex. So you are right now kind of talk on the second part first.
And you're right that one of the big benefits.
Kind of a couple of big commercial benefits.
From that technology and from the ability to evolve our technology in that kind of way.
One of them is obviously, reducing the.
Third in the construction burden and everything associated with that the sites and being able to accelerate timelines for gaining a robot in the site and the other one is the ability to start to offer customers.
A different ways to access the technology financially and so kind of I think that the technology gives you both a reduction in the construction burden and a reduction in the financial burden.
Kind of at the same time from a financial perspective, I would think that we will start to offer and kind of three ways to access the technology.
Which will be all to some extent.
We will be as a company agnostic to the choice that a customer chooses and we will obviously continue to offer them the ability to purchase the system, we would offer the ability to lease or rent a system and we would offer the ability to place the system.
Substantial disposable purchased commitments.
And the way that we would structure of those three is such that to some extent stereo taxes is agnostic.
Financially to which one the customer chooses.
And because at the end of the day you can you can retain the same value for a rollout approximately let's say $1 $5 million and value of our robot excluding an X ray.
You can retain that same value and just kind of event.
For that value through different mechanisms of payment and I think that by offering customers that we've seen them and with other robots and other clinical fields that has then become very valuable and helpful. In driving adoption in accelerating timelines for and moving deals forward and so I think by offering those three.
Options for a customer you really allow yourselves to kind of to give them the best way to move forward and to let them choose depending on whatever the dynamics the politics internal to the hospital or the bureaucracy internally. They can choose whatever is best for them to advance deal.
That's great.
Very helpful.
Sorry go ahead Charlie.
Alex sorry.
No I was just I was just going to say maybe on the commercial organization just around the sales structure. There if any changes need to be made.
Yes, exactly so that was the first part of your question I wasn't trying to avoid that so on that side I would say that the primary focus right now is on building.
Our substantial and improved capital sales capability in Europe , we're having the mobile robot available with the magic catheter will obviously provide a lot of benefits and a lot of flexibility and a lot of opportunity and how we approach customers and so that's where the primary focus thinking about them.
Mobile robot launch will be in the U S. We also think about in terms of how it can drive vascular adoption in the new clinical applications, but in Europe really is Frank.
Has joined to lead that team we've had many discussions on how you build a robust capital sales capability as you expand your team and how does something like the mobile robot, obviously impact the way you think about that and so we are overall in that kind of bad.
Planning and learning.
Learning stages, we are we have over the years accumulated.
Whole host of customers and physicians, who have been interested in our technology, but has not been able to move forward due to administrative construction challenges at their hospital and so we have already a list of.
Many physicians, who who will have a fundamental interest and desire and our technology has not had access with it before and we would obviously be the first ones that are being approached and some have already been.
In some ways kind of made.
Knowledgeable about our innovation pipeline, so that when the technology comes available we can move forward.
That's very helpful.
And I know, what you're talking about the orders and the pipeline what it looks like there, but just maybe comment on the general Capex environment out there for hospitals a lot of mixed signals. This earnings season about what Haas.
They are seeing just curious what youre hearing are things getting better.
So it's hard to we're a very small fish in a very big Ocean and it's very hard for me to give a great color on the overall macro environment. When it comes to Capex definitely we still live in a world where there is headwinds right. So we see hospitals, all the time pressures, whether they're financial pressures are staffing pressures and it is not.
An easy environment, it's not a tailwind type environment, where you have just debt at people running to you to try to buy things and to try to spend money easily because thats overflows of budgets and without that I read the same probably reports and same kind of commentary that some of the larger capital equipment players in the medical device space that have made over this.
<unk>.
I hear you that there is that difference differences of opinion. So I think generally they they also say that there is that.
General macro pressure and so it's really just a question of is it becoming slightly easier or slightly worse I think from our perspective like <unk> like I think was hopefully conveyed in the press release and in the prepared remarks overall, we're pleased with the order activity we've seen both in the third quarter, obviously in the start of the fourth quarter, we had kind of that.
