Stereotaxis, Inc. (AMEX:STXS) Q3 2023 Earnings Call Transcript

Stereotaxis, Inc. (AMEX:STXS) Q3 2023 Earnings Call Transcript November 9, 2023

Stereotaxis, Inc. misses on earnings expectations. Reported EPS is $-0.07 EPS, expectations were $-0.05.

Operator: Good morning. Thank you for joining us for Stereotaxis’ Third Quarter 2023 Earnings Conference Call. Certain statements during the conference call and question-and-answer period to follow may relate to future events, expectations and as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 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 in 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 Fischel, Chairman and CEO of Stereotaxis.

David Fischel: Thank you, operator, and good morning, everyone. We are continuing to make significant progress in our efforts to deliver commercial results, drive our comprehensive innovation strategy towards commercialization, and maintain financial discipline. On the commercial front, our revenue in the quarter continued to benefit from the adoption of Genesis by both Greenfield new accounts and existing upgrade customers. We recognized revenue on two Genesis robotic systems in the quarter. Our system backlog and a pipeline of engaged customers supports this pace of system revenue in the coming quarters and the potential for growth beyond it. The net effect of revenue recognition and system orders drew down current system backlog to $13 million.

We have seen several tenders and contracts advance nicely in recent weeks and expect to end the year with multiple additional orders. We’re seeing particular strengths in capital activity out of Europe, where we seem to be benefiting from our enhanced commercial leadership and team in newer fluoroscopy solution and greater market appreciation for the upcoming availability of our innovations, including MAGiC, mapping integrations, and vascular devices. In contrast, we have seen several projects in China delayed as a countrywide anti-corruption drive seems to have broadly frozen hospital capital purchasing activity. The contributions and growth in system revenue has allowed us to demonstrate year-over-year revenue growth despite the loss of royalty revenue, which we stopped receiving at the start of this year.

The loss of royalty revenue has remained the primary drag on our recurring revenue that we continue to see residual pressure on procedures from the catheter shortage J&J had in the first half of this year, and their competitive behavior. This pressure from our technological and commercial dependency reinforces the importance of bringing our innovation strategy to market. We are actively driving our broad-based comprehensive innovation strategy forward. As a reminder, our innovation strategy includes a proprietary ablation catheter called MAGiC, a smaller self-shielding robot that frees us from the extensive planning and construction requirements. A family of interventional guide wires and guide catheters that expand the benefits of our robots into new endovascular indications, a digital surgery, hardware, and software offering, enabling broad operating room connectivity and a full electrophysiology product ecosystem for China being built in collaboration with MicroPort.

A European clinical study of MAGiC is awaiting approval to enroll patients in the near term. We submitted all the required clinical trial documentation to the national health authorities and hospitals at three separate sites in Europe. We are supposed to receive responses from each of these three national authorities between mid-November and mid-December, at which point patient enrollment should follow shortly thereafter. While we only need data from 20 patients at one site to resubmit MAGiC for CE Mark regulatory approval, we are advancing these three sites in parallel to reduce the risk of delays at any one site and to allow for more comprehensive clinical experience and data collection that will support the commercial launch of MAGiC. Shifting to the US.

On our last call, we mentioned exploring alternative regulatory paths for MAGiC with the FDA with an intent to accelerate access for US physicians and patients. We determined that it would be reasonable to submit a PMA supplement submission in the US for MAGiC using our existing data. We plan to make this submission prior to year-end, and FDA then has 180 days to respond. While there are no guarantees with any regulatory submission, given the discussions we have had, we believe there’s merit to this approach, which could significantly accelerate availability of MAGiC to the physicians and patients that would benefit from it. MAGiC offers significant clinical, commercial, financial, and strategic benefits to Stereotaxis. Its adoption will benefit from our expanding integration with Abbot and site mapping system.

