Q2 2023 Stereotaxis Inc Earnings Call

Good morning, Thank you for joining us for stereo taxes second quarter 2023 earnings conference call.

Certain statements during the conference call a 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.

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 material materially different from the statements that the companys executives may make today.

These risks are described in detail in our public filings 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 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 host David Vishal, Chairman and CEO of stereo taxes.

Thank you operator, and good morning, everyone.

We are pleased to return to robust double digit growth in the second quarter with a 28% year over year increase in revenue.

System revenue for the quarter reflects partial revenue recognition on to Genesis systems, both of which are being installed this summer at hospitals in the U S and Europe .

The second quarter, we received orders for two Genesis systems, one from a new Greenfield Hospital in Europe , and the second is an upgrade of our niobe system to Genesis in the U S.

The net effect of the orders, we received and the revenue recognized led to a slight increase in system backlog, which as of quarter end stands at $16 million.

We expect similar or increased levels of system revenue in the upcoming quarters as our backlog is converted into revenue.

We also continue to see a healthy pipeline of replacement cycle and Greenfield hospitals interested in our robotic technology, which is expected to continue to contribute to backlog and provide confidence in sustained year over year revenue growth.

Genesis system sales remain the primary driver of our growth as we work towards advancing our robust innovation strategy towards commercialization.

Our recurring revenue in the quarter was impacted by the loss of royalty payments that we no longer received from Johnson <unk> Johnson as well as J&J catheter production shortages, which pressured procedure volumes.

Each individually presented a high single digit headwind to recurring revenue.

The J&J catheter catheter production shortages, which pressured procedure volumes throughout the first half of this year seem to have been resolved in July and we expect procedures to rebound to more normal levels in the third quarter.

Okay.

On our last call we hinted at a special announcement, we had planned for the heart Rhythm Society Conference.

Highlight of the last quarter was the announcement at that conference a global strategic collaboration with Abbott to integrate Abbott's latest and state X mapping system, which stereotactic as robots.

The integration of arc technologies makes the use of abbott's, leading mapping system, an attractive option for the community of robotic Electrophysiologist, who have long desired increased choice and mapping.

It enhances the overall physician experience streamlines procedural workflow and supports improved treatment of patients who have complex arrhythmias.

From a strategic perspective. This was a major leap forward in our effort to build an open ecosystem, where the benefits of robotics can be paired with a broad range of diagnostic and therapeutic technologies.

It will also significantly support the launch and more rapid adoption of our proprietary next generation ablation catheter magic.

There was significant excitement at HRS around our integration announcement, we had an opportunity to educate the broader Abbott commercial leadership team on our technology and Abbott dedicated space in their booth to showcase our collaboration.

<unk> software is currently released in Europe , and last month, we celebrated the first integrated and site robotic procedures at <unk> Medical center in the Netherlands, and Marine how St Elizabeths Hospital in Germany.

These sites continued to do integrated procedures and other sites are moving through the adoption process.

We expect integration to be available in the U S. Late this year as Abbott software and connectivity cable are approved in the U S.

The main driver for significant joined the adoption of our technologies that will take place concurrent with the magic launch. So we anticipate a continued shift in diversification towards Asics and thanks system until then.

Okay.

Okay.

We had expected to receive CE, Mark and launched the magic catheter in Europe . This summer.

While our regulatory submission was in line with multiple historical precedents and direct verbal feedback we have received from the European notified body.

The notified bodies interpretation of the new MDI regulations led them to request first in human data prior to approval.

We were surprised by that decision, but have responded rapidly and designing a clinical protocol and putting together all the clinical trial documentation needed for submission to hospital ethics committees and relevant national authorities.

Acute data and a couple of dozen patients from one single center should be sufficient.

To reduce dependency or risk of delays any individual site, we have engaged and begun submitting documentation to multiple sites several of which have first in human trial experience.

We expect to start patient enrollment in the trial in the fourth quarter and complete the acute caddie collection on a couple of dozen patients rapidly, allowing a restart of the magic CE Mark review early next year.

The availability of this clinical data will ultimately support a more robust launch for magic in Europe as we plan to use the trials to gain experience data and materials to support the launch.

In the U S. We are progressing with the submission of our IDE application.