This bolus of activity and overall in our pipeline and so so overall, we're very pleased with them with kind of how our pipeline seems to be shaping up.
But again, we're small fish in a large large ocean. So im not sure that our activity necessarily is there is.
Should kind of be representative of the broader world.
Yeah understood that makes sense and then maybe some of the goalpost to watch here for validation and then around the commercial launch eventually in the neuro intervention side.
So I think we're a little bit still early there will obviously.
I mentioned before as we as we as we are nearing a regulatory approval for Guidewire. Some guide catheters that would allow us to start to launch we're going to want to do an innovation day wear.
I promise you I have written approval that the quote that I quoted in my prepared remarks were approved by the physician those were close they made while they were here, but and but obviously it will be nice for the financial community and also the neurosurgical community to hear some of their experience and see some of that kind of firsthand.
So we will try to arrange an innovation day next year prior to the launch where you can get much more feedback on what we've actually accomplished there and why it's beneficial for patients and practices.
Overall kind of again I'd say that.
We are we are now kind of in that.
I think Elon Musk, one said it well at manufacturing how as you try to scale manufacturing and build things in a consistent fashion. So we know that we have devices that has been designed and developed that works very well that can provide clinical value and now we have to get to the point, where we can manufacture them consistently and scale of <unk>.
Prior to doing the regulatory submission and so that's our effort right now in front of us and again hopefully at within a couple of quarters within a few quarters, we'll be able to provide a much more meaningful updates.
Color on that launch.
Alright that sounds good thanks for the update I appreciate it.
Thank you very much.
Your next question will come from the line of Josh Jennings with Cowen. Please go ahead.
Hi, good morning, Thanks to one.
To just ask about.
China, it's great to see another niobe order come in.
Wanted to just help on how to think about.
Paul.
But the thrust into China in front of Genesis approval.
As Mike reported capital team at least starting to market it will be in front of Genesis approval.
You still have your own state taxes team out in the field.
And just wanted to better understand.
The next 12 months before we see the China FDA approval for Genesis.
Sure Hi, Josh Good morning, and thanks for the question it's actually.
It has been really exciting working with the Microsoft teams might view that.
Increasingly.
Increasingly positive leg to the business that is starting to be built and overall when if we talk just about the niobe orders that we've received over the last year year and a half I would say that those have been primarily driven by the stereotactic team based in China.
And part of the reason why we were able to enter into a collaboration with Microsoft part of the reason why we've seen a lot of positivity in China is because we had three dedicated salespeople there.
They're a great small team and they've been able to support.
Handful of customers of sites, there that have been using a robot for several years that it really do great great work with our robot.
Great where clinically great work from an academic perspective publishing and Theyre very vocal proponent of our technology and that has really had a halo effect on our entire kind of that relationship with strategics there with everything.
So I'd say that kind of the <unk> orders that are taking place that's not really part of a concentrated commercial effort that is more word of now and some activity from our.
From our stereotactic team there and oftentimes you do have hospitals in China, where they do have a budget that they receive that if they don't use it to some extent they would lose it and so if they are interested they will they will move forward, even though theyre getting a technology that is there is not.
It's still the niobe system not the agenda the system again, the niobe system works well it has worked well in the field there they see their peers that are using it well on a daily basis. So they are comfortable moving forward given that they have the budget available.
And when I look kind of forward in terms of what we're doing with micro port on multiple fronts.
As described in the prepared remarks, several things that have to come together from a technology perspective to have this.
Kind of a complete ecosystem as it works together well in China that is that the Genesis that regulatory approval and then we will also advance at.
At the mobile system in China, but that doesn't seem to be as as critical or as necessary for widespread adoption and there is the mapping integration and bringing into the country of both at the magic catheter and the development of Microsoft's specific catheter and so all of those are advancing fairly nicely. Despite the lockdown.
And some of the complexities with working in China over the last year and the R&D team there has been and regulatory team there have been very.