After announcing our collaboration at the Heart Rhythm Society Conference and celebrating the first joint procedures in Europe this summer, we were pleased to announce the first joint procedures last month in the U.S. at multiple highly prestigious hospitals. The availability of EnSite integration in both Europe and the U.S. provides our physicians with increased choice and an improved workflow and procedure experience. We anticipate a continued shift in diversification towards Abbott and Safe system with a significant boost in joint adoption concurrent with the MAGiC launch. Our second key innovation effort is the development of a smaller self-shielding robot that significantly enhances the accessibility of robotics. We discussed on the last call our balanced approach to the timing of a regulatory submission, such that approval of our — of the robot aligns approximately with market availability of either MAGiC or magnetic guide wires.

We currently plan to make the submission in the first quarter at around the same time as when we will submit the MAGiC CE mark application. This should lead to the robot having regulatory clearance prior to a compatible interventional catheter or wire being available, and we are using this time prior to submission to continuously refine the system and to require regulatory testing. Our experience selling Genesis gives us daily visibility into the timeline shifts and hospital construction delays that slow adoption even at sites that are most motivated to build a robotic program. This experience reinforces our confidence that the availability of a much more accessible robot, something that can be installed without construction will serve as a significant structural improvement to the pace and scale of adoption.

Our third key innovation effort is expanding the clinical use of our robotic platform beyond electrophysiology to a range of challenging endovascular procedures, including the treatment of stroke, heart disease, peripheral vascular disease, and cancer. We have been working hard to develop the right interventional devices, magnetic guide wires, and guide catheters that would allow for that broad indication expansion. That development process has not been easy as our contract manufacturer faced various challenges in transitioning from building good prototypes to being able to actually build devices with a quality, consistency and scale that would be necessary for regulatory approval and commercialization. We seem to have overcome the last challenge in that manufacturing process and expect to spend the next few months building the over 1000 guide wires needed for formal regulatory testing.

We now expect a 510k submission during the second quarter of 2024. The combination of a highly accessible robot with a family of proprietary interventional devices for cardiac ablation and a broader range of procedures serves as a foundational product ecosystem to pioneer robotics across endovascular surgery. Bringing it all together is a significant effort. We are making broad methodical progress across the late stages of this comprehensive innovation strategy. We see the light at the end of the tunnel and are excited by the impact this innovation strategy will have. Kim will now provide commentary on our financial results, and then I’ll make a few financial comments as well before opening the call to Q&A. Kim?

Kimberly Peery: Thank you, David, and good morning, everyone. Revenue for the third quarter of 2023 totaled $7.8 million, up 2% from $7.7 million in the prior year third quarter. Growth in Genesis robotic system revenue offset discontinued royalties from Johnson and Johnson. System revenue of $3.5 million reflects revenue recognition on the delivery of two Genesis systems. Recurring revenue for the quarter of $4.3 million was predominantly impacted by the absence of the J&J royalty and residual pressure on procedures. Gross margin for the third quarter of 2023 was 52% of revenue with recurring revenue gross margin of 80%, and system gross margin of 18%. Recurring revenue gross margin remains consistent with recent quarters and system gross margins continue to reflect significant allocation of overhead expenses over low manufacturing volume.

Operating expenses in the quarter of $9.7 million include $2.6 million in non-cash stock compensation expense. Excluding stock compensation expense, adjusted operating expenses were $7.1 million compared to the prior year’s adjusted operating expenses of $6.9 million. Operating loss and net loss in the third quarter were $5.6 million and $5.4 million compared to $5.1 million and $4.9 million in the previous year. Adjusted operating loss and net loss for the third quarter, excluding non-cash stock compensation expense for $3 million and $2.8 million. Negative free cash flow for the third quarter was $1 million. The reduced use of cash flow benefited from continued attention to targeted expense reduction and the buildup in inventory from previous quarters.

At the end of the third quarter, we had cash and cash equivalents of $23 million and no debt. We expect to end the year with $22 million in cash and no debt. I will now hand the call back to David.