In parallel we are exploring with the FDA the possibility of an alternative regulatory route which would accelerate our path to bring magic to U S physicians and patients.

Beyond Magic, we continued to meaningfully advance our multi pronged robust innovation strategy.

These innovation efforts include a smaller self shielding robot that frees us from the extensive planning and construction currently necessary to adopt robotics.

Our family of Interventional guide wires and guide catheters that expand the benefits of our robots into new Endovascular indications.

Digital surgery hardware and software offering enabling broad operating room connectivity.

And a full electrophysiology product ecosystem being built in collaboration with Michael Port for the Chinese market.

Development and refinement of the smaller self shielding robot has gone well and is near completion.

Commercial launch of the robot is predicated however on either the magic catheter or our magnetic guidewire achieving regulatory clearance.

We therefore want to balance pursuing regulatory approval for the robot early enough such that we derisk regulatory approval and ensure it is available when those interventional devices come to market.

Too early such that we lose the ability to create an exciting launch for the robot.

We plan to now submit the robot for five 10-K clearance and CE Mark at year end at a similar time to when we expect to submit for the robotic magnetic guide wires.

That should allow for approval and launch of our new robot with a guide wire for vascular indications in 2020 for availability of the new robot paired with magic will occur as soon as magic games. Its first regulatory approval, which we believe should be possible in mid 2024.

In China, Mike report is making significant progress in bringing together, our joint product ecosystem and preparing for a commercial launch.

Mike Report continues to expect Genesis and MPA approval in early 2024.

Mapping integration with their Columbus mapping system is complete and waiting for availability of a magnetic ablation catheter, which will be submitted for regulatory approval before year end.

Mike support expect availability of this comprehensive product ecosystem in mid 2024, and starting to build awareness and excitement for what we will be launching together.

The Asia Pacific Heart Rhythm Society Conference is taking place this year in early September in Hong Kong.

Stereotactic technology will be prominently showcase at the conference.

Our society for cardiac robotic navigation received an extensive session after conference during which our robotic technology will be showcased in three livestreams cases, including long distance tailored biotic procedures performed from the podium to hospitals, hundreds and thousands of miles away.

During the conference Michael Port will also showcase for the first time, its new magnetic ablation catheter be navigated by Genesis integrated with this mapping system.

This activity and the growing excitement we see in the market bodes well for a strong launch next year.

I recognize our past hasnt been easy and that progress on our strategic initiatives innovation efforts has been slower than originally anticipated.

There have been various external factors, serving as headwinds, including changing regulatory goalposts supply chain difficulties and personnel challenges across the industry that impact contract manufacturing partners.

Internally, we have also been doing things that are new to us as an organization such as focusing on disposable intervention devices.

We are advancing multiple very significant and innovative projects with lean teams.

I take responsibility for providing optimistic expectations.

That said my excitement for what we are building has not waned.

We see ourselves as being on the cusp of a strategic transformation as we advance our new foundational product ecosystem that makes robotics broadly accessible and impactful across endovascular surgery.

We have clear line of sight to our near term future with strategic independence in attractive revenue model broad robot accessibility and multi indication opportunity.

Kim will now provide commentary on our financial results and then ill make a few financial comments as well before opening the call to Q&A Jim.

Thank you David and good morning, everyone revenue for the second quarter at 2023 totaled $7 9 million growth of 28% from $6 2 million in the prior year second quarter.

This growth was primarily due to higher revenue recognition on Genesis robotic system sale, partially offset by discontinued royalties from Johnson <unk> Johnson.

System revenue of $3 3 million reflects revenue recognition on the delivery up to Genesis system.

Recurring revenue for the quarter at $4 6 million, which predominantly impacted by both the absence of the J&J royalty and J&J catheter production shortages, which pressured procedure volume.

Sanjay catheter shortage has been largely resolved and we expect procedures to rebound to normal levels in the third quarter.

Gross margin for the second quarter of 2023 and was 53% of revenue with recurring revenue gross margin of 79% and system gross margin of 18%.

<unk> revenue gross margin remains consistent with recent quarters and system gross margin continued to reflect significant allocation of overhead expenses overload manufacturing volume.