Engaged in very kind of Cape.
Capable and so that has kind of been nice to watch the progress on multiple fronts, and then and what is.
Even more impressive is seeing how they're starting to plan, even though we're probably still.
Now a year out and hopefully a little bit less than that but about a year out of having that complete ecosystem available in China. They are already starting to invest.
Fairly substantially in building dedicated robotic sales capability and the collaboration between our team and their team has been very nice also on the commercial front.
Say that their team again, they're more into training phase and learning phase. So their team has not really driven I think a.
Robotic sales in a meaningful way, yet, but but theyre starting to now make that effort. We just hosted and earlier this week last weekend.
There was a large conference in China that might report attended.
We're showcasing the robotic technology at the primary technology being showcased at their booth and then so I think theres a lot of aligned interest in the line strategy in driving robotics in China, and making them micro toward a much more substantial player in the Chinese ETP market and I think the market or at least the financial community in China is also.
So recognizing that opportunity given them given their successful IPO in their at their valuation on the Chinese stock exchange as well. So overall things have been advancing very nicely with Michael.
That's great to hear I just wanted to make.
Thanks sure I fully understood your comments just around the sales funnel.
<unk> talked about the U S, but it does in Europe about a dozen.
Something lower than that in China with that sales funnel has all been driven by state taxes.
Taxes team, Michael really hasn't contributed to that yet.
Yes, I would say that Michael port from Us from just the higher level executives. There has definitely been engaged over the last several months in the capital pipeline and how do we build it and how do we engage with traditions. So they have made efforts there, but I'd say that when I talk about them hiring six people who are dedicated capital sales team just focused on <unk>.
<unk> and the 100 plus people on their EP sales team those individuals have not really there.
Not really not really played a role yet at all and the building of a robotic pipeline. So the benefits from that team will play out more substantially as we approach full ecosystem in China.
Excellent thanks for that and just wanted to ask about.
Okay.
Where you stand with the development of the PFA catheter.
There's been a debate on whether tissue context is essential.
Second part of the question is really just to help RMM robotics navigation could be an important tool for PSA procedures in the future.
Yes, so good question so.
There was actually a presentation on.
Some of the animal work that was done with PFA and our catheter at that CRM conference and so and overall.
The thought there is the thesis there is that catheter stability and contact with tissue is particularly important in PFA, where youre, having microsecond pulses.
Therapy delivery and if you do not have stability during that micro second you don't actually have that efficacy you don't have a kind of a good therapy delivery and so I think there is a lot of <unk> and <unk>.
Reasons, why the core mechanism of action of stereo taxes will have particular value in the PFA environment.
And we.
<unk> has been working as described before and there's at least two companies.
PFA generators.
That are working to integrate that type of therapy from that generator with our catheters and and and we have been continuing to engage with those parties.
In order before we can move into human use we need to do some additional preclinical work and having our iqos institutional animal care and use committee set up an ability to do animal trials again at our new facility and was an important milestone not just in the.
The magic IV process, but also in that effort and so I think kind of over the coming few months there will be some additional preclinical work that is completed on that and that will allow us to kind of to hopefully move forward assuming that those studies co successfully and kind of to the next step.
Great and just one last one just follow up on the neuro Guidewire inside catheter.
Projects.
Just wanted to confirm if those are 500 10-K pathway.
Submissions and.
They're going to be compatible with both Genesis and the mobile system.
As the mobile system that should we think about the penetration into the narrow indication of neuro opportunity.
Primarily driven by the mobile system combined with these guide wires catheters. Thanks a lot.
Yeah. Thanks for the question, Josh, Yes, Youre, 100% correct.
We designed one of the beauties of guide wires and guide catheters is that in the way that we design them is that they are relatively interoperable with a broad range of.
Traditional manual therapeutic devices so.
Coil ruling.
Kind of systems and.
Aspiration catheters and thrombectomy catheters in the range of things that a physician would normally be using any ways and theyre also backwards compatible with <unk>. While they were designed to work, particularly with the mobile system, there will be backwards compatible with gender system Niobe and.