David Fischel: Thank you, Kim. We remain cognizant of the importance of maintaining financial strength, particularly in the current macro environment. We are pleased with our ability to deliver commercial results and advance our robust innovation strategy while maintaining financial discipline. We are confident in our ability to advance our innovation strategy to market, fund its commercialization and reach profitability without the need for additional financings. Before opening the call to questions, I want to take a moment on a personal note to recognize the tragic terrorist assault in Israel last month. We have several investors, partners, and stakeholders impacted by the tragedy and ongoing war. We share in their grief, wish them and their loved one’s safety in the coming weeks.

Pray for the quick return of the kidnapped hostages and pray for the safety and success of those battling of barbarism and evil that threatens our shared humanity. We’ll now take your questions. Operator, can you please open the line to Q & A?

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Q&A Session

Operator: [Operator Instructions]. Your first question comes from the line of Neil Chatterji with B Riley. Your line is open.

Neil Chatterji : Hi, good morning. Thanks for taking my question. Maybe just on Europe, you mentioned kind of the new leadership there. Just curious, what maybe they’re doing differently there to maybe drive increased activity or interest there?

David Fischel : Good morning. So yeah, it’s been very nice seeing the pace of activity in Europe. In the prepared remarks I mentioned that we have several tenders or processes that have been moving forward fairly in the fairly late stages now there. And I think it is a mix. There’s obviously product ecosystem aspects that are at play as the near-term approval of MAGiC and kind of anticipation of that among the physician base. Also, kind of we have a new X-Ray solution that’s available in Europe that’s helpful. But I think that, Frank, who we brought onto the team a year ago, he’s now got to fully in stride in the business there. And there is a type of just discipline and a process that is beneficial to things. And so, it has been beautiful watching him and the team broadly work there.

And we’re seeing it across the region from different countries all from the west to the east, south to the north. So, it’s really kind of been across Europe. There seems to be much more activity going on now than in historical years.

Neil Chatterji : Great. And then maybe just one follow up. I mean, just more broadly for the sales funnel, what are you may be seeing in terms of just the greenfield side versus replacement?

David Fischel: I think, that still we have the replacement side is a natural easier contributor given we have those relationships and kind of — and that just makes it kind of a much more natural easy process. On the Greenfield side, I think, we still have a lot of work to do as a company to build the top of funnel and to create visibility on our technology in the marketplace. We still remain largely unknown or known only based on our reputation from 10 plus years ago in the marketplace. And that’s something that we have to work to address. As still a small player in this field that’s something that will take time. And I think as we build up our commercial team with the launch of the new product that will help significantly, we still see Greenfield interest from multiple sites globally, obviously in China, the vast majority of the interest is Greenfield.

Given that we have a very small existing installed base there. I’d say that that actually is going very nice in terms of the pipeline being built up. We just see that even things that are late stage seem to be frozen on ice until there are changes in the macro situation there the political situation there. And in Europe, it is fairly mixed between greenfield and replacement cycle. I’d say the U.S. is probably still slightly more replacement cycle than Greenfield.

Operator: Your next question comes from the line of Adam Maeder with Piper Sandler. Your line is open.

Adam Maeder: Hi, guys, good morning. Thank you for taking my question. Wanted to start with one on the forward expectations and some of the language. I didn’t see you reiterate an expectation of double-digit revenue growth in 2023, but did see a comment of continued revenue growth in coming quarters. Can you square the two for us? And perhaps there’s no change and maybe I’m reading too much into it, but just wanted to ask for clarification there. Thanks.

David Fischel : Yes. Hi, Adam. Good morning. So, given where we stand, and I think that we are confident in growth in the coming quarters, and including the fourth quarter, obviously. We are not certain that we will reach annualized double-digit revenue growth based on our results in the fourth quarter. And so, I think that it would be better to model year over year revenue growth in each of the coming quarters rather than the fourth quarter being a blowout quarter. Obviously, it can be impacted by one revenue recognition more or less, and so I just think it’s better to focus on revenue growth in the fourth quarter rather than year over year double-digit revenue growth for the entire year.