Operating expenses in the quarter of $9 5 million include $2 6 million in noncash stock compensation expense, excluding non cash stock compensation expense adjusted operating expenses were $6 9 million compared to the prior year's adjusted operating expenses of $7 2 million.

We continue to spend significant amounts on our research and development efforts and are working in a focused fashion to reduce operating expenses, we're doing cell won't compete our progress.

Operating loss and net loss in the second quarter were $5 3 million and $5 million compared to approximately $5 2 million for about in the previous year adjust.

Adjusted operating loss and net loss for the second quarter, excluding noncash stock compensation expense were $2 7 million and $2 4 million.

Negative free cash flow for the second quarter was $2 9 million at.

At the end of the second quarter, we had cash and cash equivalents of $23 9 million and no debt.

We expect a significant reduction in cash used in the second half of this year, particularly as we slow investment in inventory, we expect to end the year with between 22 and $24 million in cash with no debt I will now hand, the call back to David.

Yes.

Thank you Kim.

We are aware of the importance of maintaining financial strength and ensuring our existing balance sheet is capable of advancing our innovations to market and funding their commercialization, we've invested significantly over the last several quarters and our new headquarters and on inventory for both Genesis and the next generation robots.

Those investments are largely behind us.

We're balancing and overall posture of financial discipline with continued investment in the key drivers of technological progress and revenue growth.

Our backlog and continued capital sales activity give us confidence is sustained momentum and an ending the year with double digit annual revenue growth and a strong cash position.

As our innovation pipeline comes to market, we expect that growth to accelerate from those launches.

We look forward to now taking your questions. Operator can you. Please open the line for Q&A.

Thank you if you would like to ask a question. Please press star followed by the number one on your telephone keypad.

Trust of time, we ask that you. Please limit yourself to one question and one follow up. Thank you. Our first question comes from Frank <unk> from Lake Street Capital Markets. Please go ahead. Your line is open.

Great. Thanks for taking the questions wanted to start with one on second half placement expectations. I think David you mentioned you expect a similar level of system revenues for Q2, and Q3 going forward I was hoping you could speak a little bit more around that what kind of visibility do you have into that is this plan is there any.

<unk> that could hold it up and just trying to understand where we should be setting the models for system revenues in the second half.

Hey, Frank Good morning, Sir so so.

So we've kind of gone into a place where I think we feel very comfortable with two systems and being recorded as revenue as a type of lower bound of what we would expect in any given quarter and it is very hard still to estimate in any quarter exactly how many we'll go through.

And it's.

There was a lot outside of our control on that and then and obviously the volatility between two or three or four mix makes a big difference in the numbers.

Though it's kind of individual units that are that are kind of driving all of that and so we think that kind of modeling to as a lower bound is the safe thing and we will have quarters, where we're obviously above that but that said that's kind of how we're how we're looking at things right now.

Okay. That's helpful. And then for my follow up was just hoping to get a little more color on the Abbott partnership.

Any immediate impact you're seeing in the field and if theres anything you can.

Help us quantification on how impactful this could be maybe how much share Abbott has in the market how frequently.

Abbott integration was brought up throughout the adoption process for new users and any other color you can provide really exemplify the Abbott partnership.

Sure.

The Abbott partnership.

<unk>.

It was a highly strategic.

One for us.

Delighted that we were able to announce that it is.

For many years in the making.

Generally if you look at the electrophysiology field and from our mapping system perspective. It is a duopoly between Johnson and Johnson and Abbott's. There are other mapping systems, obviously out there. We obviously have been integration collaboration with acuity.

Scientific has a mapping system Medtronic is working on a mapping system at other companies internationally like micro <unk> have not been systems, but but in the U S and Europe still.

Johnson <unk> Johnson than they would have that have more or less a duopoly on the majority of the market share.

And historically stereo taxes has only been integrated with Johnson <unk> Johnson's mapping system and the lack of integration with RBS.

Was viewed as.

<unk> for many of the physicians, who would prefer to use abbott's mapping system.

This has obviously clinical implications because when you provide more choice to physicians you allow them to use the robot with less of.

Less of a kind of a choice where there is other things that they've been looking for.

We are also integrated with the latest version of the Abbott software. So that allows us to see the latest versions of not banks.