So so that's the right way to look at it.
It will kind of work across that spectrum I would expect when you want to enter into a new clinical field, whether it is new intervention or coronary intervention or peripheral or AAA grafts and you want to have.
The ability of a robot and you want that physicians, who might not be right again, when youre painting of completing the path you can't assume that physicians will be 100% confident and certain that that in the clinical value that our technology provides so you want to give them a path also to be able to test our system use our system.
And maybe commit to adopt it for a year or so and then based off of the value that they generate to be able to make the decision to purchase the system and I think that has been the mobile system will make it a much much easier adoption in new clinical specialties, and so I would expect that to be the primary system be used.
<unk> clinical specialties.
Great. Thank you.
Your next question comes from the line of Bob <unk> with Spartan Capital. Please go ahead.
Sure.
Hi, good morning, Thanks for taking my question.
So obviously with the system installments.
<unk> been very very difficult.
But my question is more along the lines of the recurring revenue and going forward and what we've seen so far in.
In this environment can you go over some of the puts and takes for recurring revenue going into finishing the year and going to Q1 'twenty 'twenty three.
And if you have maybe better visibility compared to system installments, and recognizing that revenue and just as a quick collateral.
Where do you see along the lines of.
Recurring revenue in procedure volume, where do you see constantly utilization going into 2023.
Okay.
Sure. So I would think generally there we've had a relatively stable recurring revenue at Q3 relative relatively always a seasonally a little bit of a weaker quarter, given kind of procedure volumes outside the U S and summer vacations, but generally we've had.
Relatively consistent recurring revenue and I think that that would stay probably overall.
Right until we start launching the magic catheter in Europe , and and until we start kind of obviously commercialize more robustly.
Robustly in China, or launching new Endovascular products.
Outside of Electrophysiology, and we do get some benefit from new launches of new sites. So again that was we had three of them earlier this year complete greenfield sites that launched.
Another one that should happen soon if their construction it plays out.
But should have been hopefully very soon.
But overall that tailwind right if you think about it.
Installed base of around 100 active systems.
Benefit from any individual greenfield launch, it's around 1% and even if the utilization has generally been higher at new installs and the traditional.
Account, it's still kind of so.
It's a relatively smaller impact on the overall numbers.
You also have is.
As hospitals are doing the replacement project you oftentimes have six month period or so when they are down when the lab is down and theyre not doing any procedures and they don't have service revenue under NAFTA, one year warranty period. So I'd say you have kind of that general <unk> I think that overall that leads to a relatively stable.
Recurring revenue within the growth drivers being the magic catheter the launch of the magic catheter in the micro <unk> catheter in China and.
And the new clinical indications.
Excellent.
And just a quick question on China.
I do remember in the last earnings call.
No I have procedures were down 70% and do you have an update on that number or any sort of color for.
For China in Q3, because I know it's been a.
Kind of a crazy year on that.
Yes.
<unk> was down still year over year in the third quarter. It rebounded very nicely versus the second quarter I don't have the numbers right in front of me, but it was still down definitely down still double digits.
Versus kind of last year and versus them.
My My hope guests is that the fourth quarter as overall gone better and so there are still lockdowns and there still is some difficulty traveling.
For our sales team I know that they've experienced all sorts of challenges still even in October at travelers to support cases in some of the cities. So I think thats kind of overall it is not as bad as the second quarter at all.
But we're still not back to kind of in open open environment. There I've heard some of the recent general news reports that that might open up slowly.
I guess, we will see you will see in the next few months, how things play out there.
Okay. Thank you for taking my questions.
At this time there are no further questions I'll turn the conference back over for any closing remarks.
Okay. Thank you very much for all your good questions and for your continued support.
We look forward to working hard on your behalf as we close out the year and speaking again in 2023. Thank you very much.
Ladies and gentlemen that will conclude today's meeting. Thank you all for joining you may now disconnect.
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