Functionality with the robotic system, which is a positive.

From a strategic perspective, this will be highly beneficial for the launch of the magic catheter because it does allow for magic catheter to enter the market.

Tied with the latest knocking innovation and so that will kind of support <unk> adoption in a significant fashion.

And from a purely quantitative financial perspective, right now I would say that it will there is a psychological benefit too with the announcement that we had that I think supports.

Hospitals that are thinking about adopting robotics and <unk>.

There are also some physicians that as integration is available we will prefer to shift into that not be environment, and we will start to do more procedures in that environment I would not think that there is a dramatic shift to where that changes adoption.

Dramatically in a way that you see it in the numbers.

Overall in the short term.

Think that Youll see most of the impact there in the adoption of the <unk> catheter, which will be accelerated significantly by this integration.

Perfect that's great color I'll stop there thanks for taking the questions.

Thanks, a lot Frank.

Our next question comes from Adam <unk> from Piper Sandler. Please go ahead. Your line is open.

Hi, David Hi, Ken.

Good morning, and thank you for taking the questions wanted to start on the magic catheter in.

Just I guess try and better understand.

Timelines in Europe , so it sounds like Youre going to start the <unk>.

Enrollment in the human study in Q4.

Review process from the regulatory body kind of restart early next year is mid year or Q3, 'twenty four just reasonable a reasonable assumption for us.

Approval and launch.

That's question one and then.

Question two would be just maybe you can flesh out the alternative regulatory route that you referenced.

For magic when we're talking about the U S pathway and then I had one follow up thanks.

Okay, Hi, Adam Good morning, Sir and so in Europe as we described in the prepared remarks.

We scrambled there was a lot of work to be done after we learned.

After we received that feedback from as a notified body in Europe . There was a lot of work to be done to organize clip.

Clinical trial protocol to make sure that clinical trial protocol was dosed very fitting with what's been notified body would want to see in terms of data in very reasonable in terms of what physicians could enroll and could be done kind of efficient fashion in a hospital setting and there were many documentations that are needed.

To gain ethics committee and national approvals.

That you need just to support those processes and so kind of the entire team here worked in.

Gary.

Nice fashion to to kind of organize ourselves and be able to submit documentation to hospitals in Europe . We started engaging while we are confident that the data from our single site would be sufficient for the notified body.

We didn't want to be dependent on one site.

And obviously this is new to us to run.

Pre approval trial.

So kind of we didn't want to be dependent on any individual sites and so we engaged with many of our users. We got very enthusiastic feedback from many of our users in Europe , who we're excited to do a trial like this and unfortunately several of them have experience.

Doing a first in human studies in cardiac ablation.

And so we have started as submitting documentation.

At sites in Europe .

From what we've heard and it's fairly consistent at several of these centers. Our review process is oftentimes coupled.

A couple of months three months kind of in that type of ballpark.

And enrollment in this trial should be very very rapid.

All comer arrhythmias.

And we're.

We're talking about acute data so that is something that should enroll in the.

In this time spent of definitely less than bonds.

To do full enrollment in <unk>.

So we think that kind of having that data in the fourth quarter of receiving approval from the competent authorities in individual countries in Europe from the ethics committees of hospitals is very reasonable in the fourth quarter.

Enrolling patients and having the acute data from them is also reasonable in that same quarter and then we would obviously very quickly.

Submit that data to the notified body. So that we can restart the review of our CE marks given how extensive the CE Mark review was with all of the rounds of questions until they got to the point of telling us that they believe clinical data is necessary.

I believe that that review process should be relatively shorter and streamlined we went through rounds of questions before but obviously that timeline of the regulatory review is outside of our control. So I think that a summertime next year sounds very reasonable.

It's obviously, though outside of our control so we can't say for certain.

Hopefully, we can even have earlier than that.

Does that kind of answer the European paths for Magic World.

It does David. Thank you, that's that's great color and would love additional thoughts on.

The path forward for for Magic in the U S U.

I think referred to an alternative regulatory pathway, so would love to hear a little bit more about that and then I had one follow up thanks.

So the traditional path in the U S is that filing for an IV trial and running a pivotal U S study and obviously submission of the PMA.

PMA.

Application to FDA and we have done.

Most of the work to be ready for that and to do that submission.

Given what we are doing in Europe .

And given some of the discussions we've had we believe there might be.

Reasonable likelihood that we gain an alternative path, which would be attractive.

It is obviously.

Very important for us and for the.

Physician community that relies on robotics and for the patients. They treat that magic is available for U S physicians and patients as early as possible and so.

We are cognizant of that import as we're grateful that we've had the opportunity to have meaningful discussions.

With FDA and and at this point Theres not much more that I should say, but I believe that at the next quarterly earnings call I'll, I'll definitely where I should be able to provide much clearer guidance on our path forward in the U S.

Okay great.

Totally understand and then for the follow up wanted to pivot over to.

Mobile robotic system.

And I guess the Genesis of the question is just trying to.

Better understood understand the strategy and timing here I think I heard you say the plan now is to submit for 500 10-K and CE Mark at <unk>.

Year end.

So a little bit of a push out there.

I guess my question is why not submit.

Earlier for approval get across the regulatory goal line, but just not launch it until you have approval for the magic catheter in hand so.

Hopefully that makes sense and would love any color there. Thank you.

No pun intended on the Genesis of the question Covenant debt right. So.

So we feel we feel we feel good with how we've been developing and testing process.

For.

The next generation system, there is a balancing act.

As we pursue approval for our system.

Oftentimes you can post approval as you continue to do some improvements some modifications in our robotic system.

It's different than something like an interventional device and we've continued to improve the genesis system over time and so there's a there's a balancing act between when do you want to pull the lever on pursuing regulatory approval versus continuing to do that refinement and then pulling the regulatory lever.

Our team has been laser focused on the magic regulatory process at least.

Several weeks and there isn't but value in gaining approvals for the robot that prior to either magic or guidewire being on the market and so I think we're taking a very just a balanced approach where we definitely want to gain like you say approval for the robot prior to the interventional devices being on the.

Markets in order to Derisk that.

That dependency and to make sure. It is available on the other hand, we.

Feel very confident with the regulatory path that exists for the robot.

Given that we did Genesis very recently and given that we we've had discussions with the regulators and both their regions recently on that regulatory path again, and so we feel confident in the regulatory path there.

And we want a balanced also not getting approval for a robot.

Six to nine months before we actually can do anything with it and then continuing to make iterations iterative improvements in that meantime, and so thats really kind of the calculus going on.

I think that this is a reasonable balance and we will be flexible if we sense that we have acceleration anywhere else in the program then well then we'll pull the trigger quicker.

That's helpful color. Thank you.

Thank you.

Our next question comes from Alex Nowak from Craig Hallum Capital. Please go ahead. Your line is open.

Hey, great. Good morning, everyone, David I wanted to push a little bit more around the alternative paths and I know you don't want to reveal too much in play of the game plan set for it. So I'm just hearing you correctly it sounds like it could potentially use the European data.

In the PMA submission and maybe you could bypass some of the <unk>.

Workflow that is needed for a PMA. If you just were solely going in the U S.

It is hi, Alex it is.

It's Lee.

Important topic and an important question.

I don't want to go into great detail of that now I don't think its appropriate to do so I think that.

It is obviously the magic catheter is.

Highly important.

<unk>.

Product in terms of ensuring that.

Physicians that use our technology and the patients that they treat have access to robotics in the latest.

The generation of robotics.

In kind of the best fashion possible.

Grateful that the debt.

Is that kind of.

The regulators understand that importance.

And we are being creative in how we're thinking about collecting data to ensure that magic is is is clearly kind of an efficacious and safe device and so.

We've been fortunate to have the opportunity to explore various ideas in a collaborative fashion.

I will know more in the coming weeks since I believe by the next call will be in a position to be able to share much more.

Again kind of our baseline path, which we are advancing.

And committed to is that submitting Nike application in the near terms, but but there may be opportunities for improved timeline, there that would provide a magic to U S physicians and patients in an accelerated path.

Okay understood well look forward to that update there next quarter sounds very interesting maybe on utilization if you back out some of the onetime items here with regards to I guess, maybe not one time, but you have the royalty the catheter shortages underlying usage and utilization with niobium Josef is going this quarter.

So.

So obviously from a from a recurring revenue perspective, you see the hit because of the loss of the royalty that has nothing to do with utilization thats purely.

Kind of.

Dollar hit per procedure.

On the utilization side reward hamstrung by the by the shortages of J&J catheters, which did impact volumes in the second quarter. They also did impact in the first quarter before that and overall.

High single digit impact to recurring revenue.

Mortgage of catheters, and the impact on utilization I would say, we expect given what we've seen by in Q commentary. We've received it seems like the shortages on catheter are largely over and so we would expect a bounce back to more normal volumes in the third quarter.

And overall, we still see utilization at Genesis accounts.

It's higher than it niobe accounts and so we see kind of the benefit of new technology, and what new technology brings to the marketplace and so that has been kind of that good to see.

Okay excellent and then maybe just lastly, just how is the overall hospital environment in recent months it might seem like based on the commentary things are starting to break free a little bit.

New placements of new orders are starting to flow in maybe a little bit easier than it has been during the pandemic.

Yes, so I'd say, it's a mix where again I think I've made the comment sometimes in the past that we are still a relatively.

A smaller player in the field and so it's hard to take.

Macro trends from our experience generally.

You described is true we do send.

In multiple hospitals that are engaging with us.

There are definitely hospitals that are moving forward on projects that are kind of events that are able to move forward.

We see kind of tenders in Europe that take place.

And so it kind of that that overall feels good there are definitely though counter examples where there are hospitals that are very financially pressured and that are being very tight on any spending or any projects and so we see we see the spectrum of experiences across our hospital customers.

But I think at least for US there is a mature nation of our commercial team and their ability to engage with sites and.

Many things snowballed gradually a kind of that in this world and so I think some of the efforts that we've done over the last couple of years to improve and to engage with sites.

Starts to have more of an impact and you start to see more repeat repeatability and the commercial teams and capabilities and so it's kind of it's still not completely open an easy environment I still think the macro world is a world more of headwinds that tailwind, but I think kind of we are able to oh.

Overall make progress despite those headwinds.

That's good to hear well I appreciate the insight. Thank you.

Thank you very much.

Our next question comes from Josh Jennings from TV Cowen. Please go ahead. Your line is open.

Hi, Good morning, David and Kim Thanks wanted to.

Just get a refresher on the status of the U S and in Europe .

Capital sales teams.

Any plans to build them out.

Stability is the near term plan, what would you need to see.

Change that excuse me strategy will be.

The expansion of the of the sales funnel and just increasing levels of demand.

Any other triggers.

And then I have one follow up on China.

Hey, Josh good morning, and so I think we've talked a little bit about the European sales team and our strategy there in the past and overall, we view our commercial teams in.

Two.

The U S Europe and Asia is kind of the right size. We think we have kind of a good team with that.

Smart people and capable people.

We.

Gradually.

And incrementally strengthened team in Europe in anticipation of the magic launch.

And.

But that's been overall very gradual.

I would say that we are waiting for we are confident that the magic catheter can be launched very successfully at our existing sites in Europe with our team and that that can be a successful launch. We also think that we have the bandwidth obviously too.

Launched a new robot and that to some extent just makes the work that our existing team has been doing on the capital side much easier and so I think that our technologies as we bring them to market can be launched very successfully with the existing teams that we have now the opportunity to grow.

So a key when you have an improved revenue model and a significantly higher disposable revenue per procedure is.

Attractive and significant and so we do plan to channel much of that incremental gross profit that we would receive from the magic catheter from.

The growth in revenue from these new technology back into our team back into the company.

And I would expect that as we are doing the magic launch we will move much more towards a model like other companies in the field have where you have.

One dedicated salesperson per hospital customer.

We currently have one one person for each three or four hospitals and that is commercial disadvantaged versus competition.

And when we have the magic catheter available we can in a very financially prudent and sustainable fashion.

Shift towards kind of a more similar model to our competition and so thats kind of something that we would be doing as we do the magic launched I think we can do that in a financially sustainable fashion being self funded by the launch of that new technology and so that's something we'll do gradually kind of probably over the first year first.

18 months or so of the launch.

Understood and then just wanted to just.

Just better understand the dynamics in China in front of Mic reports kind of.

Finalizing the build out of the <unk>.

<unk> ecosystem.

And incorporating robotics navigation technology.

There is there a holding period here in China, just for new customers. Thank you described kind of sales from our pipeline of potential customers.

Plus range in China, but.

Do we need to see Genesys approval.

Before those those that pipeline converts to <unk>.

Tracks.

Sure.

And just maybe just to help us think through the next 12 months in front of that that full build out and then just a follow up to that just any other countries in Asia Pac you have this this HRS I think Asia Pac meeting coming up in September in Hong Kong and the other opportunities you see Japan or other Asia Pac countries.

Our intriguing for sugar taxes. Thank you.

Thanks Ross.

So yeah, the AP HRS Asia Pacific HRS Conference, that's coming up in the beginning of September .

I was very pleasantly surprised by how how good of a program was arranged by the society for cardiac robotics navigation in collaboration with <unk> and they are showcasing some amazing.

Procedures in some amazing capabilities of our technology. So I think that is that is reflective of the type of pre commercialization work in some ways that is taking place there to build up interest and to grow kind of the visibility of our technology there.

And.

Overall kind of.

There is there is some opportunity potentially to commercialize new robot at prior to that ecosystem coming into play and NEC.

Last year, but I would say that that is not that is not the biggest focus the real focus is and how to make sure that as you have this full ecosystem available you can have a very successful launch and you can.

Together in partnership with micro port take multiple percentage points of market share.

Like China, which is a significant existing markets and so that is really kind of the primary focused.

The strategic focus and kind of the big wave that's out there.

And then.

I think kind of.

As we said before right, we expect Genesis approval.

The earlier parts of next year.

Given the submission that have taken place already at the end of last year and then some of the additional request for information that took place in the first half of this year.

And and micro part will be submitting.

It's kind of the next generation of ablation catheter that works combined with their Columbus not being system.

A robot.

Later, this year and so kind of overall, we're looking at.

That kind of a nice lunch.

Probably around this time next year.

And kind of I think that we do have.

Other accounts in the Asia Pacific region outside of China, That's still do procedures that are great users of robotics at <unk>, we will be engaging with with those accounts and we'll be engaging with potential accounts in other countries in the Asia Pacific region.

But I'd say that kind of from a focus perspective, we see very clear line of sight to building a substantial.

Business with micro port in China, and so that really is kind of the biggest strategic focus.

Kind of and that's where I'd expect to see the biggest kind of changed.

Change to our overall corporate trajectory from there.

Appreciate that thanks, Steve.

Thank you.

As a reminder to ask a question. Please press star followed by the number one on your telephone keypad.

Our next question comes from Neil Chatterji from B Riley. Please go ahead. Your line is open.

Good morning, and thanks for taking our questions.

Yes.

Maybe I'll just ask.

Think of a lot of my questions have been.

Answered but.

Maybe just on the.

Last call you kind of talked about some of the preclinical studies with PFA generators. Just curious if you have any update there and or on any maybe development for magic NPA.

Sure Hi, Neil and so.

I think we've also discussed this somewhat in the past as you say and we have performed.

Animal study using.

The magic catheter variance of it with PFA generators.

And.

Got kind of a nice results from that and Mechanistically, there's a lot of rationale too.

Two using the benefits of robotic magnetic navigation with pulsed field energy at <unk> energy.

It can be very efficacious, but it does require being in.

Contact during that short burst of therapy with a tissue and manual catheters are less stable on the beating heart and so kind of that there is a rationale why we provide improved.

Lesion wouldn't being combined with DFA.

Overall kind of we've been taking approach there are multiple now many many.

Companies with PSA generators in PSA technology, we have been engaging and doing some technology work with various of them.

And I think kind of we're going to see how how best to create from those collaborations and some of the technology work that we've been doing how to create an actual regulatory path, where we could do we could shift from preclinical work to actual clinical person human work and.

It was an actual viable regulatory path to bringing a product to market I think kind of developing of the magic catheter has given us.

Foundation from which we can build on because.

Finally for the first time, we own our own ablation catheter and so that kind of has been very helpful. Both in being able to use a variant of that which PFA and and also facilitating other companies to be able to create variance of their own catheters that can be spirit in the robotic environment in collaboration with us and so.

Again, we're kind of in the process of that.

Of working with.

Arent parties on how that could kind of come to market.

Great. Thanks.

Maybe just a follow ups on Opex I.

I guess with the account.

Ongoing work you have been kind of the plan.

How should we think about kind of R&D expense kind of in the back half and into 'twenty four and then maybe additionally, just on the pipeline any update on.

Work in development and for connectivity.

Sure. So in terms of R&D expense I would expect that to be more or less flat as there are kind of gives and takes there. So.

Kind of some of the projects and has <unk>.

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Majority of their spending and now it's kind of more cleanup internal work with very little external spending very little purchasing that needs to take place for them to come to completion.

Like running clinical studies.

Kind of obviously ramp up the expenses and so I think kind of when I look at the gives and takes of that of the different projects you should expect overall spending to be at more or less flat.

Yeah.

Kind of an IV study would be more expensive and so depending on how things go there.

Next year, we could see an increase in R&D expense.

But I'd say in the back half of this year I'd expected more or less equal to the first half of this year.

And kind of how you think generally from an opex perspective, and we are at a relatively good level we are.

Making some focused reductions in expenses, where that doesn't impact the progress of our technology or our commercial capability.

Also from just.

Opex and kind of GAAP earnings is not the same as cash flow and we have still seen over the last several quarters that our cash flow has lagged behind what you would expect it to be given the investment in inventory both for Genesis and for the next generation robot.

We have bought the vast majority of the components and supply their firms.

Over a handful of Genesis systems and handful of the next generation robust and so a lot of that spending has that been a drain on cash resources and kind of was done to reduce the risk of delays and reduce the risk of that of the supply chain and kind of we will continue to spend money on both of them.

<unk>.

But I think there'll be at kind of a much lower level and given the types of revenue and cash inflows that we're getting from the Genesis system and they should be below that before below the cash inflow. So I'd say that kind of obviously our guidance of $22 million to $24 million of cash at the end of this year that that is kind of representative of the fab.

Cash flow is going to be much better as we don't have to continue to invest as much in that type of inventory.

What was your second question sorry.

I forgot it Neal.

Yes.

The pipeline just any update on kind of the or connectivity.

Like synchrony and thanks.

Okay.

Yes, so the sync software for connectivity, we are just at the stages, where we're going to be doing internal and limited market release as a full kind of a full product.

In a production environment.

Downloaded from the App stores, both iOS and Android.

We'll be doing it with our internal team and then with a few of our existing customers.

To start making sure that that is working well, but there are no bugs.

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It kind of.

All the features are kind of as desired by our customers that came to conserve while both for that.

Peer to peer connections connection between physicians and also for our team as we do remote support of procedures and remote books tactical and critical support and so we're going to be running that out probably starting.

Already in a month from now or so.

And then as kind of as we kind of re go through that LMR process. Then we will decide on what to do.

Actual kind of public form of launch hopefully that limited market release phase can take will be a few months. We've already started working with hospitals et cetera. There are approval process, we have a lot of experience with cyber security and working with hospitals.

Groups through.

Diligence required for connected technologies in the hospital environment.

Probably about 80% of our hospitals and have connectivity with us through VPN currently and that's what allows us to do remote support and allows us to gain real time data from the robots.

This solution is a much more elegant way.

And scalable way of doing connectivity with individual site and we have a lot of experience with cyber security and so we designed and I think in a way that that is I think very good and well suited for the hospital environment, but you still need to go through a new review process and in.

And kind of all that that entails we've actually started that process.

With initial hospitals.

Those will probably take a few months. So we're kind of I think kind of what we've started some of that limited market release work and.

And as we go through are able to put sinking a few hospitals are able to get the limited market release feedback then we will we will kind of planned for launch.

Great Thanks for that.

Nick.

Okay. Thank you Neil.

We have no further questions in queue I would like to turn the call back over to David Fisher for closing remarks.

Okay. Thank you very much for all your questions. We appreciate your continued support and look forward to working hard on your behalf in the coming months and we'll speak again next quarter. Thank you very much.

This concludes today's conference call. Thank you for your participation you may now disconnect.

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